Beef prices have soared since 2020. Ground beef is up from just over $4 per pound to almost $7 per pound on average. At the high end, ribeye steaks have risen from as low as $9 to as much as $40 per pound at some retail outlets.
And one of the primary reasons beef is so crazy expensive is the same reason mortgage loans are so crazy expensive – which I will explain below.
Why Beef Is So Expensive
First, this is why beef is so expensive:
- Droughts in 2020 and 2021 forced cattle herd liquidations.
- Livestock farmers got old (average age is 65) – so they aren’t restocking herds (this is interesting because it is a pervasive problem across many industries, including appraising, welding, plumbing, and petroleum engineering).
- Cutting off Mexican cattle imports because of screwworm concerns.
- The high-protein diet fad increased demand.
- Corn and soybean subsidies (and forcing corn to go to ethanol) make feed much more expensive, and cattle ranching (that gets no subsidies) less appealing relative to crop farming.
- THE BIGGIE: FOUR COMPANIES CONTROL THE U.S. MEAT MARKET…AND THEIR LOCAL CONGRESSMEN. They allegedly collude to suppress the prices they pay ranchers (discouraging more supply) and lobby for regulations they can afford to comply with, but small players can’t.
This makes it difficult for smaller ranchers and meat packers to enter the market, compete, and thus push down prices.
This was all explained in this very interesting video: Why Do We Pay Farmers To Grow Food Nobody Eats? (The title references subsidized crops that get exported or fed to ethanol plants).
Big firms lobbying for more regulations to keep the little guys at bay is something we see across many industries.
This includes taxis, trucking, pharmaceuticals, telecoms, law, and banking.
After 2008, the big banks (like Chase) were chomping at the bit to get as many regulations as possible in place to ostensibly “protect consumers.”
But – they didn’t give a rat’s rear end about consumers. Their primary goal was to make it too difficult for small mortgage brokers and mortgage bankers to compete.
(If you’re curious about the difference between “mortgage brokers” and “mortgage bankers,” you might want to read this short blog: Mortgage Banks Vs. Commercial Banks – What’s The Difference?)
Anyway, it worked … for a while, as large commercial banks dominated mortgage lending for several years after the 2008 meltdown.
BUT – incredibly scrappy mortgage brokers and mortgage bankers not only figured out how to compete, but how to kick the snot out of the big, plodding commercial banks with far better service and efficiencies the banks can’t begin to match.
Mortgage banks and brokers now have close to 85% of the mortgage market – after being all but left for dead post-2008.
What makes this even more interesting is that commercial banks and credit unions are heavily subsidized by very low-cost borrowing from the Fed, very low-cost funds (deposits), cheap deposit insurance, and even a complete federal tax exemption for credit unions.
So – credit to mortgage banks and brokers for fighting their way back to the top – despite the regulatory headwinds and unfair competition.
The sad part, though, is that the onerous regulations remain – and it still costs a mortgage bank $11,000 on average to “manufacture (originate and close) a loan.”
During my broker days prior to 2008, it cost me less than $1,000 “to manufacture a loan,” and that is exactly why Chase’s Jamie Dimon lobbied for regulations.
He couldn’t begin to compete with small, honest, and highly efficient operators.
AI Too!
One more thing: regulatory capture is the same game the big AI players seem to be engaged in too.
Don’t fall for it.
Or your AI will be way more expensive too.
