Cows + corn = higher prices

Don't expect beef and cheese prices to fall soon. Even pizza parlors feel the pinch.

By Laura Reiley, Times Food Critic
Published July 18, 2007

Lately the news has been chock-full of reports about food prices going through the roof. The Consumer Price Index, the most widely used measure of the general level of prices in the U.S. economy, is projected to increase 3 to 4 percent this year.

Some of the steepest increases are in the prices of beef and cheese. In May, beef prices were 5.8 percent above last May's levels, and commodity block cheddar is up 55 percent over this same time last year.

Some of these increases can be attributed to an especially harsh winter, which created a difficult environment in which to graze and feed cattle. But another cause seems clear: the rising cost of cattle feed.

And all because this cattle feed, also known as corn, has experienced a new vogue in the production of ethanol fuel.

Aaron Canart, in risk management and procurement with AgriBeef, the country's ninth-largest beef packer and 10th-largest cattle feeder, tracks the price of cattle and beef's "cut out value" that's the price per pound of a carcass, not the price of consumer cuts of beef. He explains that beef prices stayed fairly constant through the 1990s and through 2003.

"In May of 2003, however, we had our export market closed. This shot the market up dramatically," Canart explains. "We thought it was a short-term deal. It wasn't. It's been a new market for the past five years."

Before 2003, the price range per pound of animal was between 60 and 72 cents; after 2003, the numbers shot to 80 to 95 cents per pound. "In the past few months, we've been trading in the upper 90s, and the futures market ranges from 95 to 99," Canart says.

He expects beef prices to stay in that range through August 2008. He attributes some of this increase to the higher price of corn, a 20 percent increase over last year.

"We've increased our supply tremendously, but the jury's out on whether we've grown enough corn this year. Personally, I think corn is going higher."

With higher corn prices, American beef cannot compete with imports from Brazil or other foreign competitors who rely less on corn feed. So we'll see more beef from abroad, and perhaps even a greater reliance on other meats.

"The competition among proteins is going to heat up," Canart says.

For consumers, beef prices are just beginning to reflect these gloomy forecasts. Tampa Bay area retailers have not yet begun to see marked increases in price.

"Beef is going up and down a bit, nothing dramatic," says Rob Chandler, director of operations for Land and Sea stores in Tampa. "That's not to say that it's not going to happen. And we try to hold prices steady as long as possible, so we don't lose customers."

The same cannot be said of cheese. The large-scale "commodity" cheeses have gone up steeply, a noticeable change for consumers. This in turn means higher prices for ancillary food products: Because cheese is the most expensive pizza ingredient, the trickle-down means pizza prices are creeping up.

Pizza Hut, which uses 300-million pounds of cheese annually, and Papa John's, which uses 100-million pounds each year, have raised the prices of their plain pizzas to match those of one-topping pizzas. Mike White, general manager of Papa John's on Bruce B. Downs Boulevard in Tampa, says prices have gone up industrywide to reflect higher cheese prices. At his store, consumers pay $1.07 more per pie than they did at the beginning of the year.

But, as Jamie Forrest, author of the blog Curdnerds.com, is quick to point out, "When you're talking about commodity cheese, you're talking about corn feed. But when you're talking about small-scale artisanal cheese producers, most of them are raising their cows on grass and hay, so to a certain extent they're not affected."

Still, Forrest is not entirely optimistic about the effects of high corn prices on the boutique cheese producer. "If the price of corn keeps going up, long term I could see dairy farmers using their land to grow corn instead."

Or, by extension, he extrapolates, if land prices shoot up as corn becomes more lucrative to farm, dairy farmers might turn from cows to goats: "Goats take up a lot less land."

Laura Reiley can be reached at (727) 892-2293 or lreiley@sptimes.com.

[Last modified July 16, 2007, 17:00:53]