Got Meat? Supermarkets Say Yes
Noticed lower prices on steaks, chops and chicken lately? Thank Russia for it.
After blocking all shipments of U.S. poultry earlier this spring, the U.S.’ best customer for chicken has since only allowed a trickle of goods back in. That has thrown hundreds of thousands of tons of drumsticks back on the American market, sending poultry prices plummeting.
Those chicken discounts, coupled with dampened demand for a record level of beef and other meat being produced in the still-fragile U.S. economy, has created an American meat glut that could last through the summer, analysts say. A Mexican ban on American poultry, announced earlier this week, could only worsen the situation, they say.
“It’s going to be a bonanza for consumers” this summer, said Steve Kay, publisher of Cattle Buyers Weekly in Petaluma, Calif.
Retail prices for chicken, beef and pork already had edged down in the first part of the second quarter. Ground chuck fell 26 cents on average to $1.91 a pound, sirloin tip roast fell 12 cents to $2.78 a pound, and whole fryers dipped 6 cents to $1.01 a pound, according to a market basket survey by the American Farm Bureau Federation.
But those modest price cuts, analysts say, barely reflect the huge price drops producers have endured in recent months.
Smithfield Foods Inc., the world’s largest hog producer and pork processor, said last week that profit in its last quarter fell by more than half, thanks to the lingering effects of the poultry spat with Russia, which many see as retaliation for President Bush’s ban on Russian steel imports.
With wholesale prices dropping almost weekly, the Department of Agriculture said Friday that it expected livestock sales to decline to $99.4 billion this year, from $106.4 billion in 2001.
Although it might seem odd that a country such as Russia could have such huge sway on the American meat market, consider this: Russia buys about 8% of U.S. chicken, more by volume than all the beef the U.S. exports to the rest of the world.
Until more of this cheap chicken is taken off the market, the nation will continue to be awash in meat.
That is, analysts say, unless droughts in Colorado and elsewhere affect cattle production. Or if exports to Japan pick up again, as consumers there regain their appetite for beef after last year’s scare over “mad cow” disease.
“We still have not picked up the high end of our beef exports [there],” said market analyst and former cattle feeder Andrew Gottschalk, of Colorado-based R.J. O’Brian & Associates.
Some ranchers tried to hold on to their cattle and continue feeding them until prices picked up again. That strategy backfired. Although it may have reduced the number of cows coming to slaughter at any given time, those brought in recently were chunky--24 pounds heavier than last year, enough to keep prices low.
Farmers and ranchers complain that U.S. supermarkets have done little to ease the glut, offering modest discounts when they could be rolling back prices significantly.
Representatives of Albertson’s Inc. say the chain does not slash prices, just as it does not raise prices substantially when wholesale meat prices go up.
“Our retail prices don’t usually change that much. We absorb small increases and don’t change prices for small decreases,” spokeswoman Karen Ramos said.
Wholesale prices for frozen leg quarters, the cut typically bound for Russia, have been slashed in half from those a year ago, to about 20 cents a pound, said Richard Lobb of the National Chicken Council.
Beef ribs, the source of rib eyes and prime rib, have dropped 16.8% on the wholesale market in the last year, to $1.78 a pound, Gottschalk said.
After nearly a year of break-even prices or losses, beef producers are just now beginning to pare booming production, a fact that should aid prices this fall.
“People are just kind of hanging on,” said John Harris, California’s largest cattle feeder, who also runs his own Central Valley meatpacking operation. “You lose money some years [in ranching] and this is one of them.”
Chicken producers, meanwhile, are lobbying to ease the sanctions on their products both in Mexico, which has blocked imports from seven U.S. states on fears of avian influenza, and Russia.
A technical team of Russian agriculture officials met with USDA officials in Washington this week to hash out their concerns about sanitary conditions at U.S. plants. And Agriculture Secretary Ann M. Veneman said she has been discussing the matter with Russian Agriculture Minister Alexei Gordeyev on the phone.
“We want to talk about the broader relationship [with Russia] in addition to how we move forward to get this chicken issue resolved as quickly as possible so that we can continue to have access to that very important market,” Veneman said this week at the World Food Summit in Rome.
Although Russia’s poultry ban was lifted in April, U.S. producers have had a hard time getting new permits to ship into Russia. And some product has been detained.
In the six weeks since the ban was lifted, about 10,000 tons have made it to the Russian market, less than a tenth of what was shipped during the same time last year, said Lobb of the National Chicken Council.
“Russian companies are afraid to even exercise the permits [to import],” he said, because they fear product will sit in cold storage at the port for weeks.
Lobb said he believes the poultry spat ultimately will be resolved through new tariffs on U.S. poultry that could be enacted next year.
The rest of this year, however, he expects to be a tough one for the poultry industry and the rest of the meat business. And pork producers are expecting near-record production in the fourth quarter.
“If you have the freezer capacity,” Lobb said, “this is the time to stock up.”
