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Analysts Explain Rallies in Lean Trimmings

12 July 2013

US - Recent rallies in 50 per cent Lean Trimmings have got market analysts discussing market flux and the reason behind price surges.

Markets are marvelous “fixers” of problems if they are allowed to function, write Steve Meyer and Len Steiner.

That is a core belief among “market economists” we suppose but we think current beef markets offer a prime example of the power of markets: 50 per cent Lean Trimmings.

The steady increase in beef cutout values this spring was driven by strength in the prices of a number of individual cuts but a primary contributor was 50 per cent lean trimmings. The added contribution of 50s has been, in fact, a rebound from being a huge drag on cutout values but better is better and a $45/cwt. improvement versus one year ago is MUCH better.

Recall that 50 per cent lean trimmings took the brunt of last year’s “pink slime” smear campaign against lean finely-textured beef, a high lean beef product manufactured from fat trimmings. The process involved ammonium hydroxide (basically ammonia and water) to raise the pH of the product to destroy any bacteria that may be present.

Food grade ammonium hydroxide was declared safe by the FDA in 1974 and had been used in the LFTB manufacturing process since 2001. A separate process uses citric acid to raise pH. The product of this process, according to information from the American Meat Institute, is called finely textured beef. Critics of the products honed in on their not being listed separately on labels even though, since they were 100 per cent beef, there was no requirement that they be listed.

A number of foodservice and retail chains quickly capitulated to the pressure and announced they would no longer use LFTB in their ground beef products, thus reducing the demand for 50 per cent lean trimmings. As LFTB output fell, so did the supply of lean trimmings, driving prices of 90 per cent  and other high-lean trimmings sharply higher.

Livestock Marketing Information Center (LMIC) Director Jim Robb, in a note sent yesterday to LMIC members, pointed out several factors in the recent rally of 50s prices:

  • Fed beef production has been slightly lower, year-on-year, whilecow beef production has been higher. Those changes suggest relatively tighter 50s supply versus leaner trimmings supplies andcreate some additional demand for 50s in formulating 80 per cent of 85 per cent lean ground beef.
  • When 50s demand crashed last year, packers ramped up their internal usage of 50s leaving about half as much of the product on the spot market this year as there was last year.
  • Negotiated (spot) market volume for 50s has, by some accounts, gotten smaller due to more and more product being priced based on formulas. This, of course, is similar to what has been happening for other meat items and live animals in the entire meat complex. Since the negotiated price is most likely driving the formula prices, packers are going to work pretty hard to keep that negotiated price high.
  • 50s have typically comprised a significant portion of our beef imports from Canada. Last fall’s XL Foods/JBS situation slowed those shipments. More recently, the flood related disruptions at the High River Cargill plant have likely exacerbated the problem in the short run. Both have helped push 50s higher.
  • Higher cow slaughter — especially in April and May — and higher beef imports (primarily lean grinding product) have provided more lean trimmings to mix with 50s and 65s to formulate ground beef products. Thus, higher demand for fat trimmings.

Then there is the impact of beta-agonists — which first began to have a dramatic effect on slaughter weights at about the same time the LFTB smear campaign began. There was no quantum change in yield grade percentages (which are largely determined by the fatness of a carcass) in the spring of 2012. In fact, the total percentage of carcasses grading Yield 1 and 2 (learner) has fallen steadily from mid- 2010 through April 2013. So, beta-agonists do not appear to be causing carcasses to be leaner, thus reducing 50s supplies. Therefore, it doesn’t appear that they are a significant factor in higher 50s prices.

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