ON April 14, Nolan Feeney, writing for Time magazine, headlined his story, "Beef Prices Soar to Highest Level Since 1987." He wasn't alone in flagging this serious economic problem. Too many recent articles have reported similar price jumps.
It should scare the hell out of the beef industry on several levels:
1. We're still weeks away from the usual summer grilling season and the inevitable boost in retail prices.
2. Booming Asian economies are putting serious stress on worldwide beef supplies.
3. The U.S. beef herd is at its smallest since the very early 1950s, and while I know we're getting MM/A (more meat per animal), demand is still outstripping supply.
4. Increasing the U.S. herd size will take two-plus years after the great southwestern drought ends, which won't be this year.
5. America's cattle ranchers are "aging out," and many of them might not be willing to take the risk inherent in increasing their herd size.
Feeney noted, "The price of beef has reached its highest level in almost three decades, $5.28/lb. in February, and is expected to stay that way for some time amid growing demand in some Asian countries and droughts that have plagued some U.S. farmers."
February prices were at an unsustainable high level versus the previous month.
Furthermore, in case you missed it, earlier this year, poultry consumption finally surpassed beef consumption. It capped a trend that began at least a quarter-century ago, accelerated by the punk economy of the last six years. Chicken was cheaper, and wallets were tighter.
Losing business might continue for a long time, too, if Jim Robb, director of the Livestock Marketing Information Center, is right. He told the Associated Press that he expects consumers to continue to look for lower-cost substitutes for beef as ranchers in the Southwest fight the worst drought since the Dust Bowl.
A Rabobank study first reported at the National Cattlemen's Beef Assn. Convention in Nashville, Tenn., in February suggested that the solution to regaining market share is producing more low-cost ground beef.
Rabobank cattle economist Don Close said, "Under the existing business model, the U.S. cattle industry manages all fed beef as if it were destined for the center of the plate at a white-tablecloth restaurant. The industry is, essentially, producing an extraordinarily high-grade product for consumers who desire to purchase a commodity. More than 60% of U.S. beef consumption is ground product. If the U.S. cattle industry continues to produce ground beef in a structure better suited to high-end cuts, the result will be continued erosion of market share."
Close's suggestion? "A new system for end-use categorization that influences calf selection, cattle management, production costs and feeding regimen throughout the life of the animal is vital to keeping beef competitive with other choices at the meat counter."
In other words, start breeding to maximize ground beef production, not better-quality middle meats.
Following Close's suggestion would put the cattle industry in an uncomfortable position. Do producers really want to drop the higher-margin product and try to shore up market share with a very low-margin commodity? Or should we stop concentrating on the American marketplace and start producing for Asian countries where the higher-dollar future lies? Demand for the best cuts seems to be growing quickly in China, Japan and South Korea.
Here is another uncomfortable reminder: Demand for a better pork supply plus a real need for a better production model was the driver behind Shuanghui International's (now WH Group) purchase of Smithfield. How long before a Chinese firm with a suitcase full of cash knocks on the door of a major American-based beef processor and says, "How much?"
The Smithfield purchase was just a toe in the water for Chinese interests. With no resistance from the Feds, they know that there is a "for sale" sign on the front door of every American food processor.
*Chuck Jolley is president of Jolley & Associates, a marketing and public relations firm that concentrates on the food industry.