EVEN in an economic downturn Americans aren't ready to give up their love for beef, but ripples in the wholesale market suggest carnivores are trading down, according to analysts.
US wholesale beef prices are up from two weeks ago, with prices for beef ribs, chucks and rounds above a year ago. But loins are lagging, suggesting the economy's effects on the current price structure are varying with the cut, meat economists and analysts said.
Chuck and round cuts come from the end of a steer and when not cut into roasts and sometimes steaks, are often made into ground beef. Loins, meanwhile, are almost always cut into steaks.
Thus, the end cuts are gaining from being ground up as the consumers economize their budget by eating at home, said Jim Robb, agricultural economist for the Livestock Marketing Information Center.
Sit-down restaurant business has declined over the last year as disposable incomes and consumer confidence dwindles. As more people eat meals at home, fewer steaks are consumed. Corporate earnings for restaurants, especially causal-dining chains, are reflecting this trend and many are also cutting earnings guidance.
It's also showing up in the wholesale middle-meat beef consumption, said Gregg Doud, agricultural economist for the National Cattlemen's Beef Association. Considering half of all U.S. beef consumption is done away from home, consumption of the middle meats - steaks and rib roasts for instance - is down. Doud said restaurant dining is the driving force behind these cuts.
Other analysts said there is a step-down effect as consumers substitute a more expensive beef meal for a less expensive cut more often. Further, they won't substitute a restaurant steak one-for-one with a home-cooked or grilled steak either so they won't buy enough steaks in the grocery store to offset less restaurant dining, the economists and analysts said.
"The price per package or serving is too much for many consumers," said Andy Gottschalk, market analyst at HedgersEdge.com and R.J. O'Brien. The hotel, restaurant and institutional business is down considerably from last year, and the squeeze on incomes benefits the fast-food and retail sector, he said.
Tenderloin prices currently are getting some support from seasonal demand and lower production over the last few weeks, Gottschalk said. He expects fewer beef features in retail groceries in December because of the November run-up in wholesale prices.
Robb said troubles with loins cut across the lamb market as well. Lamb chops are almost entirely a restaurant item, and prices for this product are down from a year ago.
The versatility of a certain cut can make a difference. Beef ribs are getting some step-down support along with a kick from late purchases for the holidays, the analysts and economists said. Ribs, unlike the loins, can be a roast or a steak. Chuck products - in addition to being ground are finding support from the South Korean export market, Robb said
Brett Stewart, market analyst at Cattle-Fax, said the recent kick in wholesale rib prices could be linked to later-than-usual buying for the holidays.
Market analysts said retail beef buyers held back from holiday rib bookings in October waiting for prices to decline and because they were unsure of consumer demand for the expensive product. It'll still be expensive for shoppers, but not as expensive as it would have been if buyers had booked it at the higher wholesale prices seen the first week of October, they said.
So the apparent disparity in wholesale beef markets isn't so much that loins are underperforming in relation to the rib, the analysts said. It's that the rib is outperforming the loin temporarily. Most said they expected rib prices to decline soon, once seasonal demand backed off.
And higher wholesale prices may not translate into similar gains at the retail level this holiday season. Robb said there is no one-for-one correlation between wholesale and retail prices, especially in troubled economic times. Grocers know their limits.
The U.S. Department of Agriculture's reported price Wednesday for beef ribs was $275.88 per hundredweight, up $21.42 from Tuesday but still short of the Dec. 3, 2007, high of $294.23. Loins were reported at $195.87, up only $0.89 from Tuesday and well short of the Dec. 18, 2007, peak of $228.03.
By Lester Aldrich, Dow Jones Newswires