After the highs in 2019, Zimmerman says the beef industry has been in a relative downtrend ever since and things aren’t looking up anytime soon.

“More specifically, if you look at our forecast both for Jan 1, 2025, and 2026, we're not seeing a substantial increase,” Zimmerman says. “A lot of this is due to a wide variety of factors that are certainly influencing the consumer today, but I think it's important to understand that it's beyond just cow herd contraction for cow herd contraction's sake.”

There have been several different factors hitting the U.S. cow herd over the last five or six years.

“The U.S. cow calf producer is facing unprecedented risks that have caused them to liquidate 3.5 million head since those cow herd highs back in 2019. We obviously want to talk about drought … but there's been a lot of other factors at play as well," Zimmerman says. "There's been market price risk and volatility. There's been regulatory pressure, there's been geopolitical risks that affect trade, that affect the dynamics of production, that affect cost of production for various inputs. There've been demand volatility factors at play.”

Just as the pandemic shifted demand from restaurants to retail, the industry is seeing that cycle again as restaurants are facing unprecedentedly high labor costs. “We even have restaurants sitting here and making decisions each and every day in terms of what their center of the plate costs are and are they going to use a cheaper alternative like chicken or are they going to use a less affordable option and use beef?” says Zimmerman.

Finally, there are production risks in terms of cost and methods of production, and a variety of other factors.

“What we're seeing is that that long run cyclical pattern, where now those higher retail prices are funneling their way down a higher share of those dollars or funneling their way down all the way to U.S. cow calf producers to incentivize them to go through the next herd rebuild," Zimmerman says.

“But again, the first step is to get those retail prices high enough that we can funnel more of those dollars back down to the ranch level, the pasture gate level, to incentivize those cow/calf producers to stop liquidating cows, retain more heifers and rebuild those cow numbers so that we can ultimately rebuild supply and production going forward.”

Why are supplies higher when the U.S. cow herd liquidated 3.5 million head over the last five to six years? Zimmerman says it comes down to two big things in 2024.

“One, even though we're seeing slaughter decline, we're seeing massive increases in carcass weight this year. Steer carcass weights in particular over the last several weeks have been up over 30 pounds above a year ago. As feed prices have come down, we've fed cattle longer, we've raised them to a later day of age, and we've been able to increase production per head,” he says.

“Also, we've seen two things happen from a trade standpoint as beef prices in the U.S. have gone up in anticipation of tighter supplies and realized tighter supplies. Obviously a year ago, we've exported less. The U.S. consumer is one of the wealthiest beef consumers on the globe, many would say the wealthiest beef consumer on the globe. And when that happens, they want to keep more of their U.S. domestic production right here in the U.S. And they've done that. We've actually seen a decline in exports in double digit percentages over the last 12 months.”

However, the U.S. has also seen double digit percentage growth in imports from key partners in Canada, Mexico, New Zealand and Australia, as well as a slight increase from Brazil.

“As we've done that, we've been able to keep per capita supplies actually slightly elevated this year to the point, where we look at particular in April and May going into peak demand period for beef, we've seen a 3 to 4% increase in per capita supplies in that window of time," Zimmerman says. "Now, even with that increase in supply though, you'll notice prices have maintained a stronger tilt because that blue line has been significantly stronger. If there's been a better encapsulation of two big misses from analysts in this beef market to start 2024, it's the fact that 1.) supplies would be more steady to stronger through the first five to six months of this year and 2) that demand would be as strong as it is.”

While prices have increased, the consumer keeps coming back to the meat case and to the restaurant, and they've made some transitional changes in terms of their buying patterns, Zimmerman notes. “Retail demand's holding up better than food service demand because the consumer's making that conscious decision to prepare that product at home to take that labor burden on themselves. And they're still finding an exceptional value for beef.”

Zimmerman says Americans are consuming the highest quality beef they have ever had in their lifetime “In fact, when you look at the last several years, we're basically producing 60% more prime and choice product than we did just 15, 20 years ago. And that's benefiting the beef demand side of this," Zimmerman says. "Also, we're seeing consumers trade within the category. So total beef demand is staying strong, even if it means a little bit softer demand for maybe some of those ultra premium cuts of beef, those higher end steaks. And they're instead substituting in with more ground beef and and lower quality steak cuts that they can put on the grill or serve on the smoker for their friends and family during this grilling holiday season.

About 55 to 60% of beef consumption in the U.S. comes from the ground beef category. Prices are going up, demand is going up, but have we reached a point of economic stress in the beef market relative to our consumer base? Zimmerman says yes.

“The consumer's having to work more minutes to pay for a pound of choice beef or even ground beef, but we have yet to even approach the highs that we saw in ‘14 and ‘15 because again, as we think about this category and compare it against wages and we compare it against income growth, income has gone up as well and income growth has actually outpaced beef price growth,” Zimmerman says.

Zimmerman estimates the industry still has a $1 to a $1.50 per pound of price growth, both within the ground beef category and within the greater choice beef category as a whole, over the next couple years. Whether it comes from increased demand or a reflection of tighter supplies to come, there is still some opportunity where beef is not going to be as much of a “stressor on the consumer in the short run and has more runway to go for a lot of those prices to again, lean farther into that idea of incentivizing U.S. farmers and ranchers to build that cow herd back up to get more production in the system and to deliver more value and more protein ultimately to the U.S. consumer.”

Zimmerman says it’s important to keep in mind that more U.S. consumer dollars are finding their way back to farmers and ranchers compared to maybe prior price increases we would've seen during the pandemic. “Retail prices are certainly stronger due mainly to stronger demand. But going forward, the expectation is demand will probably tread more sideways, maybe even just a little bit weaker,” he says. “But the tighter supplies that are to come are going to support more additional price increases, not just through the end of this year, but likely future barbecue seasons to come over the next several years.”

Finally Zimmerman points out beef still remains a relative value. “U.S. beef producers and processors have done an exceptional job of making sure that their product, while relatively expensive in the grand scheme of this basket of goods for grilling season, it's worth it.”

Zimmerman says it’s important to keep in mind that more U.S. consumer dollars are finding their way back to farmers and ranchers compared to maybe prior price increases we would've seen during the pandemic. “Retail prices are certainly stronger due mainly to stronger demand. But going forward, the expectation is demand will probably tread more sideways, maybe even just a little bit weaker,” he says. “But the tighter supplies that are to come are going to support more additional price increases, not just through the end of this year, but likely future barbecue seasons to come over the next several years.”

Finally Zimmerman points out beef still remains a relative value. “U.S. beef producers and processors have done an exceptional job of making sure that their product, while relatively expensive in the grand scheme of this basket of goods for grilling season, it's worth it.”