Lean beef product remains controversial in the press, political leaders weigh inWritten by Christy Martinez
Iowa Gov. Terry Branstad, Kansas Gov. Sam Brownback, Texas Gov. Rick Perry, Nebraska Lt. Gov. Rick Sheehy and South Dakota Lt. Gov. Matt Michels toured the only Beef Products, Inc. plant presently in operation as demand for LFTB orders from groceries across the country have declined since the “pink slime” controversy began. In a press conference following the tour, Branstad compared the media interest in pink slime to the swine flu a few years ago, when pork consumption decreased largely because of consumers’ lack of knowledge about the topic.
Gary Acuff, director of the Center for Food Safety at Texas A&M University, has spoken to the use of ammonia in the LFTB process.
“Ammonia is not a necessary step, but is done to make the product safer,” he said, pointing to other consumer products with ammonia, including chocolate, coffee creamers and tofu. He said the beef industry is heavily invested in food safety and added the science-based process made use of as much beef as possible.
LFTB in Wyoming
“We have been getting so much publicity that it’s been incredibly time consuming to try to get the facts out,” says Wyoming Beef Council Executive Director Ann Wittmann of LFTB. “What we’re seeing in print is not very balanced, but what we’re seeing in social media is a little better. Part of that, I believe, is because the Masters of Beef Advocacy (MBA) program nationwide has been responding, and we have some great spokespeople nationally in both MBA and the scientific community who have done a good job of telling the real story.”
We’re doing everything we can to fight the fight and make sure the truth is out there, and we hope the truth and the science will prevail,” she adds.
Cattle futures on the defense
According to a CME Group report on April 2, cattle futures remain on the defensive, and they say one particularly troubling indicator is the weakness in the price of fat beef trimmings.
“We estimate that 50CL beef trim accounts as much as 10 percent of total beef on the carcass (using USDA cutting yields and taking the highest volume possible for each primal),” say the analysts. “In addition, packers generate another five to 10 percent as extra fat trim, and a good portion of this supply went into making LFTB and related products, as well as into rendering. We have seen a lot of estimates as to the supply of LFTB coming to market. Steiner estimates overall production at around 400 million pounds a year. Other estimates peg this supply at 500 million pounds a year.”
The conversion rate of extra fat trim to LFTB is generally three to one, says CME Group, or it takes three pounds of fat trim to generate one pound of LFTB.
“If 75 percent of the production capacity of LFTB is lost due to the controversy, and this is a big ‘if’ at the moment, it would imply an additional 900 MM pounds of extra fat trimmings available. Some of this product will go into the 50CL supply or traded as extra fatty trim to be blended with leaner product and eventually become ground beef. A large portion will go back into rendering and trade at a discount to what it sold for in the past,” says CME Group.
Traders discount cattle
So how does this affect live cattle? In January and early February, before the heavy weights became apparent and before the controversy over LFTB, analysts were estimating fat beef trim prices for April and May at around $120 per hundredweight (cwt.). On March 30, 50CL beef was quoted at 73 cents per pound.
“This kind of difference translates into about $3.20/cwt. per head live. While we do not have prices for extra fat trim, it is fair to say that prices for this product are down sharply, as well. Traders have been discounting cattle futures based in part on the fact that trim values are weak and could stay weak. The removal of LFTB implies that packers now have to sell a good portion of the fat trim generated from the carcass at much lower prices, thus reducing cattle values,” notes CME Group.
What is a further concern for the market is that once Memorial Day passes, demand for fat beef trim going into hamburgers declines.
“With more fat trim around and weaker demand, we could see further downward pressure in the complex, hence the sharp decline in June futures,” note the analysts.
Impacts to consumer demand
Another factor that is a corollary of the LFTB story is the impact it could have on consumer demand.
“It is always hard to speculate how consumers will respond to specific issues,” says CME Group. “We think it is fair to assume that the longer the issue percolates in the press, the more significant the impact on demand. Different from E. coli, which is an issue that is known to consumers and about which they have been educated, the LFTB issues is new and until the consumer knows more about it, their final demand is unknown or unknowable.”
“The removal of LFTB from a number of retail and foodservice operations implies the need for another source of supply that will replace it,” they continue. “The extra supply can be found, but at significantly higher prices as some lean beef cuts will probably go in the grinder. The consumer will eventually get the supply of ground beef they need, it may cost more even if cattle are valued less.