Record Beef Prices Projected for ’89 : Trade Groups Cite Herd Reductions, Expect 4%-7% Jumps

Record-high beef prices are in store for consumers in the coming months, according to meat industry projections.

Estimates vary on the extent of the increase, but two leading trade groups expect prices to jump between 4% and 7% above last year’s levels.

And premium cuts, such as steaks and roasts, will rise at a rate well in excess of the average cost for all beef products.

Fueling the hikes are steady reductions in the nation’s herds. In fact, 1989 will mark the first time since the early 1960s that fewer than 100 million head of cattle are being raised in the United States.

Complex Reasons Given

Oddly enough, declines in consumer demand for beef and competition from other protein sources such as chicken forced cattlemen to thin their livestock holdings. The decreased meat supplies resulting from widespread liquidations are now responsible for the rising prices.

Further, the availability of leaner cuts has renewed interest in the leading red meat. Even consumers who may have avoided beef because of its fat content are taking another look at the slimmed-down version marketed as USDA Select Grade. Also contributing to the change in beef’s fortunes is a multimillion-dollar advertising campaign.

“Consumer perceptions of beef have improved in the last year or two. The beef in the retail case is a leaner product that is more consistent with demand,” said Chuck Lambert, an economist with the National Cattlemen’s Assn. in Denver. “But it will be one or two years before we can respond with increased supplies to meet the changes.”

In the interim, consumers can expect prices to reach a peak during a three-month period beginning in February, according to Lambert.

The average price currently paid for all beef cuts at the retail level is $2.81 a pound, down slightly from an all-time high of $2.85 reached in late 1988. However, the present price will begin an upward swing in the coming months and hover at a $2.90-a-pound average.

No Reverse

The renewed interest in beef, however, is not expected to reverse a decade-long slide in per capita consumption. The disparity between consumption rates and retail costs exists because the industry has better balanced supplies and demand than has been the case in decades.

Citing U.S. Department of Agriculture figures, Lambert said that Americans will eat about 66.8 pounds of beef in 1989, down from 72.1 pounds last year.

Conversely, chicken consumption is expected to increase to 65 pounds per person a year, or up about 2.5 pounds from 1988’s levels. Consumers also eat about 62.7 pounds of pork annually as well, a level that has remained fairly steady.

Overall per capita meat consumption in the United States now totals about 221 pounds per person a year, and beef’s share of this category will slip below 33% for the first time. In fact, USDA projects that chicken will surpass beef as the nation’s most popular meat sometime in 1990.

“Actually, this past year there were record supplies of all meats if you total pork, poultry and beef,” Lambert said. “There is a lot of competition for consumer spending and the (other) meats have gained market share. We are not operating in a vacuum.”

Despite the disappointing news about consumption trends, 1989 will be the fifth consecutive year that cattlemen have seen profits, Lambert said.

Maintaining profitability, though, will require that the industry constantly juggle production levels in order to prevent consumer resistance to steadily higher prices.

“These are the best of times for producers because it is putting money in their bank accounts,” said Rosemary Mucklow, executive director of the Oakland-based Western States Meat Assn. “But if, in the process, the public gets turned off from the product then . . . that will be sad.”

When beef costs skyrocketed in the early 1970s, for instance, many people readily turned to other meat and non-meat protein sources. This time around, a move away from beef would be much easier on the public psyche because of changes in dietary habits that can be traced, in part, to that very era.

Also entering the pricing equation is the European Economic Community’s ban on sales of U.S. beef treated with growth hormones, a trade measure that went into effect on Jan. 1. There is some uncertainty, though, about the actual impact this action will have on domestic prices. Much of the U.S. beef sold to Europe is composed of specialty cuts--such as organ meats--that are not popular in this country.

Beef Byproducts

Mucklow said that the beef byproducts the Europeans are rejecting may force producers to raise prices elsewhere in order to compensate for the loss.

“If there are more beef byproducts on our domestic market, then their price will go down because liver and kidney is not consumed much here. And if those items become cheaper, then there is more (upward price) pressure on the balance of the carcass to even things out,” she said.

Countering the export loss in Europe, however, may be an expanded market for U.S. beef in Japan. Under a recently signed trade agreement, the Japanese will import 60,000 metric tons of American beef annually for the next three years. At that point, the Japanese will lift the ceiling.

Throughout, though, the Japanese are likely to be interested primarily in the premium cuts of beef, said Lambert of National Cattlemen’s.

And it is these premium cuts--sirloin, prime rib, etc.--that will experience the sharpest increases in the coming year.

“The premium cuts are the loin and rib, the center meat in the animal,” said Mucklow. “You cannot increase the prices of the beef rounds or chucks the way you can the premium cuts. Out of the whole carcass you cannot increase the cost of the byproducts, the briskets, whatever, as you can the steaks and roast. When everything goes up 5% to 10%, the center cuts go up much higher.”

While the current conditions linger, however, cattlemen can congratulate themselves on deriving profit from declining market share.

“Beef is going back on the center of the plate again,” said Mucklow. “People realize the value of having it in the diet. They are missing it and pleased to have it back again. But if beef is priced out of the pockets of most people, then that would be very unfortunate.”