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Post-LFTB market still trying to find center: economist
Story Date: 7/11/2012
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Source: Lisa M. Keefe, MEATINGPLACE, 7/10/12
The phrase “pink slime” has almost disappeared from headlines, but the ripple effects of the media spectacle over lean finely textured beef continues to rock the beef market boat.
In late April, Kansas State ag economist Glynn Tonsor estimated that the fallout could be felt for up to six months. Now, he says, that evaluation of the market is proving optimistic.
“What I focused on [in earlier commentary] was the ratio of values between fresh 90 [percent lean beef trimmings] and fresh 50 [percent lean beef trimmings], because the value of fresh 50s hit the floor” in March and April, Tonsor told Meatingplace. “End of April, [the ratio was] beginning to bounce back [and I thought the effects] might be more short-lived than I had originally thought.”
Tonsor spent some time updating his calculations for Meatingplace:
Meatingplace: It seems few people are talking about LFTB anymore, but it’s still a major factor in the beef marketplace. What’s going on?
TONSOR: I think the industry’s still trying to figure out the permanent way they’re going to respond. Early on there were some Band-aid solutions, but they’re learning. The market-level impacts are still developing.
Meatingplace: What are some of those market-level impacts?
TONSOR: Before [the LFTB story began circulating], fresh 90s were two times [the cost of] fresh 50s. In March and April that ratio more than doubled, peaking out at 4.2. Importantly, fresh 90s held up but the floor fell out from under fresh 50s. End of April, they were beginning to bounce back … but since then the floor’s fallen back out from under fresh 50s and ratio of 90s to 50s is back to 4.4. Back in pre-LFTB days, 2.0 used to be the rule. I don’t think a ratio of 4 will persist — we’ll pull back that ratio — but I think it’ll always be above 2.
Meatingplace: What does that mean for processors?
[I calculate that], if 50s are worth half what they were before [the LFTB story broke], you have about three-quarters of 1 percent of the reduction in the total composite cutout value. I also think that understates the impact: Other [categories of] trimmings have been impacted, as well.
Meatingplace: Three-quarters of 1 percent doesn’t sound like that much.
TONSOR: That translates to about 91 cents per cwt, per fed cattle going through the system. It’s not trivial when you multiply it by 33 million head slaughtered annually (including steers, heifers and culled stock). In an era of losing money, that’s a big deal.
Meatingplace: Are there other ways in which this story is having a long-term fallout?
TONSOR: The huge spike in Australian imports is obviously related to this, too. We have to be careful because there’s been an exchange rate adjustment and we would have bought more Australian beef this year than we did last year anyway. But I think it’s up 46 percent through April, year-over-year.
What isn’t getting talked about is that from January to the end of February, the number of trades in 50 [percent lean beef trimmings] recorded through the USDA mandatory price reporting system was 30.6 a day. From March until the present day, that average is 23.8. Where did the other fourth [of the volume of 50s] go? We didn’t quit making it.
Maybe it becomes dog food or whatever. I’m pretty confident [packers are] not getting zero value but they’re getting a lot less than they did.
Meatingplace: What has all these changes meant on the retail end?
TONSOR: The data I have at retail is not precise enough. The products are moving but I can’t isolate the impact on retail or processor margins. [Retailers] may not be passing along the full cost impact to consumers yet. This event isn’t over although the media attention has backed off.
For more stories, go to http://www.meatingplace.com/.
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