Posted on 11/03/2003 10:44:33 PM PST by ppaul
Shortage Expected to Cause Prices to Skyrocket
Worth their weight in gold? At least one local restaurant has already changed its pricing because of high beef prices, and grocery store prices are anticipated to jump soon.
“An astronomical increase,” is the way Ted Mackorell of Makoto Seafood and Steak House described the jump in beef prices this week. “It has been inching up on us for the last month,” Mackorell said, “but both of our purveyors came in this morning and said, ‘Brace yourself.’” Over the past month and a half, Mackorell explained, his beef prices have increased by about 60 percent. “It’s dramatic; it’s huge,” he added.
According to Makoto’s Gwen Dhing, the restaurant’s food distributors, who generally guarantee prices for one week, cannot guarantee beef prices from one day to the next because the cost is increasing daily. Consequently, the restaurant is changing its menus for all beef items from regular prices to “market price.”
Added to the economic uncertainty is uncertainty over availability. Dhing said that the distributors do not yet have the beef to fill the restaurant’s current order. She said the restaurant has enough filet to last through the weekend, but after that, depending on prices, Makoto’s may have to replace filet with rib eye charged at market price or drop the offering altogether until prices stabilize. “There comes a point,” Mackorell explained, “where you can’t carry an item because the price is too high.” Dhing pointed out that Makoto’s is “lucky because we have seafood and chicken as well as beef.”
Although the beef shortage is affecting supplies nationwide, the dramatic price increases have not yet hit the grocery stores because of the grocery chains’ contract pricing agreements. When those contracts are renewed, however, prices are expected to jump significantly. “This is the first people are hearing about these price increases,” Dhing said. She said that the restaurant’s suppliers are predicting that the high prices will continue for the next six to nine months, into the first quarter of 2004.
The shortage is the result of two factors: decreased U.S. production and one infected cow in Canada. Last year’s low cattle prices caused producers to reduce their herds, and the decrease in U.S. cows coincided with the discovery last May of an Alberta cow that was infected with bovine spongiform encephalopathy, commonly known as mad cow disease. The United States immediately closed its borders to Canadian beef imports and while that ban was partially lifted in August, the current beef supply cannot meet U.S. demand.
According to the U.S. Department of Agriculture, the United States is the primary destination for Canadian beef exports. Of the 1.2 million metric tons of beef that Canada exported in 2002, 83 percent of it went to U.S. markets. That’s a lot of beef taken out of the supply chain.
Just down the street from Makoto’s, Debbie Broome said that the price increases have hit the Peddler Steak House even harder.
“It has become a crisis this week,” Broome said. “We learned this week that prices will double and perhaps triple by Christmas.” Beef tenderloin, for example, is predicted to reach $22 per pound in late December, she said, a price that would require the restaurant to discontinue the offering from its menu.
Broome said that the price jump couldn’t have come at a worse time. “October is our biggest month of the year,” she said, “and we count on it to profit enough to make it through the winter. This year, we won’t have that cushion.”
At this point, there are no plans to increase prices at the steak house. The Broomes plan to attend two or three upcoming food shows to “do the best shopping we can,” hoping to contract for enough beef at reasonable prices to ride out the rest of the year. “We hope it’s turned around by January,” Broome said.
So far, she has not encountered any problems with availability. “It’s not that we can’t get what we need, but the price goes up daily,” Broome said.
Unlike Makoto’s and the Peddler, which only this week encountered high beef prices, the local Wendy’s has been dealing with the bovine price jump for almost two months. Tad Dolbier, vice president of Tar Heel Capital Corporation, says that wholesale beef prices increased approximately 40 percent around the first of September. Wendy’s, because of its buying practices, was able to hold the increase to about 15 percent, but it “caused food costs to go up pretty considerably,” Dolbier said. Dolbier admitted some perplexity over why other restaurants were only now finding their costs increasing, but said, “Retail prices typically lag behind wholesale prices and maybe they have just now caught up.”
On a positive note, Dolbier added that the restaurant has not seen additional prices increases since September 29, and Wendy’s corporate office is predicting “leveling prices from now through the end of the year.” But Dolbier points out that because the market is “still very unstable, it’s so hard to predict what will happen.” A Wendy’s Beef Market Bulletin dated October 17, identifies the mad cow in Alberta as the precipitating event that resulted in “driving U.S. cattle and beef prices into record-high ground.” The Wendy’s bulletin points out that the average wholesale price of beef in the United States has gone up 40 percent.
Dolbier added, “One of the things that has reduced the impact of the price jump is that Wendy’s does a smaller portion of total sales in beef, with higher sales in chicken and salads.”
Although costs rose almost a full percentage point due to the beef hit, Wendy’s has not raised the prices for its hamburgers and chili. The company philosophy, Dolbier said, is to ride out short-term price fluctuations. “We don’t anticipate making any moves in prices,” he said, but he also acknowledged that the beef increase “is a big chunk for us.”
It is my understanding that the meat packing industry has consolidated to the point that three companies now pack over 90% of the beef in the U.S. I also believe that domestic production is being steadily driven offshore by excessive environmental regulation.
This not what I have been hearing from ranchers in the Great Basin over the last several years. Have things recently changed?
Perhaps demand has outstripped supply.
As one who went to this type of diet in April, I can tell you that my food bill is up 40%. It's a lot more expensive to buy beef, fish, cheese and eggs than it is to buy pasta, bread, rice and frozen pizzas. It's not cheap getting all those fresh vegetables, yogurt and berries either.
But it's worth it to me. My health situation has done a 180 degree turn in the past six months. I feel 10 years younger - only 20 years poorer! If only fresh cod and prime rib didn't cost $7.99 a pound.
The decreased US production is the result of enviro-whackos and drought. Beef producers are getting a higher price for their cattle right now. I work at a cattle auction and have, off and on, for 30 years and I've been amazed at some of the prices.
The part about Canada is probably making a difference but in the beef industry diseases aren't taken lightly. Our state has a Tuberculosis quarantine and every cow has to test negative before it leaves the state. This is because ONE cow in a dairy herd tested positive and the quarantine will not be lifted for 7 years and only if there are no more positive tests.
However, high prices are always the cure for high prices; it's just going to take a while for the cure to kick in. Look for the herd to begin increasing in the very next cycle -- calves are the original stock splits, and this kind of stock split will be as popular for the next year or two as the paper kind was in 1999 and 2000.
FReegards!
We've seen this model in other industries, btw -- integrate (at least partially) or die.
As regards subsidies, I wish I had a tape of a phone conversation with the former head of the House Ag committee, Tom Foley, in 1974. I guarantee you that he found out, in explicit detail, exactly what I thought (and still think) of subsidies, particularly subsidies to not produce.
We've seen this model in other industries, btw -- integrate (at least partially) or die.
As regards subsidies, I wish I had a tape of a phone conversation with the former head of the House Ag committee, Tom Foley, in 1974. I guarantee you that he found out, in explicit detail, exactly what I thought (and still think) of subsidies, particularly subsidies to not produce.
Carolyn
Yeah.
But it is sure nicer to look in the mirror and not see a bowling ball staring back atcha, eh?
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