Kay´s korner

Mar 2, 2012

I ’ m a great fan of Costco, especially the way the warehouse chain sells beef. From the moment I see the giant “USDA Choice” banner above its fresh meat case, my pulse quickens as I anticipate finding a great beef deal. True to form, a visit last week produced not one but two terrific buys (although one wasn’t in the fresh case).

Costco is by far the largest seller of Choice beef in the U.S. and around the world. It sells in excess of 1 billion pounds of beef annually. Part of this total is USDA Prime beef. It sells a small number of items in more than 300 of its U.S. stores. Despite the run-up in wholesale Prime prices (they averaged $2.46 per pound the week before last), Costco’s Prime filet mignons, New York strips and ribeye steaks are still a great deal compared to what you would pay in a restaurant for the same cuts. But I found a bargain, top sirloin strips at $7.49 per pound. Sirloin cuts are often slightly less tender than the other cuts but have more flavor. But when they are Prime, as I found out, they melt in your mouth.

I found my other bargain in a nearby refrigerated case full of delicious-looking, fully-cooked entrees. I say “looking” because the outer sleeve package of the one I chose had a mouth watering photo of a pot of beef chili. I love making my own, but as the package says: “Not everyone has hours or days to brew up an old-fashioned, hearty pot of chili so we’ve done it for you.” I had some last night and it was delicious, the best store-bought chili I’ve had. The whole entrée was $11.99 and it worked out to $5.33 per pound.

Even more interesting is that the chili contained tritip steak and proudly proclaimed this in its name, “Homestyle Tri-Tip Steak Chili.” The manufacturer, Papa Cantella’s of Vernon, CA, was founded in 1980 and built its business based on producing authentic Italian sausages. It now makes more than 20 varieties and has gone beyond its Italian roots. It apparently also decided to branch out into other meat-based products. But instead of making just another chili, it chose the tri-tip because this cut is so popular in California and because it wanted to make a superior chili.

This kind of merchandising is the future of the beef industry, especially as wholesale beef prices are likely to remain at record high levels for the next three years. This scenario is based on declining national cattle numbers into 2014 and smaller available beef supplies if imports don’t increase sharply and if exports maintain their record large 2011 levels.

Much is being made right now about the impact on beef sales because of record high wholesale and retail prices. The comprehensive boxed beef cutout the week before last averaged $194.46 per cwt, smashing the previous record of $189.37 set the week ended April 8 last year. The January All Fresh retail beef price averaged $4.64 per pound, up from the previous record of $4.55 the month before. The comprehensive was up 13.6 percent from a year earlier while the All Fresh was up 8.9 percent, indicating that retail prices have some way to go to cover the higher wholesale prices. Remember that there is a sixto eight-week lag between any movement in wholesale prices and a change in retail prices. It’s also worth noting that the January retail price reflected $120 per cwt live cattle prices, which so far this quarter have averaged close to $124 and put in a new weekly record in mid-February.

It’s somewhat alarming that despite these recordhigh prices, cattle feeders, packers and retailers are struggling to make money. This suggests that live cattle and wholesale/retail beef prices will have to go even higher for each sector to see black ink. Concerns that beef might price itself out of the reach of more consumers appear well founded. But there are some silver linings to this cloudy outlook.

First, beef’s uniqueness and versatility is not to be underestimated. No meat has the flavor of beef and never will. Americans love and want the taste of beef. Our food culture is still based on this love affair, whether it’s at the steakhouse chain or at the burger drive-through. This brings me to a second point. More and more beef is being purchased in ground beef form, either as retail fresh or in a patty. Ground beef sales now account for more than half the beef sold in the U.S. No wonder that a record 36.4 percent of three sub-primals (chuck, round and sirloin) went through the grinder last year.

The price of retail ground beef keeps creeping up. Grind at $1.99 per pound is history. But it is such a versatile product that consumers will keep buying it to get their beef fix. It is the perfect beef product to use as an ingredient in a dish. Americans will keep buying steaks, even as they get more expensive, but as a special occasion item. The industry will increasingly depend not just on ground beef but on food makers like Papa Cantella’s to use higher-priced cuts as ingredients in old and new favorites. Beef bourguignonne, anyone? — Steve Kay

(Steve Kay is Editor/ Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765-1725. Kay’s Korner appears exclusively in WLJ.)