Cheap cattle, expensive beef

In the spring of 2020, COVID-19 tore through the plants where cattle become beef. Workers fell sick, lines slowed, and some plants shut outright. By early May, weekly cattle slaughter had fallen to about 65% of its 2019 level, according to the USDA.

A packing plant sits in the middle of the supply chain, so when it seizes up, the two sides of it get opposite shocks. Ranchers had cattle ready for market and fewer places to sell them. Shoppers, now cooking at home instead of eating in restaurants, wanted more beef from grocery stores than the plants could produce.

The chart shows the split. Wholesale beef surged first: its index peaked at 182 in May 2020 (February = 100), up 79% from a year earlier. Cattle prices moved the other way and bottomed in July, about 15% below their February level.

The USDA's figures tell the same story in dollars. The spread between what packers paid for cattle and what boxed beef sold for went from $10–15 per hundredweight at the start of 2020 to $282 in early May. That spread is the packers' margin before their own costs, and for a few weeks it was enormous.

Shoppers saw a smaller, later version of the spike. Retail ground beef peaked in June 2020 at $4.74 a pound, 23% above its February level. Once plants reopened, wholesale beef fell back below its pre-pandemic level by August.

Economists call this a processing bottleneck. Cattle weren't scarce, and grocery demand was strong. The scarce resource was processing capacity, and its shortage squeezed ranchers and shoppers at the same time.