Rising beef prices worry producers

• Retail prices average %241 a pound more than in 2007
• Supermarkets are packaging meat in smaller portions to keep the purchase price down
• Chicken prices also up%2C but still much lower than beef

DES MOINES, Iowa -- Beef prices are expected to increase as much as 10% by summer, leading beef producers and sellers to worry that their product might become a luxury.

"We can't let beef turn into lobster," said Ed Greiman of Garner, the president of the Iowa Cattlemen's Association.

Retail beef prices have risen by an average of $1 per pound since 2007. Prices for cattle have jumped by as much as 25% in the past two years as the nation's herd dropped to its lowest level in six decades while foreign export demand boomed.

At the Dahl's Foods supermarket in Des Moines, meat director Mike Hoffman showed smaller, cheaper cuts of beef selling for less than $4 per package. Those "will keep customers' taste for beef alive," he said.

Hoffman said that many of the choicer cuts of steak such as ribeye and New York strip now are sold in 12-ounce cuts rather than the traditional 16-ounce cuts to keep the checkout price under record prices per pound.

"Our suppliers have held the line as best as they could, but we've seen a 5 to 10% increase in wholesale costs in recent months," he said. "Some of that cost has to be passed on."

"Those folks who have freezer storage space at home might want to stock up now, while we're still in the low-demand winter season before prices go up," Hoffman advised.

At Jesse's Embers in Des Moines, co-owner Deena Edelstein watched the lunchtime crowd fill the 78 seats. The aroma of beef from the open grill spread over the 50-year-old restaurant's little dining room.

She and partner Marty Scarpino are raising prices by about $1 for most items.

"We have to raise our prices, and we hate to do it. But the price of meat keeps going up," she said.

An Ember's lunch customer, Sean Sweeney, said he knows beef from the producing end. He grew up on a northern Iowa cattle farm.

"The cattle producers are caught between a rock and a hard place," Sweeney said. "The price of corn is high, so cattle producers can't afford to keep as many animals. So you have fewer animals and high demand, and that creates high prices."

Corn prices have averaged $7 per bushel in the past 12 months.

"Beef is in danger of becoming a luxury item," Sweeney said. "That won't be good."

Another Ember's customer, Dwayne McAninch, said: "Wages for working people haven't kept up enough, so they can't afford good beef cuts. That's the problem for beef."

Signs of weakening demand for beef have shown up in recent weeks.

Beef's rivals in the protein business, pork and poultry, can reproduce and grow their animal herds much faster so attractive prices mean that the competition for the protein dollar has become fierce.

Chicken prices have reached record levels. But even at a 2012 average retail cost of $2 per pound, chicken is cheaper than the $3.08 per pound composite retail average for all beef cuts from hamburger to choice filets, according to U.S. Department of Agriculture surveys.

Cattle trader Dennis Smith of Archer Financial Services in Chicago said lower chicken prices "will prove to be a tough competitor (for beef) for the consumer dollar."

Jesse's Embers head chef Eddy Perryman notes that as beef prices have risen, "we've sold a ton of chicken, probably as much as ever."

Chicken and fish are crowding the market to the point where Jesse's Embers, for a half-century a temple of beef, last year added the word "Seafood" to the sign outside the restaurant.

But many Jesse's customers vowed to eat through high prices.

"I love beef, and I'll keep eating it even if the price goes up," Ben Bergmann said as he prepared to bite into a beef sandwich covered with cheese and onions.

In recent years, much of the boost for beef demand and prices has come from foreign markets, where U.S. beef is a sign of rising living standards.

But in late 2012, the markets indicated softened demand for beef. Exports dropped by 12 percent as cattle prices bumped against record levels in the second half of 2012.

American retailers, even in the beef-loving Midwest, know that the same price resistance shown by customers in Japan, Mexico, South Korea and Canada can easily appear at their own meat counters.

"We've done a lot to repackage and market beef so that it is more economic," said Hoffman, of Dahl's. The store offers smaller cuts such as the Delmonico or the flatiron that can sell for as little as $3.50 per package.

"We want to make sure that customers don't lose their taste for beef," Hoffman said.