Kay's Korner

Dec 1, 2012

Retailers keep beef affordable

The U.S. faces a beef “deficit” in the coming year that will challenge every sector of the beef industry. I use the term “deficit” in that per capita beef consumption will decline relative to how much beef people would like to eat. USDA’s latest forecast is for available beef supplies in 2013 to be 54.8 pounds per person, down 2 pounds from 2012. Compare this to the 90 pounds that each American ate in the 1970s and one can see how much the U.S. beef supply has shrunk in relation to the population.

Per capita supplies of pork and chicken will also be down next year, according to USDA. But the declines are smaller than for beef, which means Americans will continue to eat more pork and chicken and less beef. This has nothing to do with preference. It’s simply a matter of available supplies. I remind myself that Americans love beef, quite like pork, and only eat chicken because their doctors tell them to. That’s one way to stay optimistic about the beef industry’s ability to make money in the face of supply and demand challenges.

The beef deficit has consequences for all in the beef chain but the deepest impact will be on beef eaters.

The shrinking supply will force consumer prices higher. USDA forecasts that the retail price of beef in 2013 will be 5 percent higher than this year. This year’s drought will raise next year’s grocery bill for a family of four by $351.12, according to the Food Institute. Higher grocery bills will be most notable in the meat section where a family of four can expect to pay $44 more in 2013 than this year, it says.

Such price advances might seem modest. But they should be put in the context of many households’ struggle to pay more for food as the U.S. economy remains somewhat weak and unemployment remains high. This struggle began in 2008 at the height of the recession and its effects on the beef industry remain to this day. More than half of all beef is now consumed in some form of ground beef, as it is the only affordable beef item for many. Americans are eating more hamburgers each year, so the trend of more beef cuts being ground up will continue.

Another consequence of the ground beef boom is that the price of lean manufacturing beef (90CL) will increase due to demand and the fact that the supply of domestic 90CL will decline next year. That’s because cow slaughter will decline after drought and high feed costs forced more culling of beef and dairy cows than normal. The price of 90CL has averaged $204-205 per cwt in recent weeks. Its weekly high this year and a new record was $231.20 at the end of May. Tighter supplies might force the price as high as $250 next year. So cull cow prices would hit new record high levels as well. That old cow will be more valuable than ever.

Given that retail beef prices will increase at least 5 percent next year, there are concerns that certain beef items will be priced out of the reach of more consumers. Yet based on some of the feature activity I saw immediately after the Thanksgiving holiday, those concerns might be unfounded.

Safeway stores in northern California where I live put out a post-holiday flier with a “3 Day Sale” banner. The top feature item was Ranchers Reserve (its house brand) bone-in New York strip steaks. The Safeway Club price was $3.99 per pound and the ad said one could save up to $7 per pound. I rushed to my local Safeway and bought a tray of three steaks. Total weight was 3.53 pounds and I paid $14.08 for them. The sticker on the tray said I saved $24.71.

I was a little concerned about how the steaks would eat, as there wasn’t any discernible marbling in the cuts. But I sprinkled my steaks with a little salt and pepper and grilled them to medium rare. They ate very well, slightly chewy but a great texture and flavor. And with each mouthful, I couldn’t help thinking, all this for $3.99 per pound.

What also fascinated me is that Safeway’s flier had two other beef features also at $3.99, fresh 93 percent lean ground beef and Ranchers’ Reserve boneless stew beef. No doubt Safeway’s meat marketers decided $3.99 was a great price point to move a lot of beef. These items were likely all loss leaders. But retailers have used aggressive beef features for years to generate more traffic into their stores. With today’s record high retail prices, this same approach is also helping keep beef affordable to many consumers. — 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.)