April 28, 2011

US meat retailers gain higher profit due to high beef prices

As cash cattle prices shot up to record highs in March and the futures markets showed incredible strength, meat retailers in turn received 40% more returns following record beef prices.

Ground beef and cuts from the chuck and round led the increase, but middle-meat steaks moved higher, too. Faced with record high prices for the most expensive cuts, more consumers opted to ensure the eating experience by turning to the Certified Angus Beef (CAB) brand.

"As middle meat prices rose, the CAB/Choice spreads widened," said industry analyst Julian Leopold, of Leopold Foods.

Comparing year to year, CAB rib eyes rose 3.2%, from US$5.58 per pound in March 2010 to US$5.76 this March, while the Choice rib eye managed only a US$0.02 increase. That amounted to a 40% increase in the CAB/Choice ribeye spread to US$.56/lb., Leopold noted

He saw a similar pattern in the price relationships for CAB versus Choice short loins and tenderloins. "The 16.1% increase in CAB tender prices, at US$8.95 versus US$7.71 in March 2010, beat the 15.2% increase in Choice tenders," Leopold said. "More importantly, the US$0.52 CAB/Choice spread for tenderloins was even wider at 33.3%."

The Iowa-based consultant made news in 2009 with an analysis of the relative wholesale prices for 15 CAB versus Choice beef cuts, showing demand for CAB outstripped that for Choice for a five-year period that included the recession.

What do the spring 2011 prices mean? "Even in this higher-price environment – with record high cutout prices, abundant grading and weekly increases in beef production – it looks like we're seeing improved high-end beef demand," Leopold said. "Can this continue with high-priced gasoline, several global economic uncertainties and widespread unrest in the Middle East? Only time will tell."