Tight supply driving beef prices up
Some grocery shoppers may chicken out after witnessing a looming jump in retail beef prices.
Wholesale prices for bulk beef orders jumped about 20 percent in January before moderating recently. Spot market prices for choice-grade beef last week were 17 percent higher than the same 2013 period.
"Supplies are very, very tight," said Jim McCormick, an analyst at Allendale Inc., an agricultural commodity research firm in McHenry, Ill. "The consumer is going to get pinched."
The U.S. Department of Agriculture predicts beef prices will advance 3 to 4 percent this year, altering an earlier forecast of 2.5 to 3.5 percent.
Many retailers have been able to forestall big price advances - so far - for steaks, roasts and ground beef.
"We have some inventory on hand that we bought at lower costs. That has helped us hold the price on retail," said Joe Fasula, co-owner of Gerrity's Supermarket, which operates nine stores in Lackawanna and Luzerne counties. "Eventually, retailers are going to raise prices and consumers should brace for that."
Fasula recently received a wholesale price list from a supplier showing a 48 percent week-to-week leap in the price for 80-percent lean ground beef and a 31 percent jump in the cost of chuck roasts.
Grocers are locked in a standoff over when beef prices will rise, Fasula said.
"We are watching each other to see who makes the first move," he said.
The price run-up has been building for more than a year. Beef prices already are hovering near record highs.
A three-year drought affecting much of the Plains states, stretching from Texas and Oklahoma through Kansas, Nebraska and Iowa, has resulted in predictions of a 20-year low in U.S. beef production this year.
The dry spell and several years of soaring prices for cattle feed until mid-2013 pushed many cattle farmers out of business.
"You just had a lot of guys, the smaller cattle producers, they got out," McCormick said. "They lost money and went broke."
Increasing overseas sales also contribute to a crunch in U.S. inventory.
Beef exports in 2012 totaled 2.5 billion pounds, up from 1.9 billion pounds in 2009, the most-recent government data show.
In January, the USDA reported the nation's inventory of beef cattle and calves had dipped to 29 million, the smallest total since 1962.
"The herd is shrinking because there is no grass to feed them," McCormick said.
The USDA's most-recent daily cattle slaughter estimate was down 7.5 percent from the year-earlier total and beef production was down 9 percent over the same period.
Some consumers already are passing on pricier beef selections, such as ribeye and strip steaks, for options that are easier on the wallet, including chuck, round steaks and roasts.
"Our customers are shying away from the more-expensive cuts," said John Husosky, vice president at Schiff's Food Service Inc., a major regional meat wholesaler based in Taylor. "Supplies are tight, but anything is available if you want to pay for it."
Some supermarkets have settled on smaller earnings from the beef case as prices advanced in recent years.
Fasula, for example, said his profits from beef sales are down 10 percent from 2009.
"I'd rather sell it at a lower gross margin than throw it in the garbage and get nothing," he said.
The price advance may not linger if consumers migrate to less-expensive meats, Husosky said.
"We are going to see a decrease in (beef) consumption and demand," he said.
Consumers will not tolerate a steep advance in prices, said Ricky Volpe, a USDA economist who tracks retail food trends.
"I wouldn't expect retail beef prices to explode," he predicted. "Consumers will shift toward protein substitutes."
McCormick, though, said he thinks consumers will face inflated beef prices for several years.
"We just don't have the supply of cattle we used to have," he said. "It takes multiple years to build back the supply."
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