Pricing Pressures

by Steve Krut
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Rising prices for meat are challening small, family-owned processors.
Small processors are feeling the bite of higher prices for meat.

In a period of record-high beef prices, skyrocketing pork prices and uncertainty over avian influenza, meat processors recognize a pricing resistance that exists in the meat-eater customer base. Finding out how some small family-owned processors are dealing with this crisis reveals that those best at riding through this turbulence are seeking solutions that will gird them for the long term.

For 30 years Dennis Schaardt has operated Den’s Country Meats in Table Rock, Neb., population: 250. Surprisingly, Schaardt says he has sold more high-priced beef in the past 18 months than at any time in the past three decades.

“We’re as rural as you can get and our entire region has been facing prolonged drought and severe wet weather for some time now,” Schaardt explains. “We have to keep running our business, and out here there are not that many suppliers and cattle sources available to find better cattle prices.”  

Dennis Schaardt, owner of Den's Country Meats, says his customers know beef prices won't be declining any time soon.
Dennis Schaardt, owner of Den's Country Meats in Table Rock, Neb.

He says it was becoming impossible to keep raising prices on higher-end processed items like jerky and snack sticks, prompting the business to go from a 4-oz. to a 3-oz. package size for those products.

“We didn’t get a lot of customer resistance since beef prices have been at record-high prices for such a long time,” he notes. “Folks around here love their beef, and we’ve been selling a lot more gourmet-style burgers and higher-end fresh beef cuts. We’ve tried to exercise options like going to more chicken-based products, but now the poultry market is taking a beating with prices going crazy.”

Schaardt says his customer base is astute enough to recognize that an easing of beef prices isn’t likely anytime soon. He adds that knowing the source of meat is important to them, and he’s finding a growing trade in people who drive 60 to 80 miles from the Lincoln area to fill their coolers with his products on the weekends.

Challenges with Pork

Pork, another commodity, fills the main sails for S. Wallace Edwards & Sons, of Surry, Va., and third-generation President Sam Edwards says things have improved with the lowering of protein costs in that category.

Sam Edwards, president of S. Wallace Edwards & Sons, says lower pork prices have helped his business.
Sam Edwards, president of S. Wallace & Sons, says lower pork prices help in the near term, but long-term strategies may include bring some processing work in-house.

“About 98 percent of our products are pork,” Edwards comments, “and we had a rough few years.”

“Some items like country hams can take as long as 18 months to bring to market,” he explains. “You have to buy monthly to guarantee your supply and can’t hedge much on future pricing.”

Edwards contends that having adequate inventory for the holiday seasons means that using your experience to guess on pork prices is important enough to “gamble every day.”

Prices for pork have dropped in recent months, but having 45 percent of his business in retail sales through websites and catalog shopping means finding more long-term solutions to reducing costs.

“We’ve been following more of what I call the European model,” Edwards explains. “We found that in areas of deboning, slicing and packaging that other firms we could partner with were doing those things more efficiently than us. Where we were getting a 50 percent yield on boned hams, others were able to get yields of 68 percent.”

While lower pork prices are helping the company in the immediate term, Edwards says they are challenged by cost issues such as more effective use and disposal of byproducts.

“We see our market as specialty foods,” he points out. “That means they may not be as price sensitive as those in other categories, but we have to look at our consistency in product quality. Outsourcing some of our processing work can and does work for us. Maybe that direction also means investing in more efficient equipment with an eye to bringing that work back in house over the longer term.”

Jerry Haun, executive secretary for the Northwest Meat Processors Association (NWMPA) and a small processor himself, says the commodity price issue was a topic of major discussion at a Univ. of Idaho July workshop attended by 50 representatives from 23 plants throughout the region.

The Walla Walla, Wash., processor says most of those attending rely heavily on custom slaughter and further processing and share the same concerns.  

Jerry Haun, a small meat processor in Walla Walla, Wash., says beef exports have supported higher prices
Jerry Haun, executive secretary for the Northwest Meat Processors Association.

“The custom business was as slow as we’ve ever seen it in the spring,” Haun says, “but things seem to be rebounding and the drop in pork prices has had much to do with it.”

He says the strong beef export trade has kept pricing in that commodity high throughout the Northwest, and many of his loyal customers are still willing to spend $500 on a beef quarter.

Haun further explains that poultry isn’t as strong in the area and aside from a few larger processors most poultry meat has to come in from other areas of the country. Smaller processors have to go through the distributor market to buy chicken meat and find there aren’t many savings there.

“To be honest, most of the processors are looking at other ways to save on production costs,” he continues. “We are in an area where the effective minimum wage is $10 an hour, and medical care costs have risen greatly. The processors I’ve talked to are investing in more efficient equipment to reduce labor costs. Things like Tipper Tie systems, rollstock machines, shrink films and better stuffers can amount to long-term overall savings on costs.”

Haun adds that a key concern for smaller processors is to keep product quality high and let customers know that their beef is coming from local farms.

“Smaller processors have to keep a sharp eye on their suppliers because boxed meat quality can vary greatly,” he explains. “When you get a delivery of fatty pork or beef, it’s important to be able to utilize that trim and fat in value-added specialty items like sausage. Effective use of all that comes in the door is essential to everyone.

“We all have to deal with the same cost issues, but the consensus seems to be that good equipment upgrades will get us through these higher pricing periods,” Haun adds. “We all value our employees, but have to realize that the custom-trade processing costs can’t get too prohibitive or that customers will go to big box stores and buy smaller quantities. So the bottom line is to keep an eye on total labor costs and install better equipment when it can do the job more effectively.”

Making Adjustments

Jeff Sindelar, associate professor and meat extension specialist, says many smaller plants are confident in the quality of their products.
Small processors have successfully balanced product lineups to help offset higher meat prices, says Jeff Sindelar of the Univ. of Wisconsin-Madison.

Jeff Sindelar, associate professor and meat extension specialist at the Univ. of Wisconsin-Madison, agrees that many small processors have been forced to absorb some of the margin when their most popular proteins have been priced beyond customer expectations.

“Some of the processors we work with have opted to go to smaller-size packaging and moved to more poultry when beef and pork prices hit the roof,” he says. “They had to change their product offerings and are still doing so as pork has come down and poultry seems to have risen.”

Sindelar says most of the smaller plant operators have a good confidence level with the quality of their products and are reluctant to lower their standards. He notes that many have taken their higher-end cuts and put them on sale and are stocking more offerings to give customers greater price options.

“These are among their top strategies, but offering their customers more specials seems to be the way most are weathering the high cost period,” Sindelar explains. “They seem to find a way to balance their product lineups to help offset price increases, but they have been able to sustain the high quality that keeps their base clientele coming back.”

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