May 2012 Articles

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Ground Beef Prices

Ground Beef Prices Ross Pruitt, Department of Agricultural Economics and Agribusiness LSU AgCenter
The full impact on demand of recent news stories about lean finely trimmed beef (LFTB or “pink slime”) is still being calculated. The immediate fallout includes many national grocery stores removing LFTB from their shelves due to consumer backlash against incorporation of LFTB in ground beef. Beef Products, Inc. which was named in the news stories, announced this week it was suspending operations at three of the four plants it operates, accounting for approximately 600 jobs.
From a price perspective, many contracts for beef trimmings between wholesalers and retailers are negotiated at least 3 weeks in advance of delivery. As the news stories started appearing on March 7th, increases in prices to retailers will start to be reflected in higher consumer prices over the next few weeks. Wholesale beef trimmings prices, regardless of percent leanness, have been on the rise since October. As an example of the additional price increases to consumers, in mid February, 90% lean fresh beef trimmings sold for $212.28/cwt while LFTB sold for $174/cwt. These two ingredients could be mixed to get a 92% lean ground beef product that would wholesale for $193.14/cwt. This is a significant price discount (14% lower) compared to the USDA published wholesale price of $224.12/cwt for 92% lean in mid February. Ground beef retail prices have been on the rise since November and the national retail price for lean and extra lean ground beef was $3.92/lb in February according to the Bureau of Labor Statistics.
So where does the market turn to procure lean beef to achieve desired leanness in ground beef? Cull cows, imported beef trimmings from Australia and New Zealand, and grinding of chucks and rounds are part of the answer. Cull prices will not soar higher, but when USDA reports the low end of cull cow prices in Mississippi at $75/cwt for this week, there’s not much room to go lower, even though cull cow prices should be nearing their seasonal peak. Imported beef for grinding from Australia and New Zealand were 8% higher in February than a year ago and providing additional support for cull cow prices and, ultimately, retail ground beef prices.
If the beef industry operated in a vacuum, then the above scenario would be good news, but beef is competing with at least pork and poultry for consumers’ food dollars. Increases in the prices for beef trimmings have rose slower in March than previous months, even prior to the stories about LFTB. This suggests that the overall impact of concerns about LFTB may not be that great. Even though LFTB is not related to whole muscle meats, all fresh retail beef prices declined in February from January indicating that consumers are starting to push back against higher retail beef prices and is being reflected in weakening wholesale prices as a time when the cutout should be strengthening. Since January 2011, month-on-month retail price increases for beef have averaged 0.8% compared to 0.7% and 0.4% for pork and chicken prices, respectively. Year-to-date beef production is already 4% below last year’s levels while pork and chicken are 3% greater and 5% lower, respectively. This could help keep pork prices from not rising as fast at the retail counter compared to beef and chicken.
It will take some time to determine how much, if any, demand was harmed as a result of the stories about LFTB. Beef may be the hardest hit, but pork and poultry demand could be impacted as consumers may be left with questions about the entire meat production system. Some high profile grocery chains and restaurants were proactive in pulling LFTB from their product mix while others are offering a choice to consumers. Removal of LFTB from product mixes won’t result in lower prices for consumers, but it won’t raise the value of livestock sold by producers either.