A Texas-sized profit-squeezing beef crisis

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March 6th, 2012

By Jessica Naudziunas, Harvest Public Media

Columbia, MO – Maybe you’ve noticed that the price of beef is going up, rather dramatically. Thanks, in part, to drought in Texas and increased European demand, don’t look for relief any time soon.

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Restaurant owner Jim Koetting says he has barely had to raise prices since he opened in 2003, but with beef prices increasing, he'll have to soon. (Photo by Jessica Naudziunas, Harvest Public Media)

Beef isn’t an instant food: it takes about two years before a newborn calf is ready for slaughter, and there are 2 percent fewer of them in the pipeline than last year. That population reality is the reason behind consumer and restaurant worry.
Jim Koetting owns Hoss’s Market and Rotisserie, a restaurant and catering shop in Columbia, Missouri. In a frigid walk-in cooler, Koetting keeps one of his most valuable ingredients chilling in a cardboard box.

“There’s an 83-pound case of brisket that going for about $300 right now,” Koetting said. “Last year, it probably would’ve been about $240.”

Those sixty dollars come straight out of his profits. For now, Koetting said, he’d rather absorb a price spike than pass it on to customers.

“We’ve got mouths to feed,” Koetting said. “Our employees have mouths to feed. The only way everybody makes money is if everybody keeps spending.”

He wants his customers to continue buying sandwiches like The Big Hoss, a meaty treat that’s layered with some of the priciest protein on the market. Right now, the brisket-, bacon- and turkey-filled meal will cost you $8.50.

“If we raise that, it would probably be above the $9 mark for a sandwich, which is kind of pricey,” Koetting said.

Nine-dollar sandwiches, more than $3 a pound for ground beef, $7 for a choice sirloin – sound familiar? In January 2012, beef cost 10 percent more than last year. That has created a Texas-sized profit-squeezing crisis, according to Chad Hart, an agricultural economist at Iowa State University.

“I think it’s fair to say it’s been a very tough five years for the cattle industry,” Hart said. “Everybody is struggling with something here.”

From ranches to supermarkets to restaurants, many people are looking for answers, but it’s hard to know where to pin blame for the price jump.

“How we got to this point is a combination of factors,” Hart said.

It began with the recession, when cattle just happened to be on a natural and expected downward trend in production.

“(Ranchers) suffered through a good two to three years of very strong losses,” Hart said “At the same time, what they were staring at was very high feed costs.”

The beef you eat was once eating really expensive food, too. Even today, ranchers continue to pay record prices for the corn they use to fatten up cattle.

Then, what is often farmers’ greatest foe, the weather, chimed in, too.

“I’ve heard anecdotal, a million head of cattle moved out of Texas due to the drought situation,” Hart said.

It was such a hot, dry summer in Texas, the country’s leader in cattle production, that most of the state is still paralyzed seven months later. The U.S. cattle population has shrunk by about ten percent in big ranching states and farmers aren’t willing to risk increasing their herd size right now.

The U.S. Department of Agriculture reports the rate of newborn cow births is down 2 percent.

“At the same time, though, we’ve seen international demand for meat products increasing,” Hart said. “Exports hit record levels in 2011, and we look to maintain those levels in 2012.”

That amounts to more than 11 billion exported quarter-pound hamburgers, leaving U.S. consumers with less beef to go around. But researcher Anne-Marie Roerink said that – as strange as it might sound – these swirling market pressures provide opportunity for the meat industry to change the way they appeal to cash-strapped shoppers.

“What we are seeing more than anything is that people are extremely flexible,” Roerink said. “Rather than going to the store with a list that says, I’m going to buy pork chops and chicken breasts,’ they’re very willing to browse around and pick through packages to find what meets their budget.”

Roerink, as part of an annual study commissioned by the American Meat Institute called “The Power of Meat,” found that many shoppers in 2012 go out of their way to score a low grocery bill.

“Price per pound has always been the most important factor in that process, but it went up in importance,” Roerink said. “The second most important factor has always been appearance, quality if you will. Well, that one actually dropped to third place for the first time in three years.”

She found middle-class shoppers care less about luxury products and how a product looks, and more about how much it will cost. Now, they’re adopting habits generally followed by low-income households: buy in bulk, buy more generic brands, buy more discounted food and opt for the less fresh and tasty product.

“I think we’re going to see a lot more interaction between the retail environment and the shopper,” Roerink said.

Her prediction: consumers will keep eating beef despite the high cost, but that they’ll go about it differently. Price-fatigued shoppers might turn to the butcher who provides custom meat orders, which often leads to less waste and more consumer control.

The meat industry, too, has listened to consumers who want the same taste at a lower price – they call them “value cuts.”

For many consumers that means a more austere steak taken from the modest hamburger zone of the cow rather than expensive, tender, pre-recession protein.

Harvest Public Media, funded by the Corporation for Public Broadcasting, reports on issues of food, fuel and field across the Midwest.

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