How High Can Beef Prices Go?

1/12/2013 7:00 AM

Shrinking cattle and beef supplies will force retail and food service beef prices higher in 2013. The key question is how high can they go without forcing consumers away from beef.

Forecasts that retail prices will be 5 percent higher this year come on top of a 5.6 percent increase in 2012, according to USDA’s All Beef price series.

Prices may be at a level that was unimaginable two years ago. The big issue is whether the economy will improve enough to put more discretionary income in consumers’ pockets, which would allow them to afford higher-priced beef.

The U.S. has for now avoided the so-called fiscal cliff. But major financial issues remain and will likely dominate the economy this year. Besides, the last-second deal allows for payroll taxes to increase, which will reduce consumer discretionary income, analysts say.

Retailers are already seeing more beef sold only at feature prices lower than their everyday prices, which has eroded their beef margins. A similar trend might play out this year, as beef will continue to be priced less competitively with pork and chicken, analysts say.

Retailers for years have used aggressive beef features to attract shoppers into their stores. The 2008-09 recession forced consumers to “cherry-pick” the features and trade down in their beef purchases.

The economy is now out of recession, but these trends have continued because retail beef prices have been at record highs. Some large retailers say they used to sell about half their beef on some kind of feature. The amount is now 75 percent, they say. Yet the feature prices of today are the same as everyday prices of only two or three years ago.

For example, the regular price of 70/30 ground beef used to be around $1.99 per pound, with feature prices sometimes well below that. Now it is rare to see this ground beef featured even at that price.

Pennsylvania Center for Beef Excellence Inc. with information from the CME Report, Cattle Buyers Weekly and other resources. For more information call 717-705-1689.

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