Beef Prices Surge

[Mike]

Financial Times:

Beef price surges following harsh US winter
By Gregory Meyer and Greg Farrell in New York

Published: April 13 2010 19:25 | Last updated: April 13 2010 19:25

Beef prices are soaring after cattle failed to fatten up during the harsh US winter and cash-strapped ranchers culled herds to cope with the recession.


Cattle futures have risen more than 20 per cent since December and are again flirting with $1 a pound, a milestone previously reached during the commodity price rise of 2008.

Worldwide, beef and veal production is heading for a third straight year of decline, according to the US Department of Agriculture. For several years cattle raisers have been reducing the size of their herds as bovine spongiform encephalopathy, or mad-cow disease, hurt trade volumes; a US drought and record corn feed prices pinched profits; and the recession cut demand.

Then came the hard US winter, as cattle struggling to keep warm failed to gain weight at the usual pace, resulting in thinner cows shipped to slaughterhouses.

"It may be the biggest rally in fed cattle prices from December till April in the last 30 years," said James Herring, president of Friona Industries, a Texas feedlot operator that supplies Cargill, the US agribusiness group.

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Video: Beef prices soar - Apr-13Meat in short supply after belt-tightening - Apr-13Lagarde calls for European CFTC - Apr-13Rubber price breaks 58-year record - Mar-31Investor appetite drives gold to new peak - Jan-13Surge brings commodities to the forefront - Dec-29CME cattle futures on Tuesday were 98 cents a pound, almost 25 per cent higher than lows late last year. Hog futures have also gained after pork producers slashed supply.

Rising beef prices are likely to translate into higher prices for goods such as McDonald's hamburgers and filet mignons at Morton's, the US steakhouse chain, according to restaurant analysts.

"The underlying cost is the driver to eventual price increases," said Matthew DiFrisco, executive director of equity research at Oppenheimer & Co.

Oppenheimer estimates that ground beef accounts for 10 per cent or higher of McDonald's costs of goods sold. Although the chain's basket of costs is expected to remain flat for much of 2010, within that basket the price of beef and dairy products are expected to rise.

Steakhouse chains, from Texas Roadhouse in the middle market to Morton's at the high end, have a higher exposure to beef costs – as much as 40 per cent, said Mr DiFrisco.

Rising beef prices would affect menu offerings at casual dining chains, said Scott Hume, who publishes a daily newsletter, Burger Business. "What restaurants decide that we love is correlated to what it costs them."

 

[burnt]

Surge. They call a few bucks a surge.

What the idiot consumers do not realize is that it will take a surge of 50% of current values to bring this business to a respectable level of profitability.

Food values have been soooo low for sooooo long that the true value of food is astronomically higher than anyone, including producers, realize.

 

[Mike]

You are so right burnt.

In the 70's during the "Beef Boycott" homemakers didn't realize the residual effect and never took into consideration that prices in the long run would go up at the detriment of many producers.

Monroe Friedman1

(1) Eastern Michigan University, 48197 Ypsilanti, MI, USA


Abstract This historical review of consumer economic boycotts in the 20th century finds that from the early 1900s to the 1970s, consumers at the grassroots level repeatedly launched boycotts in response to price rises for food. What is particularly noteworthy about these protest actions is the important roles assumed by housewives, both as leaders and followers. Also of interest is the ad hoc nature of the boycott efforts and their inability to have more than a temporary remedial effect on the retail pricing practices which prompted the boycott actions.

 

[mrj]

How much would beef, say 85% lean burger, rib steak, sirloin steak and roast, NY or KC strip steak, whole, trimmed brisket, or a nice prime rib roast have to sell in the supermarket to get the price for live cattle to where you believe it would be fair to the cow/calf producer?

Anyone have a guess, because I sure don't have that good a crystal ball?

mrj

 

[Mike]

How much would beef, say 85% lean burger, rib steak, sirloin steak and roast, NY or KC strip steak, whole, trimmed brisket, or a nice prime rib roast have to sell in the supermarket to get the price for live cattle to where you believe it would be fair to the cow/calf producer?

Anyone have a guess, because I sure don't have that good a crystal ball?

mrj

Is that even estimable?

Is there a correlation between "on the hoof" beef prices and "retail" beef prices overall?

One of the problems is the vast number of people expecting a cut in between the producer & the checkout counter. Including the NBCA. :wink:

 

[burnt]

Doesn't really matter because it ain't gonna happen.

The problem is that the North American consumer has become so accustomed to super cheap food that they would freak out if values were where they should be.

A prime example of this would be the price of a jug of milk in Canada. Consumers look at what the American shopper is paying for milk and immediately start to bash our supply management system for the "gouging" that they are victims of when in reality, they are paying a price that reflects a fair return to the Canadian milk producer.

How many American milk producers are happy with the returns they have received over the past 5 or 10 years?

Oh wait, I just assumed that there are still a few left . . .

A significant portion of the disposable income that should be going into an equitable price for producers is being spent on all the other amenities and frills that decorate the properties, homes and driveways of Canadians and Americans.

The best remedy for their misdirected values would be a good, 5 year round of starvation for the entire continent.

Then see how much their appreciation for real food would change.

 

[burnt]

I might add to the above illustration using milk. Right now, we are paying $3.99 for a 4 litre jug of milk at Mac's Milk and a few other outlets, including our local (read "small town") grocery store.

That is equivalent to 4.23 U.S. quarts, if my calculations are correct. Am I correct in saying that a gallon of milk in Michigan, for instance, would be around $3.00?

So, the Canadian shopper is paying approximately .74 cents or 18% more for the same quantity of milk.

The question is, how much is the U.S. producer loosing on every gallon or hundred weight of milk shipped at the current wholesale price of milk?

Bottom line is - the average consumer is more concerned about cheap food that sustainable food production practices. The cheaper the food, the more discretionary income they have left for the cottage, boat or unnecessary SUV.

 

[Sandhusker]

How much would beef, say 85% lean burger, rib steak, sirloin steak and roast, NY or KC strip steak, whole, trimmed brisket, or a nice prime rib roast have to sell in the supermarket to get the price for live cattle to where you believe it would be fair to the cow/calf producer?

Anyone have a guess, because I sure don't have that good a crystal ball?

mrj

Maybe beef prices are already at those levels - if producers were getting the same cut of the beef dollar that they were 30 years ago....

 

[PORKER]

The price of a gallon of Milk at Glens Market, a Spartan Store was $3.99 for 2% milk and Hamburger was $4.19 for 90% lean a pound.

No 1150 #beef cow should sell less than 90 cents cause when she is boned out ,the beef has a vale over $1400+ dollars in beef. Just WHO is getting RICH here !

 

[burnt]

The price of a gallon of Milk at Glens Market, a Spartan Store was $3.99 for 2% milk and Hamburger was $4.19 for 90% lean a pound.

No 1150 #beef cow should sell less than 90 cents cause when she is boned out ,the beef has a vale over $1400+ dollars in beef. Just WHO is getting RICH here !

Well I guess the real price of a gallon of milk in Michigan just kinda blew my former post all to he77, didn't it.

So how is supply management and high priced quota making milk too expensive for the wee Canadian milk drinkers, I wonder?

 

[PORKER]

My neighbor has brought home the green sheet from work at the grocery and it shows the percentage the grocery expects to make like 45% markup from the distrubator on milk. Heck, meat can be from 32% to 59% markup on price. Most farmers would drop dead if the knew the real price before markup. Lots of fingers getting a peice of the pie.