As beef supplies dwindle, barbecue prices go up
The most recent domino effect of the ongoing coronavirus pandemic will soon hit barbecue fans in the pocketbook: higher beef prices because of meatprocessing plants being shut down. Large meat and especially beef processors across the country have closed as many as 38 plants in recent weeks as workers tested positive for COVID-19. As of May 5, 167 plants have had virus outbreaks, sickening 9,400 workers and causing at least 45 deaths.
Because of the complexity and integrated nature of America’s meat-supply chain, the effects of these closures will be felt from the very beginning of the chain — cattle ranchers — to the very end — consumers — and everything in between.
Spikes in beef prices are a relatively common occurrence, related to ebb and flow of supply and demand.
Most price hikes are caused by a spike in demand: The classic storyline is that Americans grill more in the summer, increasing demand, so that the price of beef starts climbing in the spring and levels off in midsummer.
In 2014, a drought in Texas limited the number of cattle that could be harvested for beef, yielding a lower supply and rising prices.
Still, the price swings are relatively minor: A summer demand increase might raise the wholesale, per-pound price of Prime-grade brisket from $3.50 to $4.20. In most cases, barbecue joints would just absorb that additional expense without raising prices.
But the price volatility brought about by the pandemic is a whole different animal (pun intended).
In just the past couple of weeks, that $3.50 wholesale price for raw brisket has approached $6-$7 per pound. From the customer point of view, that might mean an increase in retail prices at your local barbecue joint from $20 to $25 per pound of cooked brisket.
In this case the price increase is because of the closing of meat-processing plants rather than an increase in consumer demand or a lower supply caused by natural forces.
And this has created an unprecedented strain on beef supplies.
Very generally, the beef-supply chain works like this: Ranchers sell cattle to feed lots/meatpackers, who process the cattle into “boxed beef ” and then market that to distributors and retailers, who then sell the end product to restaurants and consumers.
In this case, because the disruption is with the beef-packing component of the supply chain, the effect has been especially impactful. The meat-processing industry is highly concentrated — some would say monopolized — such that most of the beef and other proteins in America are processed through giant facilities that leverage economies of scale to output huge volumes of meat at a low expense.
By shutting down just a few of these facilities, meat production has decreased by 35 percent from the same time last year.
This has two critical knock-on effects for the supply chain and the economy as a whole. From the supply side, meat-packers are buying fewer cattle from ranchers because of plants being closed, resulting in a drop in price for live cattle. Most cattle ranchers are family businesses, and this greatly lowers their income.
On the demand side, consumers are still clamoring for beef either at the local grocery store, burger joint or barbecue restaurant, especially now that businesses are starting to reopen. But the meat-packers are producing less beef, and thus demand outstrips supply and the price rises, in this case to unprecedented levels.
Until recently, consumers have been skeptical of the true nature of these price increases, mainly because grocery stores and big-box outlets such as Costco have been well stocked and normally priced. But this is a factor of how these outlets purchase meat — that is, many weeks in advance, often at a guaranteed price. Eventually, though, the price and supply will change. Costco just announced a limit on the amount of meat each customer can purchase.
Many barbecue joints have seen the writing on the wall and purchased large quantities of beef before the price hikes kicked in (ironically, leading to higher demand and contributing to the increase in prices).
That may keep per-pound brisket prices at your favorite barbecue joint relatively low for now, but when they have to make another purchase in the current market, barbecue joints will most likely have to pass that price increase on to customers.