Vegetarians aside, who doesn’t like cheap burgers?
Americans celebrating Memorial Day this weekend—the unofficial kick-off to summer and the grilling season—have one more windfall coming their way: the cheapest retail prices for ground beef in two years.
Bumper grains crops have reduced costs to feed animals, and cattle ranchers have been expanding their herds. That’s good news for consumers who will see average beef prices drop as much as 2 percent this year as annual production increases for the first time since 2010, the U.S. Department of Agriculture predicts. Hedge funds are betting that the lure of lower-cost meat will help stimulate demand and help cattle futures to rebound.
“We’re absolutely at what could be the peak usage season of the year,” said Don Close, Rabobank International’s St. Louis-based vice president of food and agribusiness research for animal protein. “This year has been somewhat frustrating just with so much rainy, cold weather, particularly through that East Coast corridor. Expectations are there’s a lot of pent-up demand there, once that summer weather actually comes to bear.”
After the Fourth of July, Memorial Day is tied with Labor Day for the most popular occasion for barbecuing, according to the Hearth, Patio & Barbecue Association. More than 60 percent of grill owners will fire it up this weekend, the group estimates. Adding to the excuses to celebrate, it’s more than burgers that have gotten cheaper. An index of seven party staples that includes ice cream and potato chips is at the lowest level since August, according to retail prices compiled by Bloomberg. The measure is down 1.4 percent from this time last year.
It’s not just grilling enthusiasts who are benefiting from cheap beef. Taco Bell last month brought back its Beefy Crunch Burrito and the Cheesy Double Beef Burrito, both being sold at most locations for $1. “Favorable” costs for the meat will last through the rest of 2016, allowing Taco Bell to offer “aggressive” specials, Greg Creed, CEO of its parent company, Yum! Brands Inc., said in an April 21 earnings call.
The gains for beef output mark a reversal of the past several years. Drought-parched pastures sent feed prices soaring in 2012, forcing producers to cull the national cattle herd to the smallest since the 1950s. Retail ground-beef was at an all-time high as recently as February 2015. The herd numbers have since rebounded, reaching a five-year-high at the start of this year. Ample rains this spring have left national pasture conditions at the best for this point in the season in six years, USDA data show. Also, making it easier to add to production, corn and soybean prices have declined in the past three years, lowering feed costs.
Cattle futures traded in Chicago reached an almost four-year low in April. Prices have since bounced back 3.1 percent, to $1.1745 a pound, as of Friday, and money managers are betting the recovery can continue.
In addition to the gains for demand expected as grilling season gets under way, declining weights for animals headed to slaughter have boosted cattle futures. Still, consumers don’t need to fret. Because retail prices lag wholesale costs, more declines for beef prices are expected, Rabobank’s Close said.
There are also signs that there’s more meat coming to add to supplies. The number of cattle placed into feedlots in April rose 7.5 percent from a year earlier, topping analyst estimates, USDA data showed Friday. That means rising beef production in four to six months, after the animals get fattened up on a diet of mostly corn.
“Record prices are behind us, and we’re coming back down to kind of the way things used to be,” said John Nalivka, the Vale, Oregon-based president of Sterling Marketing Inc. “Retailers are going to take advantage of increased meat supplies.”