050617 Demand, Thin Herds Beef Up Meat Prices

The average retail price for a pound of choice beef rose to $4.25 in April, the second-highest month ever, the Agriculture Department reports. That's up 5% from the same month last year and 17% from two years ago.

ConAgra Foods, whose brands range from Armour to Hebrew National, cited high prices Tuesday as harming profitability of its packaged meats operation for its quarter ended May 29.

The main reasons for high beef prices: smaller herds, because poor rainfall in much of the West until this year reduced the food supply on grazing lands, and continued strong demand, says Gregg Doud, chief economist for the National Cattlemen's Beef Association. Ranchers are hesitant to build their herds until they see a few years of good rainfall. While Texas and California had good winters, he says, much of Montana and Wyoming are still drier than usual.

High prices are starting to get customers' attention. "They are constantly saying, 'When are they coming down?' " says Lauri Stettler, owner of Holmen Meat Market, a small retailer in Holmen, Wis. More customers are buying beef day-by-day instead of a stocking up the freezer.

Unlike the highest month ever for beef prices - $4.32 a pound in November 2003 - there's no food safety scare to blame. Since then, Canadian cattle have been banned from import to the USA.

Cattle supplies are expected to remain tight this year, the Agriculture Department says.

Still, it's a good year for ranchers.

"It puts a smile on my face to see our members are able to afford that new pickup truck or pay off some of those debts," says Benjamin Higgins, executive vice president of the California Cattlemen's Association. That is in stark contrast to the 1990s, when he says many longstanding ranches in the nation's sixth-biggest beef-production state went bust.

Upscale dining tastes may be partly to blame for high prices. Doud says Americans still consume an average of about 67 pounds of beef a year but are spending more on better cuts of beef.

That's no consolation to hamburger chains, however, which are having to pay more for their most important ingredient.

Jack in the Box, a 2,016-store chain based in San Diego, reports its beef costs rose 18% in its second fiscal quarter ended April 17 and are expected to be up 10% for the fiscal year ended Oct. 2. Burger prices haven't risen as the company tries to find other ways to pare costs, spokesman Cason Lane says.

CKE Enterprises, which operates the Carl's Jr. and Hardee's chains, has raised prices once this year, targeting less-price-sensitive offerings such as combo meals, spokeswoman Anne Hillock says. It's also supplementing its beef-heavy lineup with products such as a new Carl's Jr. chicken sandwich that launches later this month.

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