I bought a package of fresh ground beef at the grocery store the other day. It was a good deal at $2.49/lb., as retail ground beef prices have been rising the past year, like all other beef prices. Ground beef is no longer as price competitive with pork or chicken items as it used to be.
Yet Americans appear to be buying even more of the stuff. Ground beef now accounts for over half of all beef consumed in the U.S. People still crave the taste of beef, and ground beef satisfies this at an affordable price. It’s also beef’s most versatile product. Everyone I know has a favorite recipe for meatloaf, chili or spaghetti sauce.
Sales of retail fresh ground beef to hamburgers have grown in recent years. That’s despite per-capita beef supplies (what’s actually eaten) falling from 59.6 lbs. to an expected 55.4 lbs. this year. The decline is simply due to what’s available, not preference. But it’s clear that record-high retail beef prices are forcing Americans to eat more ground beef.
All this makes the media destruction of lean finely textured beef (LFTB) all the more impactful on the entire industry and not just for its maker, Beef Products, Inc. Here are some of the losses to date:
• The price of fatty trimmings (50CL) from fed steers and heifers fell from $100/cwt. in late February to $50 by early April. The price subsequently rebounded but slumped again in early May. Prior to the LFTB furor, analysts had expected the price of 50CL to be well above $100 by now because of grilling season demand.
• At the same time, the price of lean domestic trimmings (90CL), which come mostly from cull cows, steadily increased. These prices averaged $219/cwt. the last week of February, but were close to $229 by mid-May. This was partly due to a decline in beef cow slaughter this year but primarily because of the loss of much of the normal volumes of LFTB and finely textured beef (made by Cargill).
• BPI is now utilizing less than 25% of its LFTB processing capacity. At its peak, it produced more than 500 million lbs. of LFTB annually from 1.6 billion lbs. of fatty trimmings, or 9.6 million lbs./week. It is now producing about 2 million lbs./week.
• The LFTB furor also cost the industry by damaging retail ground beef sales in March. Several large chains tell me their ground beef sales fell 4-5% in volume, and sales of 93% lean ground beef declined the most because of the lack of availability. Retailers say consumers were forced to buy fattier ground beef as a result.
• Beef processors also confirmed the furor’s impact on ground beef sales. There was an immediate downshift in ground beef and overall beef demand, Tyson Foods’ COO Jim Lochner told me. Tyson saw a $120 decline in the value of a carcass from the first week of March to the first week of April, partly due to the furor.
• BPI’s decision to keep three of its four plants closed will also affect the three communities where the plants operated. Adding in up to 2,000 jobs nationally that might be affected, nearly $90 million in payroll is lost, says an Iowa State University (ISU) study. The 300 million lbs. of LFTB that would have been produced through the end of 2012 was worth $273 million in added value to the agricultural economy, reports the study by ISU economists Dermot Hayes and Daniel Otto.
• Through economic-multiplier effects, there is an additional $300 million in lost sales to the rest of the economy. The loss of LFTB also increases retail ground beef prices by 6¢/lb. or by 1.6%, concludes the ISU study.
What a terrible and unwarranted price to pay for such a scurrilous story.
Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattle
buyersweekly.com). See his weekly cattle market roundup each Friday afternoon at beefmagazine.com.