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Analysis: Beleaguered beef purveyors carve out "pink slime" stain

Piece by piece, the men use knives to cut meat and fat off beef carcasses, and grind them into mounds of hamburger.

"We're seeing customers in here that we haven't seen in ages," said store manager Joe Lane. "Everyone's asking the same question: Do you use pink slime?"

Lane is not alone in laboring harder than ever to meet consumers' demands for ground beef free of the ammonia hydroxide-treated filler that roiled the beef industry this spring due to health concerns even though there have been no reported cases of illness due to its consumption.

Leading beef producer Cargill Inc has reverted to hand-carving meat out of trimmings cut from carcasses as a way to salvage some of the lean bits and avoid grinding more expensive cuts -- part of a sector-wide scramble to replace what the industry calls "lean, finely textured beef" (LFTB) but what has been more damningly dubbed by the media as "pink slime."

The effort has helped lift retail beef prices just ahead of the U.S. grilling season while compressing margins for beef processors who have struggled in recent years to cope with rising feed costs and falling per-capita consumption.

The cost of top-grade leaner beef trimmings, which do not require as much processing to reduce the fat content, have surged to historic highs this month. Meanwhile, the price for trimmings that contain 50 percent fat - the raw material used to produce LFTB - has plummeted to multi-year lows.

The hunt for a substitute has also has fueled a boom in U.S. imports, benefiting beef exporters in Australia, New Zealand and Uruguay, where cattle are grass-fed and tend to be less fat than their U.S. counterparts.

BPI SHRINKS, CARGILL CHANGES TECHNIQUES

So far, there is little sign the outcry is waning.

Beef Products Inc, the leading U.S. producer of the beef filler, said last week that the media furor has led it to close three of its four plants and lay off 650 people.

Other beef processors, determined to find a solution to keep their customers happy, have taken a technological step backwards in how they gather the ingredients needed for hamburger.

Few companies understand this shift as well as Cargill. In recent weeks, the company has seen an 80 percent drop in volume in its production of finely textured beef, said Cargill spokesman Michael Martin.

To keep up with customer demand for ground beef without LFTB, Cargill has started having its plant workers cut - by hand - as much of the meat out of its supply of its fattier beef trimmings as possible. Whatever is left is sent off to be rendered into tallow, which is then processed into different products, Martin said.

"When you look at the economics, we feel it's better to hand-trim than grind primals," which are more expensive muscle meats such as chuck roasts and round cuts, Martin said. "It's better to capture most of the lean we can get, rather than send it all to rendering."

MODIFYING THE MIX

Finding enough of a key ingredient - beef trimmings with relatively little fat - to make hamburger more appealing to a critical public has become difficult, say processors.

Here's why: Each beef carcass produces, on average, 100 pounds (45 kg) or more of trimmings, analysts said. These trimmings are used to make ground beef.

But not all trimmings are the same. In U.S.-raised cattle, much of these trimmings have a 50-50 fat-to-meat ratio. Such fattier trimmings are then mixed with other, leaner cuts in order to balance out the fat and create a hamburger that satisfies the American palette.

In the past, much of the beef processing industry relied on importing leaner beef trimmings, known as the 90s in industry parlance, from Australia and elsewhere.

The industry also relied on LFTB as a fix. It helped consume the domestic stockpile of the fattier trimmings, known as fresh 50s, and created a new supply of lean beef product that supplemented the fresh 90s.

Without LFTB, beef processors are "going back to how the industry produced hamburger 15, 20 years ago," said Jim Robb, director of the Livestock Marketing Information Center in Denver, Colorado. "They're going back to blending the 50s with the 90s."

The increased demand is further draining the domestic supply of fresh 90s, said Clint Peck, former director of the Montana Beef Quality Assurance program.

Ninety-percent lean beef trimmings hit historic high: Demand for leaner beef on rise in wake of media furor over lean, finely textured beef.

LEANER TRIM PRICES SOARING

The premium of the 90s over the fattier 50s swelled to a historic high in the wake of the public outcry.

Fresh lean 90s hit their highest price on record of $2.289 per pound on Friday, according to USDA data. The price of fresh beef trimmings containing 50 percent fat plummeted last month to 50.43-cents a pound, the lowest level seen in 4-1/2 years.

The benchmark trim has since inched back up to 65.94-cents a pound on Thursday, but still is below prices seen prior to the public LFTB outcry.

Supplies of the meat scraps, too, swelled after several companies -- from grocers Safeway Inc and Supervalu Inc to McDonald's Corp -- stopped buying the product made from ammonia-treated fatty trimmings that were then mixed with ground beef.

"This meant prices had to drop sharply for the product to clear the market," said Chris Hurt, an agriculture economist at Purdue University.

TRYING TIMES FOR BEEF INDUSTRY

All this comes at a challenging time for the beef industry.

Feed prices are up. Weather woes led to the nation's cattle herd shrinking to its smallest since 1952. More recently, futures contracts are still recovering from the news of a California dairy cow testing positive for Bovine Spongiform Encephalopathy (BSE), commonly known as mad-cow disease.

Tyson Foods Inc's beef business felt the broader industry strain, with overall volume in the meat company's beef segment falling 10.7 percent in the second fiscal quarter ended March 31, compared with the same period a year earlier.

Cargill has also faced challenges. It recently said that while its global meat businesses improved during the third quarter, the unit's profits were still well below last year's record levels.

Retail ground beef prices are hitting historic highs, according to data compiled by U.S. Department of Agriculture. The average retail price for ground beef was $3.02 a pound in March, up from $2.24 two years earlier, according to government data.

But even with a bigger price tag at the grocery store, there's been little sign of consumers shunning ground-beef, said Harry Balzer, a lead food industry analyst for the NPD Group.

"There's no question about the American demand for it. Hamburger is the beef industry," Balzer said. "The question now is what the ‘y

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