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Sticker shock at the supermarket meat case

With the economy and the weather slowly improving, the barbecue grill beckons. But the pork chops could be out of reach.

Sticker shock is arriving at a supermarket meat case near you, as cattle, hog and poultry prices soar in speculator-influenced commodity markets.

The upturn has put an end to a long downward spiral for livestock producers, who until recently have been losing money on every animal they brought to market.

Given the recent strength in retail sales overall, U.S. consumers may be willing to pay a little more for their animal protein. But that’s no sure thing, and some farmers worry about the steeper price tags on tenderloins and spare ribs while the unemployment rate is at 9.7%.

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“It is a big concern,” said Brent Scholl, a Polo, Ill., pork producer. “We need a product that people are going to want, even if it costs more.”

For the last two years, meat prices have sagged, and retail shoppers have enjoyed good deals at the farmer’s expense.

Scholl, who heads the Illinois Pork Producers Assn., said he marketed 13,000 hogs at an average loss of $22 apiece during 2008 and 2009.

Now he’s making almost that much in profit on every pig he sells, and he is using the futures market to lock in favorable prices for months to come, Scholl said. The U.S. Department of Agriculture recently forecast sharply higher prices for cattle and hogs through the summer.

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Hedge fund managers and other speculators have been buying, attracted by the trading action. Many view commodities as a hedge against inflation, and they account for a sizable share of open contracts.

Two years ago, when gasoline at the pump topped out at more than $4 a gallon, speculators took the blame. So far in the livestock markets, they’re “a factor” but not the primary reason for the recent run-up, said Ronald Plain, an agricultural economist at the University of Missouri.

The most important fundamental change came in supply, he said. Producers who were losing a fortune during the downturn cut the size of their herds. The U.S. hog population, for instance, has fallen 6.2% from its peak at the end of 2007, even as the nation’s human population kept growing, Plain said.

The same trend has affected “the whole meat complex,” he said. “Pigs aren’t doing this by themselves. We’ve downsized cattle. We’ve downsized chicken. We’ve downsized the turkey industry.”

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Rising exports and relief from last year’s swine flu scare also gave the market a boost. Yet markets rarely go straight up for long, and some traders expect volatility ahead.

“We’ve got a lot of premium already built in,” said Jason Roose, vice president at the U.S. Commodities Inc. trading firm in Iowa.

Scholl, the pork producer, has simple advice for the consumer: Buy more meat, now. “I’d be buying ahead,” he said.

Yet the broader economy, still weak from the recession, could put a damper on any carnivorous shopping sprees before the grilling season, which runs roughly from Memorial Day to Labor Day, with the Fourth of July as its peak.

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Ground beef, sausage, hot dogs, chicken thighs -- the cheaper cuts still sell better than steaks and chops, Plain noted.

“High-cost cuts haven’t done as well in the recession,” he said. “We need economic growth and lower unemployment for the consumers to pay these higher prices.”

Roose agreed that economic uncertainty played a role in the meat market.

“Will the consumer buy? That is the big unknown,” he said. “If they’re hungry enough, they will.”

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Greg Burns writes for the Chicago Tribune.


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