Bonanza for beef farmers
6:07 PM 8/09/03
Jason Stein Business reporter

Steak and hamburger prices have sizzled all summer, setting all-time highs for both farmers and consumers despite near record levels of beef production for the year.

Whether the prices stay high depends on the two factors that have fueled the trend so far - strong demand for beef and a summer-long ban on Canadian beef imports, industry analysts said.

On Friday, U.S. Secretary of Agriculture Ann Veneman said the United States would partially lift the ban, put into effect after the May discovery of mad cow disease in Alberta, Canada. The move will allow some 40 percent of the banned imports, including beef from cattle under 30 months of age, back into the United States as early as the end of the month, U.S. officials said.

Even with the continuation of some import restrictions, beef farmers say they're concerned about becoming victims of their own success, driving away consumers with high prices.

But for now, burgers and steaks are selling well, at premium prices.

The U.S. Department of Agriculture found that the average checkout scanner price for all beef products rose to $3.26 per pound in May, up 11 percent from 2002. Statistics from the U.S. Department of Labor showed that prices for key cuts including ground chuck and boneless sirloin steaks rose again in June.

The prices, not adjusted for inflation, represent record highs.

Beef cattle have also risen dramatically in value. Cattle-Fax, an Englewood, Colo., group that tracks the U.S. beef industry, found that fattened cattle sold for 80 to 81 cents a pound at the end of July almost 20 percent higher than last year and the highest prices ever for that month.

Dave Weaber, research director for Cattle-Fax, said the market actually rallied Friday afternoon when it became clear that the ban on live cattle from Canada would remain in place, driving October futures prices up $1.20. "It's hard to make a bearish picture out of this thing," Weaber said, "It's fabulous times."

Beef farmer Terry Quam agreed. "We've been waiting for this," said Quam, president of the Wisconsin Cattlemen's Association. "For once I think the guys can buy some cattle, get some future contracts, and make some money."

Most remarkably, the prices have risen during a time of high beef production. The U.S. Department of Agriculture reported that beef output in June rose 4 percent over last year to reach a new monthly record. Weaber said that the loss of Canadian beef imports, which normally account for 6 to 7 percent of the U.S. beef supply, left an opening for this increased production.

After several hard years, Wisconsin beef producers are welcoming prices like those seen in Johnson Creek Tuesday at an auction held by Equity Cooperative Livestock Sales Association.

As handlers led the wide-eyed cattle into the sawdust-covered ring, the auctioneer called out the rising bids in his rapid slur, the prices buzzing from his mouth like bees from a hive.

With a nod, livestock buyer David Donisi bought a pair of choice Holstein steers for nearly 78 cents per pound, the highest price of the day. That's 10 cents more than he would have paid for the steers a year ago, Donisi said after the auction.

That extra dime is good news for Wisconsin farmers, who in 2002 raised some 330,000 steers weighing 500 pounds or more, according to the Wisconsin Agricultural Statistics Service. But it has raised prices in turn for the meat packing industry.

Distributor Ron Krantz said that beef packers and shippers are passing on part of these costs to consumers. But Krantz, vice president of UW Provision Co., 2315 Evergreen Road, said that the higher costs still mean tighter profit margins for his company and industry.

So far, neither the weak economy nor the higher beef prices are driving his customers away. The Beef Demand Index maintained by Virginia Tech's Research Institute on Livestock Pricing actually rose to 115 in the second quarter of 2003, up from 110 for the same period in 2002.

"People bought the meat regardless," Krantz said, though he noted that some customers are turning to cheaper cuts. "I think people are saying, 'If we want to have a steak, we're going to have a steak.'"

Dave Weaber of Cattle-Fax agreed, predicting that fed cattle prices would dip slightly over the next two to three months and then rise to at least 80 cents per pound by year's end.

"This year demand has been so good it's hard to see when that's going to change," Weaber said.

The high prices might even withstand the return of Canadian beef imports, Weaber added, pointing out that Canada's beef surplus may be smaller than American farmers fear. CanFax, an Alberta-based group that tracks the Canadian beef industry, reported that cash-strapped farmers in Alberta and Saskatchewan placed only 18,000 cattle on feed in June, 88 percent less than in 2002.

Yet Wisconsin beef producers remain doubtful that their newfound profits will keep flowing in.

In the meantime, the extra income has allowed cattleman Mark Riechers of Darlington to send two tractors into town to be overhauled and to reinvest in his farm. But Riechers said he hasn't forgotten a recent past in which cattle farms like his were losing as much $150 a head. For months he's been signing futures contracts, trying to lock in what profits he can.

"After being taken to the woodshed by the marketplace the last couple of years, I felt I could not afford the risk," Riechers said.