US Consumers Continue To Shake Off Beef Price Jitters

Consumers Continue To Shake Off Beef Price Jitters

Jul 24, 2014 by Steve Kay in Meat Matters – Beefmagazine.com

It appears Americans are still able and willing to continue their love affair with beef.

What’s the best advice you can give a meat lover? Buy a big freezer, go to Costco and stock up on ground beef and steaks, because beef won’t be this cheap for several years. And while you’re there, grab a bunch of pork chops and bacon before the porcine epidemic diarrhea virus makes pork as expensive as beef used to be.

Beef is already far from cheap. Just a few years ago, I bought Choice New York strips at Costco for $5.99/lb. Today, they’re $9.49. That’s still a great price compared to a regular grocery store, where I’ve seen them at $12.99.

I wrote about Costco in my April 2013 column as having the best beef program in the U.S. But don’t take my word for it, go to Costco yourself and see how this warehouse club addresses the value equation of quality vs. price.

A lot of beef lovers, though, aren’t Costco members and can’t afford to buy steak except for special occasions. They are the “ground-beef army.” They’re the main reason why ground beef, in its many forms from meatloaf to patties, accounts for 55% or more of all beef sales in the U.S.

The scramble for raw material to make ground beef is why cull cows and cow beef are selling at record-high levels. I forecast such a scramble several years ago as I watched long-established hamburger chains like McDonald’s and Burger King expand, and trendy new entrants like Smashburger and Five Guys emerge from nowhere.

Now that domestic-cow beef is selling as high as some fed-beef cuts were a few years ago, retail ground-beef prices are extremely high. That’s because most retailers use only fresh domestic beef in their grinds, and don’t use imported lean beef, which is quite a bit cheaper.

The cheaper imported material, though, is one reason why burger chains have held firm on their sandwich prices even amid record-high U.S. wholesale beef prices. The euphoria of record-high prices for everything from calves to domestic lean beef is understandably tempered by concerns at what impact those prices will have on beef sales in grocery stores and restaurants, and to export markets. The industry depends on consumer demand in all three sectors for its profits, and all three have performed admirably so far this year.

Retailers have raised their prices, but not so much that they forced their customers to buy other meats. Restaurants have continued to slice and dice their beef offerings to attract patrons. Exporters have worked hard with foreign buyers to help them offer more moderately priced cuts.

Consumers have scarcely blinked in the grocery store. Beef prices (USDA’s All Fresh series) averaged $5.45/lb. in May; that’s down slightly from the month before, but up 11.7% from a year ago. June beef demand was unexpectedly strong, despite feature activity being down sharply from a year ago and feature prices were up considerably. For example, 16% fewer grocery stores featured ground beef in June, and average feature prices were 10% higher than a year ago.

July sales might have been a different story, however. Retailers kept raising their prices and featuring beef less because of the record-high wholesale prices. This trend will likely continue for much of the rest of the year, as cow and fed-cattle slaughter levels remain well below a year ago.

I’m not as concerned as some at how this might impact beef sales. The economy is stronger than a year ago, and consumer confidence in it is at its highest level since January 2008. House values have largely recovered, and a lot more Americans are working than a year ago. Many are earning more, especially those in the millennial generation. Americans are still able and willing to continue their love affair with beef.

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com).