The Law of Supply is that sellers are more anxious to sell at higher prices and will bring more supply to the marketplace.  The Law of Demand is that buyers are less anxious to buy at higher prices and will buy less of the product.  If too much supply comes into the market at high prices, the price will  collapse.  If there is too much demand, the price will rise, as buyers outbid each other.  Eventually, a point of equilibrium will be reached where buyers will demand all products supplied at that price.  This can often last for years.

Beef consumption in the US has gone from 90 pounds per year in 1970 to only 54 pounds in 2013.  This means per-person demand growth has dropped significantly.  It is expected to decrease another 2.3% this year, further reducing demand.  This suggests that the price of beef should fall.  Instead, it has increased considerably over the last two years, better than 6% yearly (compared to 2% for chicken).

During that time, the supply growth of beef has fallen faster than the demand growth for beef has fallen.  The droughts of 2012 and 2013 reduced the size of cattle herd more than expected.  Compounding this supply shortage, the kill-level has been reduced to allow the size of the herd to grow again.  The currently cheap price for corn makes it less expensive to keep cattle alive.

The point of equilibrium will be reached when the herd size and the kill-level are restored and the market price is affordable by enough buyers to buy all the beef being brought to the market.

What does this mean?  Beef prices are going up for awhile, probably two years, assuming the price of corn doesn’t spike.

Of course, this is good news for producers of chicken and pork, which are now the “proteins of choice.”  But, that’s an entirely different story of supply & demand . . .