Crippling high beef prices are being felt by everyone. Tyson Foods , for example, announced plans last month to close its beef plant in Lexington, Nebraska. Roughly 3,200 workers will lose their jobs at what had long been the area’s largest employer. The Wall Street Journal on Tuesday ran a sobering story about the ripple effect of next month’s closure after two decades of operation. In its Nov. 21 announcement, Tyson said it is closing the Lexington plant as part of a plan to “right-size its beef business” in the face of a historically low cattle herd in the United States. The company said it will increase production at its other beef facilities, “optimizing volumes across our network.” During Tyson’s Nov. 10 earnings call, management said it expects to lose up to $600 million on beef production next fiscal year, as their costs to acquire cattle have rocketed higher. “Cattle is up way too much,” said Jim Cramer on Tuesday’s Morning Meeting , pointing to live cattle futures’ up roughly 18% year-to-date and trading around $2.29 per pound. To put that in perspective, cattle prices skyrocketed nearly 170% from Covid-era lows of around 92 cents to all-time highs in mid-October of roughly $2.48 per pound. While seeing a promising 16% drop into late November to around $2.18, cattle prices started to move higher again and are up nearly 5% in December alone. Even if prices had continued to decline, they would still be so much higher than around $1.20 per pound in late December 2019, before the pandemic closed down the world three months later. The sticker shock is being felt by shoppers in supermarkets — and even in Costco , which is known for its low prices. Texas Roadhouse and other casual chains are already finding it difficult to mitigate high prices, via cost-cutting and small menu increases, while keeping cautious customers coming through their doors. “It’s once again a recognition that if you are dealing with beef, you’re not going to make any money,” Jim said. Margins are being squeezed at every turn. In the third quarter reported last month, Texas Roadhouse’s restaurant margin — a measure of operating efficiency — was 14.3%, down 1.68 percentage points from the year-ago period due to commodity and wage inflation. It’s the third quarter in a row that its restaurant margin declined year over year. Texas Roadhouse, also the parent of Bubba’s 33 and Jaggers, has remained steadfast in trying to absorb costs and keep menu prices low. It issued only a 1.4% menu price increase at the start of its second quarter and a 1.7% increase in the fourth quarter to preserve its strong traffic trends. The balancing act of costs is keeping diners coming through the doors. Comparable restaurant sales increased 6.1% in Q3. It was the best quarterly result this year, driven by a 4.3% increase in traffic and a 1.8% increase in average check. That’s further evidence that the company’s reputation for value is still resonating. Looking ahead, management in November once again raised its full-year 2025 commodity inflation guidance to 6% — compared with the 3% to 4% initial outlook offered in February, illustrating how the problem has worsened this year. Additionally, management forecast 7% commodity inflation in 2026. We will see how Texas Roadhouse was able to navigate fiscal 2025 fourth-quarter beef inflation when it reports earnings next, which is expected to be sometime in February. Against that backdrop, the stock has been pressured, down 15% from its 52-week high of nearly $200 back in May. Shares logged a record high close of $205 in November 2024. TXRH YTD mountain Texas Roadhouse YTD Texas Roadhouse was one of seven out-of-favor stocks that Jim highlighted during December’s Monthly Meeting as names that he wanted to buy. Wells Fargo analysts agreed with Jim’s optimistic yet contrarian view of Texas Roadhouse, and on Dec. 17, they upgraded their rating on the stock to a buy-equivalent overweight and raised their price target to $195 from $170. On that same day, we followed Wells Fargo by upgrading our own buy rating to a 1 and buying more shares. Jeff Marks, director of portfolio analysis for the Club, wrote in our trade alert , “Texas Roadhouse consistently delivers some of the best comparable sales in the restaurant category because it has largely held the line on price despite beef cost headwinds. But [Jim] thinks management’s 2026 cost inflation guidance provided last quarter has derisked next year, creating opportunities for upside if beef prices fall.” To be sure, the broader backdrop for beef prices remains challenging. The cattle herd is at historic lows due to years of regional droughts, which led to restricted feeding supplies that forced ranchers to sell cows they could no longer afford. Another difficulty is the estimated three-year cattle production cycle, which limits how quickly the herd can recover. The White House recently issued a multitude of solutions aimed at curbing the problem. Last month, President Donald Trump signed an order to shave 40% of tariff fees from Brazilian food products, including beef and coffee. The president also exempted agricultural imports like beef from higher tariff rates, as well as announced trade agreements with Latin American nations, like Argentina, to boost beef import quotas. Unfortunately, experts are skeptical that these ideas will yield meaningful results. In fact, it could worsen efforts to expand the national herd. Additionally, earlier this month, the U.S. Department of Agriculture lowered its 2026 cattle price projection to account for the Tyson plant closure, as well as the tariff reduction on imported Brazilian beef. Still, the agency sees prices rising 5% year over year. “The biggest problem I see from the announcement is the president’s comments on importing beef, and Tyson’s announcement, have damaged the confidence of the cow/calf producers,” Don Close, senior protein analyst at cattle research and forecasting firm Terrain, told CNBC on Tuesday. He said these kinds of developments can lead ranchers to “pause or hold off on expansion plans that could ultimately drag this out even longer.” (Jim Cramer’s Charitable Trust is long TXRH. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
From farm to table, high beef prices squeeze margins. How our steakhouse stock is balancing costs
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