CHICAGO — Competitive eater and restaurant owner Jamie McDonald had no problem downing almost a dozen 11.5-ounce hamburgers in 10 minutes, or 9 pounds, 7.4 ounces of pulled pork. It’s the cost of the meat that’s making him gag.
McDonald, who used $70,000 of his eating-contest prizes since 2012 to open Bear’s Smokehouse BBQ last June in Windsor, Conn., plans to raise menu prices 10 percent to limit the profit squeeze on 5,000 pounds of weekly meat purchases. His bill reached $12,000 as beef costs jumped 30 percent in six months and pork surged 20 percent in March.
“That’s not going to be the last increase,” said McDonald, 37, known as “The Bear” and the All Pro Eating Promotions title holder in apple pie, fried pies, hamantash, hamburgers, onion rings, pulled pork and (hands free) pumpkin pie. “There’s not really an end in sight yet.”
At a time of year when U.S. prices usually are at seasonal lows, meat is rising faster than any other food group, even before the peak in demand for summer grilling. The domestic cattle herd is the smallest since 1951, after years of drought and high feed costs, and the spread of a piglet-killing disease is tightening hog supplies. Cattle and hog futures in Chicago reached record highs this month.
While higher wholesale prices are a boon to suppliers including Tyson Foods, they are eroding profit margins at Chipotle Mexican Grill restaurants and at Hormel Foods, the maker of Spam meat spreads. Vienna Beef and Best Chicago Meat Co. said they are charging customers more for their hot dogs and sausages.
“This is very unusual to see this kind of price increase this early in the season,” Donnie King, the president of prepared foods at Springdale, Ark.-based Tyson, the largest U.S. processor of beef and chicken, said in a March 13 presentation to analysts.
Cattle futures reached an all-time high of $1.46825 a pound on March 5 on the Chicago Mercantile Exchange, up 25 percent from last year’s low in May. Hog futures surged to a record $1.33425 a pound on March 18 and are up 48 percent this year, trailing only coffee among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index.
Domestic wholesale pork is up even more, gaining 56 percent this year to $1.315 a pound on March 21, while beef advanced 20 percent, after touching $2.4406 a pound on March 18, the most since the U.S. Department of Agriculture began using its current measure in 2004.
As of Feb. 25, the USDA predicts retail beef and poultry prices will advance 3 percent to 4 percent this year, faster than the 2.5 percent to 3.5 percent increase forecast for all foods. Steve Meyer, a consulting economist in Adel, Iowa, for the National Pork Board, said the government’s meat forecasts are too low, and that pork will jump as much as 10 percent.
“With the kind of supply situation we’re going to be in this summer, I don’t think there’s any way we’re going to avoid records” for beef and pork, Meyer said.
At Vienna Beef in Chicago, which has been making sausages and deli meats for 121 years and produces more than 150 million hot dogs annually, Co-President Jack Bodman said he’s been surprised by the surge in costs before the grilling season starts and that retail prices may increase until demand slows.
“We’ve had to raise prices more than once this year,” Bodman said. “This type of market shift will affect all processors and all consumers eventually. It may not happen immediately with everybody. Eventually, the cost goes in.”
Higher meat costs reduced fourth-quarter profit margins at Premium Brands Holding Corp. to 18.4 percent from 19.9 percent a year earlier. The Richmond, British Columbia-based maker of pre- packaged sandwiches and burgers boosted prices twice during the quarter in most products, Chief Executive Officer George Paleologou said on a March 13 call.
Costs will keep rising in the second half of the year, according to Chicago-based Hillshire Brands Co., the maker of Ball Park hot dogs. “We’re taking broader pricing actions than we anticipated,” Hillshire President Sean Connolly said on a Jan. 30 call.
At Best Chicago Meat, which sells 20 million pounds of pork and beef to 400 grocery stores, including Moo & Oink ribs and David’s Kosher hot dogs, prices have been increased to reflect costs that are up as much as 10 percent since the end of December, President David Van Kampen said.
“We’ve had to cut back on some promotions and things like that to keep our margins where we need to stay above water,” said Van Kampen, a four-decade veteran of the meat business. “We’re hoping that we’re going to see some relief coming into April and May. If not, then we’re going to have to go for another round of price increases going into early summer.”
Consumers may balk at the increases. A survey of 1,900 people last year showed 39 percent are eating less red meat, citing higher prices as the lead deterrent, behind health concerns, according to researcher Mintel Group in Chicago. Red-meat consumption will drop to 101.7 pounds per person this year, from 104.4 in 2013, according to the USDA.
“I don’t think people totally quit eating beef or pork,” said John Nalivka, the president of Sterling Marketing Inc. in Vale, Oregon. “They just buy less.”
The higher costs may spur a switch to chicken. The USDA estimates poultry consumption will increase to 100.1 pounds per person this year from 99.1 pounds in 2013.
“When you look at beef and pork, the competing meats, it does give chicken a window to step up and seize a little bit of the market,” said Bill Roegnigk, an economist for the Washington-based National Chicken Council.