Due to drought and high feed costs, America's beef cow herd has shrunk to its smallest size since 1962. This has forced livestock producers to cut their herd sizes rather than keeping animals for breeding. As a result, meat processors like Tyson Foods, JBS, and Cargill are negotiating cattle prices with producers who fatten cattle.
Meat processors are also assessing the future of consumer demand, cattle supplies, and margins to determine how many animals to slaughter in the coming months. Cargill, for instance, expects cattle prices to rise further and beef prices to follow suit. However, the unknown factor is consumer demand and how much consumers are willing to pay. Tom Windish of Cargill notes this uncertainty.
As cattle prices rise, livestock producers have gained leverage over meatpackers, who have seen the amount of money they make buying cattle and converting them to meat drop under $40 per head in April. This is a significant drop from the over $700 per head they made in May 2020.
The shrinking beef cow herd due to drought and high feed costs is causing a shift in the market, with livestock producers gaining leverage over meatpackers. As meat processors assess future consumer demand, it remains to be seen how much cattle will be slaughtered in the coming months and how high beef prices will rise.