WEBVTT - Why Beef Is Getting So Pricey

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>New data from the Bureau of Labor Statistics shows that

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<v Speaker 2>inflation in the US has continued to cool from its

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<v Speaker 2>pandemic era. Peak Inflation rows zero point two percent in

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<v Speaker 2>January from December, according to BLS data released on Friday.

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<v Speaker 2>That's lower than Wall Street expected. The report also showed

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<v Speaker 2>drops in energy costs, used vehicle prices, and the cost

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<v Speaker 2>of eggs, which are down thirty percent from a year ago.

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<v Speaker 2>But it's a different story in one corner of the economy.

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<v Speaker 3>To backstory has been the consumer prices have been coming

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<v Speaker 3>down for the last couple of years. David, that's great,

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<v Speaker 3>but there are pockets of the grocery store where prices

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<v Speaker 3>are stead raising like it's a pandemic. One of those

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<v Speaker 3>is beef.

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<v Speaker 2>Beef costs have risen faster than most other items in

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<v Speaker 2>the Consumer Price Index, with the broad beef and veal

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<v Speaker 2>category of fifteen percent over the past year as of January.

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<v Speaker 2>Bloomberg's end Occurrent says it's a price that runs counter

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<v Speaker 2>to the broader trend of cooling inflation, and that is

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<v Speaker 2>why it's worth paying attention to.

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<v Speaker 3>So we took a look to see at what's going

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<v Speaker 3>on there and the reason beef prices are going up

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<v Speaker 3>at the rate the r It's pretty complicated.

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<v Speaker 2>That's because the price of beef is driven by a

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<v Speaker 2>lot of overlapping factors. The US is the world's largest

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<v Speaker 2>consumer and one of the largest exporters of beef, but

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<v Speaker 2>it's facing an historically low cattle herd and soaring production

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<v Speaker 2>costs that are putting a squeeze on American ranchers.

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<v Speaker 4>My family landed in Oklahoma in the early nineteen hundreds

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<v Speaker 4>and we've been farming and ranching on the same land

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<v Speaker 4>ever since.

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<v Speaker 2>Casey Schirler is a fifth generation cattle rancher who runs

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<v Speaker 2>a ranch with her husband called Refarm.

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<v Speaker 4>I think a lot of people assume that when cattle

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<v Speaker 4>prices are high, it must be really good for ranchers

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<v Speaker 4>right now, but it's actually a really challenging and volatile time,

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<v Speaker 4>she says.

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<v Speaker 2>The inflationary environment in the cattle industry is putting pressure

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<v Speaker 2>on their business.

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<v Speaker 4>It's getting really, really hard to continue operating a profitable business.

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<v Speaker 4>We can't continually depend on government bailouts, for example, for

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<v Speaker 4>farmers and ranchers. We have to think like business people.

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<v Speaker 4>We have to make decisions that are better for our

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<v Speaker 4>bottom line, and we have to be willing to adapt.

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<v Speaker 2>That squeeze is being felt all along the beef supply

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<v Speaker 2>chain too, from ranchers and meat processors to consumers.

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<v Speaker 3>I think it's a reminder, David, that the inflation story

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<v Speaker 3>hasn't fully gone away. It just demonstrates that there are

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<v Speaker 3>parts of the economy where prices remain quite persistent, remain

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<v Speaker 3>quite high, and that's what's feeding the whole cost of

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<v Speaker 3>living story, that's feeding into the whole political cycle ahead

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<v Speaker 3>of them in terms. That's one of the reasons why

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<v Speaker 3>the Federal Reserve hasn't brought down interest rates maybe as

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<v Speaker 3>fast as some people would hope, certainly as fast as

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<v Speaker 3>President Trump would hope, because they continue to warn there

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<v Speaker 3>are pockets of inflation still in the economy. Beef prices

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<v Speaker 3>are not the be all and end all. Not everyone

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<v Speaker 3>wants to buy beef, of course, but it's just an

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<v Speaker 3>illustration of how fragile the overall supply lines do remain

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<v Speaker 3>in the me that there are still these pockets of

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<v Speaker 3>food that are increasing like just like it's a pandemic.

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<v Speaker 2>I'm David Gerret, and this is the big take from

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<v Speaker 2>Bloomberg News today on the show Beefflation, what rising beef

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<v Speaker 2>prices show us about the state of the US economy

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<v Speaker 2>and what it could take to bring them down. And

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<v Speaker 2>when you look at beef, the broad beef and veal category,

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<v Speaker 2>it's gone a fifteen percent over the last year as

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<v Speaker 2>of January. At a high level, what is going on

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<v Speaker 2>with beef prices.

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<v Speaker 3>There's a lot happening all at once. So on the

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<v Speaker 3>one hand, you've got the cattle herd in the US shrinking.

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<v Speaker 3>You have issues like drought. You have issues like the

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<v Speaker 3>cost of production for the ranchers, so they're juggling high

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<v Speaker 3>interest rates, high labor costs, high costs associated with their

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<v Speaker 3>equipment and the like. You've other factors too, structural factors

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<v Speaker 3>like retiring a ranchers retiring not being replenished. It's a

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<v Speaker 3>tough job. And of course now we have the latest

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<v Speaker 3>issue with disease in cattle herd coming in from Mexico.

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<v Speaker 3>That's a top concern for ranchers.

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<v Speaker 1>Dangerous flesh eating parasite, the New World screwworm has been

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<v Speaker 1>spotted just mouths from the Texas border in northern Mexico.

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<v Speaker 1>That's raising alarms for Texas livestock producers, pet owners.

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<v Speaker 3>So there's a whole series of issues there that I'm

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<v Speaker 3>complating into one sentence. But the net takeaway when you

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<v Speaker 3>speak to ranchers is that that's what's hammering production. They

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<v Speaker 3>can't get cattle to meet factory and then to the

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<v Speaker 3>store in time to meet consumer demand.

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<v Speaker 2>How dire is the situation for ranchers, for producers, and

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<v Speaker 2>for consumers.

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<v Speaker 3>So it's a difficult situation. It depends where you are

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<v Speaker 3>on the supply line, and there are some different views

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<v Speaker 3>on this. If you're at the very start of a

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<v Speaker 3>supply line, whereby you're in count calf territory and you're

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<v Speaker 3>producing those calves, calves are in hot demand right now.

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<v Speaker 3>You know, one of the ranchers we spoke to said,

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<v Speaker 3>for example, he gave example of a bottle calf that's

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<v Speaker 3>a calf rared by bottle. At once upon time wouldn't

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<v Speaker 3>be considered a premium buy, but you know, a few

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<v Speaker 3>years ag that might have fetched you a couple of

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<v Speaker 3>hundred dollars now can be anywhere up to fifteen hundred.

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<v Speaker 3>So if you're producing calves getting them out the door

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<v Speaker 3>hot demand, you should be making money. But the further

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<v Speaker 3>along this ply line you go, and if you want

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<v Speaker 3>to keep those cattle and fatten them up as you

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<v Speaker 3>would traditionally and then send them off to the market,

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<v Speaker 3>send them off to the meat factory. That's where it's

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<v Speaker 3>getting a lot harder. They're feeling a squeeze. And of

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<v Speaker 3>course the processors, the meat processors, they're under a lot

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<v Speaker 3>of scrutiny from the White House firm what the White

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<v Speaker 3>House says, they want to promote more competition in the sector,

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<v Speaker 3>They complain of their own high processing costs. So, as

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<v Speaker 3>I say, if you're at the very beginning, you're maybe

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<v Speaker 3>doing okay, but along the rest of that supply line,

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<v Speaker 3>you're facing all those issues I spoke about.

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<v Speaker 2>Like the issues threatening the supply of beef in the US.

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<v Speaker 2>The supply chain itself is complicated. Cattle rancher Casey Schuler

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<v Speaker 2>says the process of raising and prepping cattle is long

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<v Speaker 2>and expensive. Coming out of a downturn in the industry

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<v Speaker 2>is not something that can happen overnight.

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<v Speaker 4>A cow is pregnant for about two hundred and eighty

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<v Speaker 4>three days. When she has a half you raise that

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<v Speaker 4>calf to wean for another nine months and then if

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<v Speaker 4>that calf is a heifer, a female, and you decide

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<v Speaker 4>to keep her, she's not going to have her first

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<v Speaker 4>calf for about two more years. So you're talking about

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<v Speaker 4>a four year production cycle right before it adds any

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<v Speaker 4>sort of meaningful value to the beef supply. There's no

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<v Speaker 4>quick fixes to fixing this. Part of the reason this

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<v Speaker 4>is happening is because the number of cattle in the

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<v Speaker 4>US is at an all times seventy five year low,

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<v Speaker 4>and the cattle cycle naturally goes through these periods of

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<v Speaker 4>expansion and contraction. We're in a period of contraction and

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<v Speaker 4>can't we can't legislate our way into a bigger calf

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<v Speaker 4>crop next quarter or even next year because biology is slow,

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<v Speaker 4>and so we just we have to focus on things

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<v Speaker 4>outside of strictly policy, I think, to fix these things,

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<v Speaker 4>and we have to be really careful about what we

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<v Speaker 4>say and what we do, because it does cause some

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<v Speaker 4>fallout for farmers and ranchers. You know, we are a

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<v Speaker 4>country who loves beef, and if we want to keep

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<v Speaker 4>doing that sustainably, then ranchers have to have a way

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<v Speaker 4>to make a viable living.

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<v Speaker 3>Got problems around the cost of land, problems around the

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<v Speaker 3>cost of equipment, problems around the levels of interest rates,

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<v Speaker 3>issues with the drought, and so on and so forth.

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<v Speaker 3>And it's this classic example of a young rancher family

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<v Speaker 3>clearly getting squeeze at the very beginning and facing very

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<v Speaker 3>different circumstances of what ranchers in previous times would have faced.

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<v Speaker 2>Then you spoke to another rancher, Patrick Montgomery, who runs

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<v Speaker 2>KC Cattle Company outside of Kansas City, Missouri. He said

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<v Speaker 2>something astonishing that there were no cattle left in America

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<v Speaker 2>to set out for us.

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<v Speaker 3>He's illustrating the point that the herd is at the

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<v Speaker 3>smallest since in the nineteen fifties, and that's because production

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<v Speaker 3>cannot keep up with demand. David, Let's not forget demand.

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<v Speaker 3>The mon consumers is another part of the story. It's

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<v Speaker 3>not just a drought. It's not just the impact of disease.

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<v Speaker 3>It's not just the issues around costs. As wife ranchers

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<v Speaker 3>kind of produce to beef. Also that Americans want to

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<v Speaker 3>eat more beef. They're moving up to value chain in

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<v Speaker 3>their own diet, and that's why we're having this crunch.

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<v Speaker 3>And he wanted to replenish his herd. The genetic line

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<v Speaker 3>in his herd last year, so he sold a chunk

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<v Speaker 3>of his cattle and he wanted to come back to

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<v Speaker 3>market this year and to buy new cattle to replace those.

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<v Speaker 3>He does specialize in maygu beef. I should say, so

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<v Speaker 3>he's maybe a little bit up to value chain compared

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<v Speaker 3>to others, but when he came back to around thirty

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<v Speaker 3>percent more expensive to buy, so it was an economical

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<v Speaker 3>for him. He's yet to replenish the cattle he saw

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<v Speaker 3>last year, so he's pretty frustrated. He's among the ranchers

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<v Speaker 3>I spoke to who has a pretty downbeat view and

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<v Speaker 3>where things are going at the moment.

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<v Speaker 2>When you're not wandering around ranches or feed lots, your

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<v Speaker 2>day to day's job is that the Federal Reserve. You're

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<v Speaker 2>following what the FED chairman and other policymakers have to say.

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<v Speaker 2>How interested are they in this facet of the American economy,

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<v Speaker 2>In the fact that beef prices are going up.

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<v Speaker 3>I think it's fair to say that the price of

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<v Speaker 3>a hamburger is not going to change the trajectory for

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<v Speaker 3>US monetary policy. I don't think the FED policy makers

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<v Speaker 3>are sitting around talking about ground beef prices. But when

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<v Speaker 3>we do hear officials command and when they use the

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<v Speaker 3>official jargon and when they say listen, inflation remains persistent

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<v Speaker 3>in some areas. They're not fully comfortable with where it's at.

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<v Speaker 3>And they have this inflation target that they said, and

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<v Speaker 3>one of the reasons is not back to that target

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<v Speaker 3>of two percent is because of pockets like this, And

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<v Speaker 3>don't forget, of course, they're very aware of the staples

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<v Speaker 3>that people buy and the cost of those staples, and

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<v Speaker 3>putting food on the table is one of those. So

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<v Speaker 3>they're not setting monitor policy based on the price of beef.

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<v Speaker 3>But it certainly build into the picture that the inflation

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<v Speaker 3>story in the US has not yet totally gone away.

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<v Speaker 3>It's headed in the right direction, but it still remains

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<v Speaker 3>above target.

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<v Speaker 2>So with meaty pockets of inflation still showing up in

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<v Speaker 2>economic data, what is the White House doing to turn

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<v Speaker 2>things around? And will it be enough to shift the

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<v Speaker 2>picture before midterms? That's after the break, and we've got

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<v Speaker 2>the mid terms coming up, and that the key issue,

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<v Speaker 2>of course is cost of living or affordability. How is

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<v Speaker 2>the higher cost of beef shaping that that conversation among

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<v Speaker 2>voters and between voters and politicians.

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<v Speaker 3>It clearly has bubbled up to the White House, David,

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<v Speaker 3>because the White House has made several pronouncements on beef prices.

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<v Speaker 3>President Trump has spoken about the need to import more

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<v Speaker 3>beef from Argentine for example. He has brought down tariffs

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<v Speaker 3>and imported beef, and we know that they're taking actions

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<v Speaker 3>to boost competition among meat processors, and he trust a

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<v Speaker 3>DOJ investigation. Have all been floated and spoken about by

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<v Speaker 3>the White House. So you know, when you consider that

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<v Speaker 3>they're the experts, they're the politicians, they know what people

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<v Speaker 3>on the ground are thinking. So it's obviously bubbling up

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<v Speaker 3>enough to the level that the White House is having

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<v Speaker 3>to put levers on it now. They do cite example

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<v Speaker 3>of eggs. Egg prices were soaring when they came into office,

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<v Speaker 3>and they brought those prices down through a mix of

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<v Speaker 3>insuring supply, for example. So they're talking about doing the

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<v Speaker 3>same with beefoot Beef obviously is a much different kettle. Offici,

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<v Speaker 3>it's going to take a lot longer to get more

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<v Speaker 3>beef supply in the mix than it takes to get

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<v Speaker 3>more chickens on the supermarket calendar. And in fact, according

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<v Speaker 3>to some experts, they say that even if the US

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<v Speaker 3>heard was to increase this year. It will take several

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<v Speaker 3>years before you start to see that flow through the

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<v Speaker 3>whole food production line to the point where it starts

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<v Speaker 3>to offer relief. So near term, White has pulling levers,

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<v Speaker 3>boosting imports, cutting tarffs, and it's clearly a hot political

0:11:28.440 --> 0:11:29.040
<v Speaker 3>issue for them.

0:11:29.360 --> 0:11:32.160
<v Speaker 2>Trump signed a directive earlier this month to boost the

0:11:32.200 --> 0:11:35.160
<v Speaker 2>amount of beef imported from Argentina to the US under

0:11:35.200 --> 0:11:38.720
<v Speaker 2>a new trade agreement. White has Press Secretary Caroline Levitt

0:11:38.720 --> 0:11:40.640
<v Speaker 2>talked about that at a briefing last week.

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<v Speaker 5>Beef prices are coming down slightly, and the President wants

0:11:44.960 --> 0:11:49.960
<v Speaker 5>to see that continue. He believes that a minor import

0:11:50.360 --> 0:11:53.959
<v Speaker 5>to the country with cattle might be a short term

0:11:54.000 --> 0:11:57.360
<v Speaker 5>solution with respect to bringing down prices. But of course,

0:11:57.400 --> 0:12:00.000
<v Speaker 5>protecting our American cattle and rancher industry is a price

0:12:00.040 --> 0:12:00.920
<v Speaker 5>already for the president.

0:12:01.160 --> 0:12:03.959
<v Speaker 2>And is that an easy solution here? What do ranchers

0:12:03.960 --> 0:12:04.559
<v Speaker 2>say about that?

0:12:04.840 --> 0:12:07.360
<v Speaker 3>Well, one would assume, I mean for the consumer on

0:12:07.400 --> 0:12:10.120
<v Speaker 3>the ground. If beef is coming into the country and

0:12:10.160 --> 0:12:13.280
<v Speaker 3>it's hitting the super market shelves and it's you know,

0:12:13.320 --> 0:12:15.760
<v Speaker 3>at a competitive price, you can imagine how the consumer

0:12:15.800 --> 0:12:18.120
<v Speaker 3>will see that's an option for them, but certainly within

0:12:18.160 --> 0:12:21.200
<v Speaker 3>the system ranchers will care. They're not especially sure their

0:12:21.240 --> 0:12:24.400
<v Speaker 3>solutions that are issues is import a beef Margentina. You know,

0:12:24.440 --> 0:12:27.440
<v Speaker 3>they want support and bringing costs down. They complain about

0:12:27.480 --> 0:12:29.280
<v Speaker 3>high interest rates, They complain about the drought and that

0:12:29.400 --> 0:12:32.079
<v Speaker 3>kind of thing. So you've got political sensitivites around that.

0:12:33.920 --> 0:12:37.280
<v Speaker 2>Then there's the meat processors. Trump ordered a federal probe

0:12:37.280 --> 0:12:40.120
<v Speaker 2>of the meat packing industry, blaming the companies for soaring

0:12:40.200 --> 0:12:43.920
<v Speaker 2>beef prices. The Meat Institute, a lobbying group representing more

0:12:43.960 --> 0:12:46.680
<v Speaker 2>than three hundred and fifty meat packing and processing companies,

0:12:47.040 --> 0:12:50.000
<v Speaker 2>pushed back on the probe in November, saying the companies

0:12:50.360 --> 0:12:55.000
<v Speaker 2>welcome a fact based discussion about beef affordability. Meanwhile, those

0:12:55.040 --> 0:12:58.240
<v Speaker 2>meat packers are also feeling the strain. The beef side

0:12:58.280 --> 0:13:01.880
<v Speaker 2>of Tyson Foods posted cans executive quarterly losses since twenty

0:13:01.920 --> 0:13:05.640
<v Speaker 2>twenty four, and Tyson, along with Cargill and JBS, have

0:13:05.800 --> 0:13:10.000
<v Speaker 2>closed beef plants or announced plans to close them. As

0:13:10.040 --> 0:13:13.000
<v Speaker 2>you talk to ranchers ende, what did they say would

0:13:13.000 --> 0:13:15.720
<v Speaker 2>help policy wise, could make a difference in their lives

0:13:15.720 --> 0:13:17.520
<v Speaker 2>and getting those beef prices down well.

0:13:17.559 --> 0:13:20.320
<v Speaker 3>So one message from the ranchers is that this will

0:13:20.360 --> 0:13:22.920
<v Speaker 3>take time. When you consider that drought as part of

0:13:22.960 --> 0:13:27.520
<v Speaker 3>this story, cost of labor, cost of equipment, cost of

0:13:27.559 --> 0:13:31.640
<v Speaker 3>renting land for example, the level of interest rates. Now,

0:13:31.679 --> 0:13:34.640
<v Speaker 3>of course you have the story of the threat of disease,

0:13:35.200 --> 0:13:38.319
<v Speaker 3>you have structurally higher demand among consumers. I mean, you're

0:13:38.360 --> 0:13:40.640
<v Speaker 3>lining up a lot of issues there that you're not

0:13:40.760 --> 0:13:44.280
<v Speaker 3>just going to solve with a press release overnight. It's

0:13:44.360 --> 0:13:46.440
<v Speaker 3>going to be a long road back before you know,

0:13:46.440 --> 0:13:49.240
<v Speaker 3>it can get to a point where this crunch is

0:13:49.360 --> 0:13:53.160
<v Speaker 3>evened out and there's beef supplying to the supermarket stores

0:13:53.200 --> 0:13:55.200
<v Speaker 3>in the way that can sate consumer demand.

0:13:56.679 --> 0:13:58.800
<v Speaker 4>You know, a lot of ranchers out there are essentially

0:13:58.840 --> 0:14:01.960
<v Speaker 4>paying for the privilege of working eighty hour weeks, and

0:14:02.040 --> 0:14:07.079
<v Speaker 4>this math is really sobering. So essentially, you know, when

0:14:07.080 --> 0:14:09.880
<v Speaker 4>people ask, well, the cattle herd's small, so why aren't

0:14:09.920 --> 0:14:12.839
<v Speaker 4>ranchers investing in expansion? I think a big part of

0:14:12.880 --> 0:14:15.480
<v Speaker 4>this answer is just, you know, the capital requirements are

0:14:15.600 --> 0:14:19.720
<v Speaker 4>huge and the returns are not, and eventually something's got

0:14:19.760 --> 0:14:24.200
<v Speaker 4>to give here because it's becoming just harder and harder

0:14:24.200 --> 0:14:28.240
<v Speaker 4>for ranchers to stay afloat.

0:14:30.720 --> 0:14:33.240
<v Speaker 2>This is the Big Take from Bloomberg News. I'm David Gura.

0:14:33.520 --> 0:14:35.800
<v Speaker 2>To get more from The Big Take and unlimited access

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0:14:38.840 --> 0:14:42.360
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0:14:42.400 --> 0:14:44.440
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0:14:47.280 --> 0:14:49.160
<v Speaker 2>Thanks for listening. We'll be back tomorrow