What happens when supplies are tight?
MRJ, you might want to sell your cattle at a discount so the poor people can afford it.
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.