Beef prices up, may continue to climb in 2012

Shoppers may get sticker shock when staring at that juicy steak in the meat case.

Prices for choice retail beef hit record highs in each of the last four months, topping out above $5 per pound in December. They're expected to keep going up this year, due to rising feed and fuel costs, increasing exports and a shrinking cattle herd.

According to a USDA report released Friday, the latest U.S. cattle inventory totaled 90.6 million cows and calves. That is the lowest Jan. 1 inventory of cattle since 1952, when there were 88.1 million.

Local numbers of cattle farms and the herds on them are also decreasing.

"Older people are getting out of the business, which has been going on forever, but there's also a tremendous amount of pasture and hay ground that is now being cultivated and put into row crops. The high price for corn and soybeans has got people switching over that direction," said Gerald Shinn, owner of Performance Blenders in Gordonville, a feed dealer and commodity contracts broker who works with local beef producers.

Every two to three weeks, Performance Blenders sends a truck loaded with 40 head of cattle to U.S. Premium Beef in Kansas for processing. The company is one of the largest exporters of beef to Japan, Shinn said.

"Exports all last year continued to be good on beef," he said. "Between exports, less cattle available and continued demand here the prices just keep going up."

Beef exports for 2011 were expected to be 21 percent, or 2.78 billion pounds, higher than 2010, according to a USDA report issued Jan. 19.

While the weak U.S. economy has people pinching pennies, the demand for beef hasn't diminished.

"Customers always notice when prices go up, but our sales are holding steady," said John Townsend, co-manager at Schnucks in Cape Girardeau. "Customers are innovative on how they feed their families."

Townsend is seeing customers buy more than they normally would when certain cuts of beef are on sale, then fill their freezers.

"Anytime you see the economy take a hit, like it has for the last three years, you see ground beef go up in sales," he said.

Customers are also cutting costs on other products, by using coupons and stocking up on staples like pasta and beans so they can afford to spend more on beef, Townsend said.

Mike Kasten, who raises cattle on his farm near Millersville, said the down economy is actually driving up demand for beef -- with more people cooking at home to save money instead of eating out in restaurants.

"People are taking those dollars and getting more from it by cooking themselves," he said.

Kasten expects prices to climb slowly this year but hopes they won't get too much higher.

"We're getting to a point where there's resistance at the consumer level. We don't want people to change their eating habits," he said.

As farmers keep some of their cows and breed them in an effort to replenish their herds, there is likely to be even less beef sold to meat packing plants this year, which may temporarily drive prices even higher he said.

"It's a whiplash effect," Kasten said.

U.S. pork production is in a much different situation. The USDA's quarterly hogs and pigs report released in December pointed to a 2 percent increase in hog production this year. Hog prices are expected to decline about 2 percent in 2012, according to the USDA.

Negative margins

While shoppers are paying more at the store for beef, that extra money isn't padding farmers' pockets. Profit margins for cattle feeders and packers have also been largely negative, the USDA reports.

It's now costing producers more than ever to feed their cattle. Kasten said his feed costs per cow have gone from $1.55 a day in 2005 to $3.55 today.

Kasten blames the 2006 energy bill, which mandated that ethanol be added to the nation's gasoline supply, creating an artificial market for corn and driving up its price.

Corn hit a record high $8 per bushel last summer but has been steadily increasing in recent years.

"Since beef is a supply-and-demand business -- we don't have any subsidies -- people started liquidating their herds because the cost shot up so fast," Kasten said.

Rising fuel and fertilizer prices have also motivated producers to get out of the beef business.

For years, Missouri has ranked second in the nation in the number of beef cows, Kasten said, but fell to No. 3, behind Texas and Nebraska, in Friday's USDA report.

mmiller@semissourian.com

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