Jolley: Do Memorial Day sales signal a permanent downturn?

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The stats are in and Memorial Day weekend beef sales were disappointing, not exactly the great kickoff to the summer grilling season we wanted.  More of a pooch punt on third down, giving the beef industry a few more months before handing off our long-time center of the plate summer dominance to other proteins.  Observers suggested stormy weather on the East coast, plus historically high prices, were two major reasons for all those “no sale” register ring ups at the local A&P or Piggly Wiggly.

Fortunately the Memorial Day weekend isn’t to beef producers like the Christmas season is to toy manufacturers.  The weather will always get better – and worse – so we have plenty of time to make up for issuing a ‘May Day’ distress call on May 27.  The real sales killer that must be addressed, of course, is the price of a pound of beef.

What will American beef eaters pay this summer?  Let’s look at this week’s specials, knowing that these prices will rise from time-to-time.  Here in the Midwest, Hy-Vee is selling Amana Choice KC strips for $6.99 each.  To be more accurate, a 12 ounce cut is $10.48 or $13.95/pound.  Fresh ground beef (85/15) is $3.99/pound.

Those weather-beaten folks on the East coast will pay about the same to shop at their local Piggly Wiggly.  Their Charleston, SC, store is advertising ground chuck at $4.89, C.A.B. New York strips at $12.99, and boneless sirloin at $8.99.  A look at the weekly ad for Ralph’s Groceries in San Diego made me think they’ve decided to ignore their red meat department.  A 16 page flyer mentioned just U.S.D.A. Choice T-bone at $8.99 and lean ground beef (80/20) at $3.49.  Prices for both of those items were available to store card holders only. Chicken and that ‘other white meat’ took up the rest of the meat department ad space.

The average price of a pound of ground beef between 1984 and 2003 stayed under $2.00/pound, making it one of the biggest bargains to ever land on the center of the plate.  It started to creep up, though, and first touched $2.50 in 2010. The $3.00 barrier was breached just one short year afterwards.  This Memorial Day, it spiked at an all-time high of $3.51.  If you consider that most retailers say ground beef is the single most price sensitive product in the meat case, you’ll understand why that long holiday weekend was a major under-performer.

Here is more reason to fear for the future of the beef business.  In 1984, the per capita consumption of beef was 63 pounds, down about one third from its peak of 94 pounds in 1976.  As the price of beef began trending upwards, consumption followed a downward slope, dropping to just 55 pounds last year. 

Those historically high prices were caused by wholesale beef prices, jacked up by one of the worst droughts in a century and drought-driven record high feed costs forcing a reduction in herd size. We now have the smallest number of U. S. cattle since 1952.

With the genetically limited time lag needed to make a substantial dent in beef supply, retail prices just before the next three grilling days - Father's Day on June 16, the Fourth of July and Labor Day on September 2 – will probably stay in the same high-dollar neighborhood, maybe even jump higher by summer’s end.  It’s not inconceivable that ground beef might flirt with $4.00 by Labor Day.

With prices rising so quickly, whole muscle beef cuts are no longer in danger of being declared an indulgence by most people.  That deed has been done and the shift to ground beef is part of the reason it’s reached record-level retail prices, too.  If it hits $4.00 within the next 12 months, ground beef will also be in danger of becoming an indulgence for at least the bottom quarter of the income scale and a financially-driven replacement of the whole muscle cuts favored by what’s left of a staggering middle class.

The message that it’s healthier to eat less meat will gain more credence along with the idea that red meat might not belong at the center of the plate anymore. The idea that meat should be an ingredient, not a main course, will take hold and the new supermarket growth item will probably move to the center of the store where they keep all those varieties of Hamburger Helper®.

Take fair warning: Hamburger Helper now comes in 40 varieties including Chicken, Tuna, Cheesy, Italian, Asian, Mexican, Whole Grain and Helper Complete.  The “Hamburger” part of that brand name is no longer where Betty Crocker is going.  Could it be because they know that’s not where their customers are going?

Increasing herd size will help mitigate spiraling prices but that would require a major commitment on the part of cattlemen to take the risk and that’s far from certain.  The next hurdle, if enough cattlemen decide to take that great leap of faith, is the time it would take to actually rebuild our herds. It would be over three years before enough inventory would be on hand to allow prices to drop. The great unknown there is how much red meat a suddenly wealthy and huge Chinese middle class will consume.  As they begin to demand more and more meat in their diet, there might not be enough resources available anywhere in world markets to keep prices at the low levels we’ve come to appreciate.

But three years is more than enough time for the current generation of would-be beef eaters to opt out.  Permanently.

The opinions expressed in this commentary are solely those of Chuck Jolley, a veteran food-industry journalist and commentator.

 


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maxine    
SD  |  June, 06, 2013 at 07:27 PM

Savvy consumers might want to consider checking beef and other meat prices at places other than the high priced supermarkets: Sams Club, Costco, even Walmart has some very good beef.......and prices! Then if they would also learn, and consider the nutrient comparisons of various meats for the dollars spent, I believe beef would fare better. Many parts of the nation were having really unfriendly weather for grilling, let alone picnics on Memorial Day Weekend! Any guess as to how that factors in?

Brad    
arkansas  |  June, 07, 2013 at 08:41 AM

Retailers are doubling their money. Makes me sick on their profit margins. We are getting less and less for our cattle while packers and retailers are making grotesque profit margins. Id like to see us protected like rowcroppers!

Millie    
Virginia  |  June, 07, 2013 at 09:03 AM

I was gobsmacked by beef prices when I went to the store. So our family enjoyed delicious pork ribs on the grill this past Memorial Day. We did some really tasty chicken barbeque too. You know, we had forgotten how easy and delicious those are and I think overall quality for both are far, far better than ever. So between rapacious prices for beef and stagnated same-old-same-old quality I am really glad sticker shock knocked us back into reality and forced us to rediscover the amazing variety of enjoyable meats. Yeah, I think beef is forevermore going to be the special treat meat only the elite can afford to eat. Want to show off your status? Eat beef in public! No way are wholesalers and retailers ever letting go of these egregious overprices or ever permitting their new-found windfall profit margins to sag. That's OK. Goodbye to beef for our family. It was fun while it lasted but so was 89.9 cents/gal gasoline and the Seinfeld TV series. Life goes on and beef racketeers will prosper by selling hideously overpriced tidbits for conspicuous consumption by elitist food worshipers. Will you guys still need a beef checkoff? Is there a diamond checkoff program? Or one for Jaguar cars?

Chuck    
Kansas  |  June, 07, 2013 at 09:49 AM

Seems a few people really believe there are monumentally excessive profit margins being grabbed by the next guy up the line in the distribution chain. I've heard the same old wisecracks for years that go along these lines, "Yeah, I'm going broke but that (Fill in the blank) guy is driving a brand new Cadillac to work every day." To fill in the blank, choose one of these words: rancher, cattleman, farmer, feedlot operator, packer. processor, supermarket manager.

Tex    
Amarillo  |  June, 07, 2013 at 10:10 AM

Prices won't come down. They never really do. I think economists call it sticky pricing. No one likes it but people need $4.00 gasoline to get to work and back so we buy it. Do we really need $4.00 per pound hamburger to keep body and soul together? How long before fast food drive thru is selling mostly chicken and fish sandwiches? Beef isn't one of those essential commodities. We can never rebuild the national herd in time to get prices down and prevent our market getting changed around for good. In Japan they go all gaga over Kobe beef and that is probably how we will soon be in the US. We won't need many cows for that and even a few more cows will be too many. Cattle ranching will finally go out just like buffalo hunting and showdowns on Main Street at high noon. Just a few cattle caretakers managing a few slick dude ranch operations will be all the beef we will need.

MN    
Missouri  |  June, 08, 2013 at 09:34 AM

Chuck, your title should probably read: "Do Memorial Day sales signal a permanent high retail price point?" You really have to worry if retail beef prices will now and forevermore hover around $4+ per pound. Sure, other meats will take advantage of the market and raise their prices but they can always remain brutally competitive against the new price of beef. Worse still, retail price has never determined liveweight price and that won't change. With high retail prices setting lowered consumer demand we will see liveweight prices collapse whenever we try to move even a few more animals into the pipeline. Volatility of farmgate beef prices will be wilder than ever before...and lower, too, most probably. Real bad news for commercial beef growers. And there is only so much beef we can push into the freezer trade. This ought to be interesting, no?

Chuck    
Kansas  |  June, 09, 2013 at 11:21 AM

MN, you're pointing at the flip side of the same coin. Less product and increased worldwide demand always means higher retail prices. Higher retail prices in the U.S. will decrease demand, of course, but international demand will more than make up the difference. With the interest the Chinese are showing in our ag and food output, the next three years ought to be very interesting.

Shelley    
Minn  |  June, 10, 2013 at 09:03 AM

Thank goodness for Asian markets. They loan us money in the hundreds of billions of $$$ and they buy all our expensive stuff without complaining. It's like having a generous rich aunt doting on us. Plus those loving Chinese send us boatloads of cheap affordable stuff so we don't have to manufacture anything here. No more dull boring factory work to take up all our time and make us tired by the end of the day around here. And the Asians don't ask anything in return for all this. Great! We can do no wrong and no end in sight so let's kick back, hog in, let the belt out another couple notches and live it up!


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