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Steaks becoming rare?

Meat costs hit 'ridiculous' levels with cattle supply at 30-year low

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If you've been waiting for the price of those fancy cuts of grilling steaks to come down for the last half of the summer -- like they usually do -- you're out of luck.

The entire cattle-beef supply chain has been rocked by all sorts of factors driving the North American cattle herd down to its lowest level in 30 years.

While that has wreaked havoc on the economics of cattle production for cattlemen from Manitoba to Texas, it also means steak prices have remained near record highs all summer.

Munther Zeid, whose family owns five Food Fare locations in Winnipeg, said the price of beef has hit "ridiculous" levels this summer.

"Usually around May, or as soon as it warms up, prices shoot up and they keep going up though June. In July they start coming down and levelling out," Zeid said. "That is not happening this year. If anything, they have gone up even more."

He said his stores are trying to keep their retail prices as low as possible and are willing to take a lower margin.

That's the same thing Doug Stephen, CEO of Wow Hospitality, said about the pricing of what he refers to as the "best meat money can buy" that he serves at his high-end steak house, 529 Wellington.

"It's not our goal to just automatically say we're going to run on a 33 per cent food cost and we'll jack it every time (suppliers raise their prices)," Stephen said.

But he said prices have been up to levels equalling the highest he's seen in the 12-year history of 529.

"Ultimately, we hope to see a softening on that," he said. "But if not, we may finally have to take a look at pricing strategies."

Players throughout the supply chain point to supply and demand as the main factors in pricing and if that truly is the case, then prices should start coming down.

The gradual decline in the North American herd size was exacerbated last year by the dramatic spike in feed costs because of the drought in the U.S. corn belt.

Feedlot operators could not even afford to feed the calves so supply to the processing plants declined and there is plenty of over-capacity in feedlots throughout cattle country.

Early this year, Cargill closed a large plant in Plainview, Texas citing a tight cattle supply brought about by years of drought in Texas and southern Plains states.

Because of poor economics, producers have been reducing herds and leaving the business throughout North America.

Last week, Bloomberg News reported U.S. beef production has plunged to a 21-year low after surging feed costs caused ranchers to cut herds. It's meant record prices for consumers and higher costs for buyers across the board from fast-food chains such as McDonald's to high end steak houses like Morton's.

And the Manitoba market is no different.

Cam Dahl, general manager of Manitoba Beef Producers, said the Manitoba herd has come down from about 680,000 head after the BSE scare isolated Canadian beef producers to about 500,000 today.

"The high feed prices last year didn't help the decline in herd numbers," he said. "But there have been additional drivers over the last 10 years -- BSE, country-of-origin labelling, the floods. There has been downward pressure for some time on the Canadian and Manitoba herds."

In addition, the only two beef-processing plants in Western Canada have recently suffered disruptions that have nothing to do with grain prices or BSE.

Last fall, XL Foods Inc. in Brooks, Alta., shut down temporarily and had to do a massive beef recall after a bacteria contamination caused more than a dozen people to become ill. A recent government report said that cost the Canadian beef industry between $16 million and $27 million.

And just last month, Cargill's massive processing plant at High River, Alta., was closed for about a week after a massive rainstorm caused serious flooding in the region.

As far as producers are concerned, there is a hope things will balance out a bit this year.

Trevor Atchison, a producer near Pipestone, Man., and president of Manitoba Beef Producers, said since the U.S. corn crop is looking better this year feed costs will likely come down.

"Supply and demand is working in our favour (this year) and should keep things in balance," he said. "The short supply of cattle will make the market aggressive."

Stephen said the hope is beef prices will start to come down with better supply scenarios in the beef market.

"We're hopeful that we will start to see a softening," he said. "But we buy four weeks out and we haven't seen a softening yet."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition August 17, 2013 B6

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