Peter Navarro, one of President Trump’s trade and economics advisors, insists on blaming meat packers for persistently high prices and manipulating the beef supply:
Meat packers have long been convenient villains, accused of exploiting supply shortages and rigging prices. Yet no one asks why beef supplies and prices differ from pork and chicken prices, considering that all are processed by many of the same villains.
What is Peter Navarro missing or purposely ignoring?
Look, punishing beef processors for alleged price fixing and anti-competitive conduct may be warranted. This is especially true if the alleged cartel is unlawfully imposing price caps on producers, which would indeed discourage ranchers from increasing their herds, while forcing many to retire or declare bankruptcy.
However, the overall mathematics of beef prices is governed by beef cattle herd-size management bio-math, not by some nefarious boardroom titans.
Here’s a quick tutorial on animal protein economics, which is dominated by mathematical constants—animal biology, gestation periods, offspring per gestation, and costs in raising to slaughter-maturity, and capital investment over maturity durations.
Today’s biological supply of beef cattle is depleted, and sits at levels not seen since the 1950s. Reasons are varied, but they’re primarily due to COVID-related supply and labor constraints during the Biden years.
Now, just staying even is a struggle for most beef cattlemen/ranchers. The time from pregnancy to market weight for slaughter is a minimum of 2 years for feedlot animals and up to 3 years for grass-fed animals. Because a cow has one calf per year, of which only half are females, for a given herd size “N” to stay even, a rancher can only afford to slaughter .5 of his breeding animals per year or 1.0 every two years.
If the rancher wants to increase his herd size, he must reduce the slaughter rate to less than 50%, allowing extra females to reach fertility age plus produce, say, seven to ten years of calves, at that slow rate of one per year. This means he must invest in idle capital for an extended period with no assurance of profitable slaughter prices at full maturity. If the rancher slaughters a fertile female earlier, he’ll need to replace her with another fertile post-heifer stage female.
If the rancher sells off more than 50% of his herd, he will automatically further deplete it. To reach parity again, let alone increase beyond the starting equilibrium, he’ll be strapped with more idle capital, with reduced cash inflow. It is a straightforward mathematical equation.
Expansion is painfully slow, even as cash-flow pressures—bank credit terms, loan repayment maturities, and livestock losses due to disease and drought—immediately thwart growth. Consistent profitability is elusive.
Now compare beef cattle math factoids with pigs (and chickens):
The gestation period for sows is less than one-half of that for a beef cow. Pig litters are 10 to 1 versus cattle, and a sow can have two litters per year. Absent disease or feed supply issues, hog production is robust up or down. Investments in equipment, grazing land, and livestock, plus variable costs to raise and feed hogs, are fractions of the investment capital and working capital costs for beef. Three hogs in 6-8 months produce the same pounds of retail meat as one beef animal over 2-3 years.
This is why, under global protein economics, worldwide pork production is nearly twice as much as beef, and chicken even more than pork.
Now, let’s take a short excursion into beef protein math—herd growth factors—that are expressed in first-order linear distance time series equations.
The factors for beef production include 1) the starting point herd size including fertile breeding females, 2) the biological reproduction rate (gestation, time to maturity, calving proportions of males/females), 3) slaughter rates, 4) market prices for slaughtering, 5) herd culling through disease, drought, cattlemen/rancher exits, 6) costs to raise and feed females to breeding maturity, and 7) accumulating idle capital costs and opportunity costs resulting from a reduced slaughter rate for females so that the herd size of females can increase.
Here are the issues facing the beef industry today, as expressed in today’s herd math:
There are approximately 87 million beef cattle, of which 28 million are fertile females, 33 million are calves, and the remainder are steers (bulls are negligible). The number of fertile females is down from 32-33 million in 2019, before the COVID pandemic. The slaughter rate is around 32 million. Ergo, the herd is still shrinking.
For the overall herd to return to 2019 and prior levels, cattlemen/ranchers must invest in breeding and retaining 3-4 million additional females for at least 5 years to allow multiple calving cycles. That can only happen if slaughtering rates decline over the next 3-4 years, which will inevitably raise prices further.
Retail beef prices are up 30-40% since 2019. To unwind 40% higher prices, we need a capital infusion into the cattle/ranch producers on the order of $16 billion—4 million retained female heifers at roughly $4,000 each, including all cost outlays for feed, operating equipment, grazing land, veterinary services, labor, and borrowing costs, as well as lost revenue.
This is not about greed. It is all about the beef protein economics/biology supply curve. Today, that curve is in a downward destructive pattern and won’t change because a) selling cows at high prices is rational, and b) retaining cows is a long-dated high-risk proposition.
And so, beef is the de facto luxury protein price leader. Lower beef prices in the future will require enduring years of higher prices, reduced slaughter rates, and reduced retail supply, accompanied by billions invested in idle restorative biological financial capital.
Instead of hurling accusations at beef producers, Navarro and Ag Secretary Brooke Rollins (a lawyer more than an Ag economist) ought to propose meaningful multi-year capital investment incentives encouraging ranchers to invest in long-cycle capital commitments in livestock expansion. Even so, increasing the US herd by 1/3 will still require 6-8 years.
For example, the USDA could create a beef cattle biological investment reserve (heifer retention reserve), similar to the Strategic Petroleum Reserve, where contracts with cattlemen would include government support for all operating costs for five years, with guaranteed downside price supports upon contract maturity, and drought/feed supply contingencies, along with some sort of opportunity cost mitigation. The cattleman/rancher would agree to the five-year retention, pledging to house and care for each animal during the contract period under Grade A USDA animal husbandry standards, and neither slaughter nor export their cattle.
Beef herd bio-math is easy enough to master. But the real-life economics of beef herd management are brutal. Left to free market forces with no outside incentive to invest in herd expansion, beef will remain a luxury good, as today’s depleted beef cattle herd becomes the constant equilibrium, at best, or suffers further erosion at worst.
Meanwhile, get used to pork tenderloin, chicken wings, and ham and cheese omelets.