Friday, October 10, 2003

Don't have a cow: Beef costs up

Demand rises as supply shrinks

By Randy Tucker, The Cincinnati Enquirer
and Anna Guido, Enquirer contributor

[IMAGE] Bob Lillis, owner of Eckerlin's Meats at Findlay Market, says costs for beef are currently the highest he's seen.
(Ernest Coleman photo)
| ZOOM |
U.S. cattle futures hit a 17-year high this week, after a yearlong rise fueled by animal illness abroad and a renewed taste for beef at home.

That's good for ranchers, who are commanding top dollar. But it's bad news for consumers.

Prices have been rising at some regional retail outlets, especially for choice cuts. Meanwhile, most larger grocers and restaurants are absorbing the higher wholesale price - for now.

"This is the highest I've ever seen (prices), and I've been the owner of this business for 15 years," said Bob Lillis, owner of Eckerlin's Meats at Findlay Market in Over-the-Rhine.

"We used to sell rib-eye steaks for $7.99 a pound. Now they're costing us that much. We have to pass the price increase on to customers."

And there's no change in sight, experts say.

Beef prices have risen steadily compared with last year as U.S. suppliers have been hit with unprecedented demand. Meanwhile, imports, especially from Canada, have been restricted for four months because of concerns about mad-cow disease.

Shrinking supplies from Canada - which usually produces from 7 percent to 10 percent of beef sold in the U.S. - forced ranchers to send their livestock to the slaughterhouse sooner than normal, which further tightened supplies of domestic beef, said Charlie Blosser, president of the Ohio Restaurant Association.

Moving cattle to market faster has, in turn, cut the volume of choice beef available - raising prices for those cuts even more.

"The less corn and grains that cattle eat, the lower grade of beef," explained Scott Severs, meat and seafood operations manager for Jungle Jim's International Market in Fairfield.

The current price rise "has to do with whether (U.S. government officials) are going to start importing beef from Canada again," Blosser said. "Right now, they aren't letting any import in. If they open up imports, it might stabilize beef prices."

In fact, U.S. suppliers have been allowed to import boxed beef from Canada since Sept. 1 - about four months after the U.S. cut off imports of Canadian cattle after a case of mad-cow disease was found in Alberta.

But the U.S. government still has not allowed imports of slaughter-ready animals from Canada.

Blosser said representatives of the National Restaurant Association met with Department of Agriculture officials this week to try to change that.

But even with increased imports from Canada, domestic beef supplies will be tight for some time, said Gregg Doud, chief economist for the Cattleman's Beef Association.

"Reduced supplies from the world market is one factor'' leading to rising beef prices in the United States, Doud said. "But the biggest factor is that we have simply underestimated the demand side of the equation. ... I see nothing on the supply side of the equation in 2004 that would suggest we're going to overwhelm the marketplace with beef."

The higher demand is occurring at an unusual time. Americans saw their average household personal income drop in 2002 - and beef demand normally rises or falls with personal income.

Doud said although it's difficult to explain the sudden increase in beef consumption, he acknowledged the new popularity of the Atkins and other high-protein diets might be having an impact.

Recent activity in the cattle futures market indicates supplies of slaughter-ready animals may dwindle even more in the near future.

Cattle futures in Chicago rose to their highest level in at least 17 years Tuesday after a new case of mad-cow disease was discovered in Japan.

Experts say that means Japan will probably import more beef from the United States.

That could put even more pressure on domestic supplies and could force retailers and restaurateurs who so far have resisted passing higher costs on to consumers to raise prices.

"I haven't raised prices in over two years," said Paul Yamaguchi, owner of Maury's Tiny Cove, a steakhouse in Cheviot. "But with inflation and higher beef costs, it's something I might have to take into consideration."

Dave Rowe, who owns Dave's Quality Meats in West Chester Township, is worried about market share - so he's trying to hold retail prices down, despite the increase in wholesale costs.

"Choice beef tenderloins have gone up $3 to $3.50 a pound, but I've only raised the price $1," Rowe said. "You've got to stay in line with everybody else ... so you just have to take a hit" on profits.

At the supermarket, where most Americans buy their beef, prices have remained steady, as retailers have absorbed increased costs to stay competitive, according to the cattleman's association's Doud.

Kroger even advertised it has T-bone steaks on sale this week for $3.99 a pound - about $2 a pound less than the regular price.

"I don't buy a lot of steak, but I like the meat department here - and it seems like they've usually got something on sale," said Denise Richland of Oakley, who picked up three T-bones Tuesday night at the Hyde Park store. "If beef prices are high, I haven't really noticed it.''

But higher wholesale costs for beef are eating away at grocers' profit margins.

"Some retailers are absorbing the increase (in beef costs) by virtue of reduced margins, but that won't last forever," Doud said.


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