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Can They Afford to Pay More?

Econ101

Well-known member
What happens when supplies are tight?

DJ US Quality-Beef Buyers Rely On Relationships, Contracts



9:31 AM, March 15, 2007

By Lester Aldrich

Of DOW JONES NEWSWIRES

Agriculture Online



KANSAS CITY (Dow Jones)--As wholesale beef prices rise to 3 1/2-year highs,

buyers of the highest-quality beef say they rely on business relationships and

contracts to get the product they need.



With no prospects on the horizon for meaningful relief from the supply crunch

that is blamed for the higher prices, buyers say price becomes less of an issue

than just getting what they need. That's not to say price isn't

important--because it is--but when push comes to shove, specialty restaurants

and meat markets simply have to have the product.



"Somebody has to bite the bullet in an up market," said Bruce Longo, market

analyst for Urner Barry's Yellow Sheet. Either consumers have to pay more when

they buy it at that specialty shop, or the restaurants have to accept thinner

profit margins until they can change their menus, he said.



Choice and select boxed beef prices reported by the U.S. Department of

Agriculture on Wednesday were the highest they have been in nearly 3 1/2 years,

said Jim Robb, agricultural economist for the Livestock Marketing Information

Center.



"The choice boxed beef cutout value, at $167.53 per hundredweight, is the

highest since Oct. 18, 2003, when the USDA's heavy choice cutout value was

$168.09," Robb said.



In 2003, the USDA broke light choice and heavy choice beef values into

separate quotes, but most trading was done in the heavy choice category, Robb

said. It is closely analogous to the current, inclusive choice cutout value

from the USDA.



The record high daily value for heavy choice boxed beef came on Oct. 16, 2003

when it reached $201.07, Robb said.



Robb said the 2003 highs came after the world isolated Canada from trade

because of its first case of bovine spongiform encephalopathy, or mad-cow

disease. The market was so hungry for beef that U.S. producers pulled cattle

forward and sold them before they were fully finished.



Choice beef became very hard to find, and prices were bid higher, he said.



This time around, reduced feedlot placements over at least the last five

months and a harsh winter, along with a seasonal transition from slaughtering

yearling placements to the younger calf placements, combined to limit the

number of cattle that have a higher-grading choice, much less the

highest-quality prime, carcass.



Supplies aren't so tight that buyers can't find product, said Mike McGonigle,

owner of McGonigle's Food Store in Kansas City. The specialty store is known

for its high-quality meat products and sells high-choice beef.



McGonigle said he currently has no trouble getting the product he needs for

his store, but prices are high. In his view, overall supplies of high-quality

beef have tightened only marginally - just enough to boost prices to

near-record levels amid fairly steady demand.



McGonigle said his store has been in business for years and has built solid

business relationships with its suppliers. He has no official, signed contracts

to supply a certain volume of a specific quality of beef to his store because

he relies on his business history.



That may not be the case at corporate businesses where the volumes needed are

greater, McGonigle said.



Ruth's Chris Steak House, which had fourth-quarter profits of $0.46 a share

on a 51% jump in revenue, now has contracts for a little more than half of its

2007 beef needs, said Chief Executive Craig Miller. In 2006, the company

purchased about 5% of its beef with contractual arrangements, he said.



But as with McGonigle's, Ruth's Chris depends on its long-standing business

relationships for its needs. Miller said the restaurant has been the largest

user of prime beef in the U.S. "for a long, long time," so it is well-known in

the industry, with relationships that go back decades.



So far, Ruth's Chris has experienced no issues with suppliers shorting an

order or with the quality of the beef it purchases, but there are concerns

about the coming months, Miller said. The effects of winter's conditions on the

amount of high-quality beef that comes out of U.S. feedlots is expected to be

felt for months, but the new, higher levels of corn prices may have a more

lasting effect.



Higher corn costs could encourage feeders to market cattle a little earlier

than might be optimum for the greatest production of choice or prime carcasses,

Miller said. This could boost overall beef availability but bring the average

quality down and make it harder for buyers of choice or prime beef to find what

they need.



Paul Maxwell, meat purchasing manager at New England food service distributor

Dole & Bailey Inc., said his customers are dealing with the tightening supplies

and higher prices in a variety of ways. Those who can may downgrade the product

quality a notch. Those who can't will pay the price and consider nudging menu

prices higher.



Many of Dole & Bailey's customers are "white tablecloth" restaurants, clubs

and hotels, Maxwell said. Purchasers at these establishments tend to be chefs

and others who know how to sell a high-end product, he said.



Price for them is an issue, but getting a product they can sell is at least

as important, Maxwell said.



Finding the product he needs for his Northeastern buyers sometimes is a bit

of a challenge, but Maxwell said it's there. Supplies are tight but not

impossible.



Maxwell said he's trying to avoid new contracts for beef to be delivered in

May or June because he's afraid current prices won't hold. Older contracts

appear to be working well, though, but they will have to be renegotiated later

this year.





-By Lester Aldrich, Dow Jones Newswires



agriculture.com

MRJ, you might want to sell your cattle at a discount so the poor people can afford it.
 

DiamondSCattleCo

Well-known member
"Somebody has to bite the bullet in an up market," said Bruce Longo, market analyst for Urner Barry's Yellow Sheet. Either consumers have to pay more when they buy it at that specialty shop, or the restaurants have to accept thinner profit margins until they can change their menus, he said."

I think I need to put this into my signature. How many times have we been told by the "experts" on here that packers can't possibly raise their wholesale prices to make a profit during times of high feeder prices?

Rod
 

rkaiser

Well-known member
Thanks Econo,
Made a couple of copies for today's meeting. Very good points made by some good Irish folks on this St. Patty's day. McGonigle's Eh. Sounds like a prime candidate for some fine Celtic Beef.
 

Jason

Well-known member
DiamondSCattleCo said:
"Somebody has to bite the bullet in an up market," said Bruce Longo, market analyst for Urner Barry's Yellow Sheet. Either consumers have to pay more when they buy it at that specialty shop, or the restaurants have to accept thinner profit margins until they can change their menus, he said."

I think I need to put this into my signature. How many times have we been told by the "experts" on here that packers can't possibly raise their wholesale prices to make a profit during times of high feeder prices?

Rod

Rod please explain why the packers didn't just raise the boxed beef prices they receive before now?

They were losing money but somehow resisted the "option" of raising revenue?

The article clearly shows what is happening, a shortage of high choice product with the same demand. That is what has raised the wholesale price.

Notice the statement


Those who can may downgrade the product

quality a notch.

Does that slow demand for high choice or not?

If all beef supplies are down, and demand can remain constant, then the trickle down from the highest priced beef will reach the bottom. If not, demand might lag and stop the upward pressure on the low end.

The signals are clear what to raise, some just won't pay attention.
 

mrj

Well-known member
Econ101 said:
What happens when supplies are tight?

DJ US Quality-Beef Buyers Rely On Relationships, Contracts



9:31 AM, March 15, 2007

By Lester Aldrich

Of DOW JONES NEWSWIRES

Agriculture Online



KANSAS CITY (Dow Jones)--As wholesale beef prices rise to 3 1/2-year highs,

buyers of the highest-quality beef say they rely on business relationships and

contracts to get the product they need.



With no prospects on the horizon for meaningful relief from the supply crunch

that is blamed for the higher prices, buyers say price becomes less of an issue

than just getting what they need. That's not to say price isn't

important--because it is--but when push comes to shove, specialty restaurants

and meat markets simply have to have the product.



"Somebody has to bite the bullet in an up market," said Bruce Longo, market

analyst for Urner Barry's Yellow Sheet. Either consumers have to pay more when

they buy it at that specialty shop, or the restaurants have to accept thinner

profit margins until they can change their menus, he said.



Choice and select boxed beef prices reported by the U.S. Department of

Agriculture on Wednesday were the highest they have been in nearly 3 1/2 years,

said Jim Robb, agricultural economist for the Livestock Marketing Information

Center.



"The choice boxed beef cutout value, at $167.53 per hundredweight, is the

highest since Oct. 18, 2003, when the USDA's heavy choice cutout value was

$168.09," Robb said.



In 2003, the USDA broke light choice and heavy choice beef values into

separate quotes, but most trading was done in the heavy choice category, Robb

said. It is closely analogous to the current, inclusive choice cutout value

from the USDA.



The record high daily value for heavy choice boxed beef came on Oct. 16, 2003

when it reached $201.07, Robb said.



Robb said the 2003 highs came after the world isolated Canada from trade

because of its first case of bovine spongiform encephalopathy, or mad-cow

disease. The market was so hungry for beef that U.S. producers pulled cattle

forward and sold them before they were fully finished.



Choice beef became very hard to find, and prices were bid higher, he said.



This time around, reduced feedlot placements over at least the last five

months and a harsh winter, along with a seasonal transition from slaughtering

yearling placements to the younger calf placements, combined to limit the

number of cattle that have a higher-grading choice, much less the

highest-quality prime, carcass.



Supplies aren't so tight that buyers can't find product, said Mike McGonigle,

owner of McGonigle's Food Store in Kansas City. The specialty store is known

for its high-quality meat products and sells high-choice beef.



McGonigle said he currently has no trouble getting the product he needs for

his store, but prices are high. In his view, overall supplies of high-quality

beef have tightened only marginally - just enough to boost prices to

near-record levels amid fairly steady demand.



McGonigle said his store has been in business for years and has built solid

business relationships with its suppliers. He has no official, signed contracts

to supply a certain volume of a specific quality of beef to his store because

he relies on his business history.



That may not be the case at corporate businesses where the volumes needed are

greater, McGonigle said.



Ruth's Chris Steak House, which had fourth-quarter profits of $0.46 a share

on a 51% jump in revenue, now has contracts for a little more than half of its

2007 beef needs, said Chief Executive Craig Miller. In 2006, the company

purchased about 5% of its beef with contractual arrangements, he said.



But as with McGonigle's, Ruth's Chris depends on its long-standing business

relationships for its needs. Miller said the restaurant has been the largest

user of prime beef in the U.S. "for a long, long time," so it is well-known in

the industry, with relationships that go back decades.



So far, Ruth's Chris has experienced no issues with suppliers shorting an

order or with the quality of the beef it purchases, but there are concerns

about the coming months, Miller said. The effects of winter's conditions on the

amount of high-quality beef that comes out of U.S. feedlots is expected to be

felt for months, but the new, higher levels of corn prices may have a more

lasting effect.



Higher corn costs could encourage feeders to market cattle a little earlier

than might be optimum for the greatest production of choice or prime carcasses,

Miller said. This could boost overall beef availability but bring the average

quality down and make it harder for buyers of choice or prime beef to find what

they need.



Paul Maxwell, meat purchasing manager at New England food service distributor

Dole & Bailey Inc., said his customers are dealing with the tightening supplies

and higher prices in a variety of ways. Those who can may downgrade the product

quality a notch. Those who can't will pay the price and consider nudging menu

prices higher.



Many of Dole & Bailey's customers are "white tablecloth" restaurants, clubs

and hotels, Maxwell said. Purchasers at these establishments tend to be chefs

and others who know how to sell a high-end product, he said.



Price for them is an issue, but getting a product they can sell is at least

as important, Maxwell said.



Finding the product he needs for his Northeastern buyers sometimes is a bit

of a challenge, but Maxwell said it's there. Supplies are tight but not

impossible.



Maxwell said he's trying to avoid new contracts for beef to be delivered in

May or June because he's afraid current prices won't hold. Older contracts

appear to be working well, though, but they will have to be renegotiated later

this year.





-By Lester Aldrich, Dow Jones Newswires



agriculture.com

MRJ, you might want to sell your cattle at a discount so the poor people can afford it.


Sorry Econ, we only have three cows that lost calves the last couple of weeks and we will be feeding them up for that hot late spring cow market.

We don't have to take 'commodity' prices for the number and quality of cattle we produce and we do understand that we have other options than asking "what will you give me for them".

The feeder who bought our steer calves last fall is probably pretty well poised to take advantage of this market for the high choice and prime capable steers he got from us. Sure hope he benefits from our and his good management, and his timing

MRJ.

MRJ
 

Econ101

Well-known member
MRJ, it was a little unnecessary dig at you. I am glad you manage your cattle well and get the most for them. Really.

Everyone should try to do the same.
 

mrj

Well-known member
I'm used to it, from you.

It seems about 98% of what you post is an "unnecessary" dig at someone with whom you disagree.

And that is what truly "unnecessary"!

BTW, how do you market your cattle and manage your land? Were you affected by drouth and fire last year or so?

MRJ
 

Econ101

Well-known member
MRJ said:
I'm used to it, from you.

It seems about 98% of what you post is an "unnecessary" dig at someone with whom you disagree.

And that is what truly "unnecessary"!

BTW, how do you market your cattle and manage your land? Were you affected by drouth and fire last year or so?

MRJ

Thanks for graciously accepting my apology. I will remember that next time I am ready to give one to you.

I do market my own cattle through private sales mostly, sometimes in the sale barn.

I am from the wet part of the country so most of the really dry stuff is never that bad. I have lived out west some and know what dry really means, which is probably what BMR deals with. Our kind of dry is very different. It just means we could use a little more rain to keep things growing and greener. We don't really go brown, just dried green. That kind of tells you it is different kind of country than what you are in.

Drought is relative to what you are used to. We live where we get about 60 inches a year and a lot of it comes in the summer. You would probably be flooded out much of the time if you had that.

Pugging (where cattle mess up the grass because it is so wet) is an issue in the winter, not snow or frozen ground. We still have to manage for less forage in the winter but if you do the rotational grazing or have less cattle along with winter annuals you can get by with less feeding. I know in the west you can get by because of dry frozen grass on the ground if there is not a lot of snow cover. Here, in the winter, the summer grasses like bermuda can really brown up (after first freeze) and you have to depend on the winter annuals for fresh green. Some stockpiling is possible but with usually wet cool weather that is too warm for stockpiling of the summer stuff. It gets rank too fast because we are between cold and warm.

Fire is usually never a problem and fireworks can be sold year round, I think. Humidity usually controls summer fire. In winter, when the air is dry, there is a concern for yard fires to get away from you but not like it is in the west. They say for every 10 miles or so you go west from Dallas to Shreveport LA, you pick up about an inch of rain. I would say the humidity goes right along with that.

The wet east, as they call it.
 

mrj

Well-known member
Econ, sorry if I seemed less than gracious in confronting your apology. When I apologize, I'm telling someone I'm sorry for a wrong I've done, and that I will seriously refrain from doing so again.

When I post something with which you disagree, you have called me nearly every offensive, mean spirited name in the book, barring only foul language, and including some which are socially and politically incorrect.

I'm sure you have no intention of changing your actions, therefore I believe accepting your apology "graciously" and forgiving you is quite useless.

Re. differences in climates, we NORMALLY average about 14" of precipitation per year, mostly during the growing season. However, we have been in a pretty severe drouth, going into the seventh year. Our family experience and records show it to be worse than during the 1930's except that we do have better dams to store water, as well as rural water systems. Farmers use better practices to conserve moisture, so it hasn't blown the soil as badly.It is spotty, in that areas within 20 to 50 miles of us have received rain and filled the stock ponds in the past two years.

Fortunately, we got enough moisture early the past two years to grow some grass and we are very careful not to abuse it, so have sold our cow herd down to about 40% of normal carrying capacity of about 25-30 acres per cow per year. We rarely have enough snow cover for long enough to require cows to be fed in winter (which normally lasts from mid Dec. to mid March, but can start in early Nov, and last till May), IF we have been able to grow enough grass for them. Some people, mostly those who have farm ground, plan to feed for a few months during winter in order to stock more cows than the land can naturally carry.

Western SD is a land of extremes. We can get 25" or more of precipitation in a year, and it isn't good for the ground, leaching out alcali and other harmful minerals. Fortunately that doesn't happen often, though we did have 8 to 10 years of above normal moisture preceding this drought. It poisoned lots of stock ponds and killed grass and trees in low areas that didn't drain well.

We don't have many problems with flooding other than fixing the fences running across the usually dry creeks. Terrain is quite rough, with significant enough changes in elevation that many of the creeks empty about like flushing a toilet when they do flood. Most flooding lasts a day or less. Same for Bad River into which creeks for about 20 or more miles on each side of it drain. The Bad heads up about 50 miles east of the Black Hills near the town of Wall (famous for Wall Drugstore), and empties into the Missouri at Ft. Pierre, with a total (crow flight type) length of maybe 90 miles. A flood on the Bad has been quite rare for over 20 years, and we 'locals' usually bring out the camera's to record the event.

Fires are usually from either haying or harvesting equipment, or thunder storms and most are not very large, though some seasons some areas get hit pretty hard. It's been a lot of years since there has been a huge one within 20 miles of us, and our ranch units are 16 and 40 miles from home. They are mighty frightening to fight when they do happen, and we have only volunteer fire departments, so most ranchers have a 'fire truck'. Usually an older 4x4 truck with a water tank filling the box, and hand held 'slappers' which look like a shovel handle with a truck mud flap attached to the end. Since some people have been injured and even killed fighting prairie fires in recent years, some ranchers and most volunteer departments are getting protective clothing to wear when fighting fires. We do what we have to do to live with that mean landlord, Mother Nature.

BTW, I'm confused about your comment on going west from Dallas/Shreveport and finding increasing rain. I would have guessed it would be going east.

We surely do not envy anyone who has mud all winter! That is just too high a price to pay for 'adequate' moisture! Our clay/gumbo soils would cause HUGE problems if they stay wet for long periods of time.

MRJ
 

Econ101

Well-known member
Yeah, I meant east. My bad, as my kids would say. Now that I know you are actually reading my posts, I will tone down the rhetoric. I hope you know there is nothing personal as I am sure you are a very nice person. This forum is a forum of ideas and ideas are not people. There are very very few people I have met in person that I do not like. I have enough of my own faults(when I forget about them, my wife or kids will remind me) to know that I am not perfect and I don't think of myself as above you. I still like to argue. Don't take it personally, and I apologize if you have in the past.
 

Texan

Well-known member
Econ101 said:
Now that I know you are actually reading my posts, I will tone down the rhetoric. I hope you know there is nothing personal as I am sure you are a very nice person. This forum is a forum of ideas and ideas are not people. There are very very few people I have met in person that I do not like. I have enough of my own faults(when I forget about them, my wife or kids will remind me) to know that I am not perfect and I don't think of myself as above you. I still like to argue. Don't take it personally, and I apologize if you have in the past.
One of you guys that knows Econ's phone number probably ought to call him - looks like somebody must have hacked into his identity again. :lol2:

Just jokin' with you, Econ. Since I don't mind telling you when you're a prick and an asshole (as time permits :lol: ), I think I should be man enough to tell you when I think you did good, too. Nice post and I'm sure it means a lot to a nice lady. I'm impressed. :wink:
 
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