Ground beef demand remains strong
In 2020, the ingredients for a home-prepared, quarter-pound cheeseburger totaled $1.84 per burger (Figure 1). This is based on US Department of Agriculture, Economic Research Service calculations using data from the US Bureau of Labor Statistics. Ground beef made up the largest cost at $1.03 and cheddar cheese accounted for $0.34. The lettuce, tomato and bun were $0.06, $0.23, and $0.18, respectively. In real terms, i.e., 2020 dollars, this same cheeseburger would have cost $1.76 to prepare in 2019. Higher ground beef prices accounted for all of the increase between 2019 and 2020. Ground beef prices rose 8%, translating into a $0.08 per burger hike.
The only time the cost of an at-home cheeseburger was higher was in 2015. Then a cheeseburger cost $1.86 with ground beef at $1.04 and the other ingredients similar to recent values. Last year’s 27.153 billion pounds of US commercial beef production was a sizable 15% increase compared to 2015. But insatiable retail demand held ground beef prices near 2015’s level.
Ground beef consumption was estimated at just over 27 pounds per capita in 2020. That’s more than 46% of total US retail beef consumption.
Ground beef comes from beef trimmings - portions of the carcass that are "trimmed away" when the carcass is broken down into meat cuts such as steaks, roasts and various other items. Ground beef typically comes from a combination of two different products - 50% lean trimmings from finished steers and heifers and 90% lean trimmings from cull cows and bulls. Processors typically blend custom mixes of 50s and 90s to achieve lean-to-fat ratios of 73-27, 80-20, 85-15, 90-10, 96-4, etc. Ground beef offerings have expanded in recent years. We now routinely see ground beef labeled as ground chuck, ground round, ground sirloin, and there is even ground brisket and ground prime rib.
With ground beef so popular, why not grind the entire carcass? The math does not work. Many muscle cuts command prices way above beef trimmings in both domestic and export markets. Trimmings account for about 16% of the carcass for finished steers and heifers. For cull cows and bulls it’s much higher. Processors are always looking for ways to optimize the value of the carcass and will grind muscle cuts when economically advantageous.
Current lean beef supplies are adequate
Lean beef is a result of regular culling of both beef and dairy breeding animals. Culling decisions in part reflect the productive life cycle of animals and are also affected by feed availability and profit outlook for cow-calf producers and dairy producers.
Cow and bull beef production through 2021’s first eight weeks was up 0.3% from a year earlier. This is actually pretty impressive as weather-related closures and shift cancellations hampered beef production at many processing plants, especially in the southern plains, as well as interrupted shipments of beef supplies and cattle. For the week ending February 20, 2021 dairy cow slaughter was down 9% compared to a year ago, while beef cow slaughter was down 26% and bull slaughter was down 49%.
Year-to-date, total cow slaughter has been down 0.9% from a year earlier, yet average cow carcass dressed weights were 1.8% heavier. Minimal year-over-year changes in cow slaughter suggests the current cattle inventory is fairly level. However, 2021 could be another volatile year. Feed costs are expected to erode margins, especially for dairy producers. Pricy feed may encourage stricter culling and bringing cattle to market at lighter weights.
Imports aid blending
Enormous US ground beef demand drives beef imports, which are mostly lean beef. Without lean imports to blend with trimmings to make ground beef some of those fed cattle trimmings would have, at best, value as tallow rather than as ground beef. USDA projects 2021 beef imports to be down 10.1% compared to 2020.
Over 86% of all 2020 US beef imports came from Canada, Australia, Mexico, New Zealand and Brazil. Australia is the most likely country to curtail beef exports. Australia’s herd is in a major herd rebuilding phase after being decimated by the severe impacts of a two-year drought in 2018 and 2019. Lower imports from Canada and Mexico would also likely be needed to hit the decline in total beef imports in 2021 forecasted by USDA.
Cold storage stocks also augment beef supply. Total Jan. 31, 2021 beef in cold storage was 6.3% higher than a year earlier. The Cold Storage report provides information on boneless and beef cuts. Both categories rose from 2020 levels at a rate of 5.7% and 14.6%, respectively. January levels of total beef and boneless beef in cold storage were the highest since 2017, while beef cuts were the highest since 2018. USDA does not tell us what kind of beef is in the freezer. Was it imported beef? Was it beef that was staged before going to export? Was it product that packers and processors found was slow to sell and thus accumulated in the freezer?
Ground beef drives cull cow market
Wholesale lean beef trimmings prices best show consumer demand-pull for lean beef. Fresh 90% lean prices started the year 25 cents per pound lower than January 2020 levels. By March, they were 9 cents higher than a year earlier. These prices are similar to the values at the start of 2014, even though lean beef supplies are over 10% larger. On the live animal side, recent national, live equivalent, cutter 90% lean, slaughter cow prices averaged $54.40 per cwt., up from $51.46 a year earlier (Figure 2).
Cull cow price forecasts are much more limited than feeder or fed cattle price forecasts. USDA’s Economic Research Service makes these forecasts. Cull cow values in 2021 are expected to be even to lower than prices realized in 2020. An annual average of $60.50 per cwt is forecasted for 2021, with a second quarter average of $62, third quarter average of $64, and fourth quarter average of $57.
These forecasts are pricing downside risk into cull cow values during the year ahead. Additional supply from larger slaughter rates and heavier carcasses and/or a weaker demand profile for ground beef would not be a good sign for cull cow values.
Lee Schulz, extension livestock specialist, 515-294-3356, email@example.com