Seasonal factor crucial in meat business
By EMERSON D. MORAN
Special to the Lo6 Angeles Times
(The writer is operations manager of a
Vernon, Calif., meat-processing plant.)
The Administration’s price freeze,
announced by the President June 13, was
good, if belated, news for the consumer in
that for the next 60 days the budget
squeeze will not get any worse But for the
meat industry it meant only that things
will not get any better.
Don’t shrug and think you could not care
less whether things are tough for the beef
packers. The industry is a complicated
and delicately balanced economic
organization that has evolved by the
practice of practical, classic economics —
and without governmental interference
and bureaucratic planning — into an ef
ficient mechanism for the distribution of
the product of the livestock-grass-grain
cycle.
If one segment of this finely-tuned
machine were to break down, chaos would
be the result and we’d all end up paying
more for less beef.
The regulations promulgated in March
by the Cost of Living Council (which are
not superseded by the newly expanded
price freeze order) do not take into ac
count an historical fact of life in the beef
industry — and this could lead to the death
of a vital segment of the industry.
The fact of life is that the change of the
seasons has always been reflected in the
relative values of certain cuts of beef.
Summer is steak time. On bright, blue
days and balmy evenings, backyard
barbecues are fired up and demand for
steaks increases dramatically. At the
same time, chuck roasts and stewing beef,
which heat up the family kitchen, lose the
appeal they had in cold weather.
High cost of stewing
The seasonal reality has been met over
the years by lowering prices of the less
desirable cuts to the point where
economics overcame the discomfort of the
heated kitchen, and by raising the prices of
the steaks. This enabled the packer to
recover the cost of the entire head of beef
Washington, meat ceiling prices were fair
to all.
Now, though, the season has changed,
and the beef industry has entered its
while selling all of it, with good chance of
realizing a profit on the way.
Not this year.
When ceiling prices were set back in
March, they reflected the conditions of the
market at that time, and it could be
assumed with some logic that those prices
provided breathing room or they would not
have been in effect in a practical industry.
Theoretically, from the tower of power in
Summer of Discontent. The segment of the
industry that “breaks” beef is in a state of
crisis and a time of decision.
Beef “breakers” do just that. They take
dressed cattle and break them into the
primal cuts of round, loin, flank, rib,
chuck, plate and brisket.
They channel these cuts to retailers,
restaurants, boners and processors, ac
cording to the requirements of these
portions of the industry. By doing this, the
breakers perform a valuable equalizing
function in the balanced movement of beef
into consumption, sbrt of a safety valve in
the pressurized supply-demand cycle.
Hitthe ceiling
This year, the breakers cannot raise the
prices of the coveted cuts to compensate
for selling the undesirable cuts at lowered
prices. Today, only the beef rib and the
beef loin are selling at the ceiling prices.
The other 73 per cent of the head of the beef
has to be sold below the ceilings to move it
into consumption.
Granted that this might be great for the
housewife, but it is creeping death for the
beef breaker.
Why is the beef rib at the ceiling? The
demand for steaks at retail has put rib
steaks into supermarket showcase
prominence. Now add to the seasonal
demand for steaks for the family the in
satiable needs of the restaurant industry
for steaks and prime rib of beef, and it is
easy to explain the free flow of these
desirable cuts at the ceiling prices.
At the same time the breaker must
discount the rest of the beef to force it into
consumption.
The CLC has refused to consider ap
plying any seasonal formula to its meat
price regulations. This refusal forces the
beef breaker to a point of decision —
comply with the regulation and die, or live
by violation.
The current attitude towards the law
favors violation, and the pressures are
very real. Besides, the chances of
detection are slight.
The main control of the meat price
ceiling regulation lies in profit per hundred
pounds of incoming material to no more
than that of a base period. Any violator
who seeks not riches but survival will stay
within his profit limit. All he really needs,
or wants, is to balance out the prices of his
cuts, which the Cost of Living Council says
he may not do.
More firms must report
to IRS under ‘Phase 31/25
By JAMES L. ROWE JR.
(C) 1973, The Washington Post
WASHINGTON — In the search for violations of the government’s
Phase III price and profit regulations, about 1,000 Internal Revenue
Service agents will descend on the roughly 2,300 corporations with
annual sales between $50 million and $250 million during the first two
weeks of July.
The Cost of Living Council has already begun a preliminary
examination of financial data filed by the giant companies with annual
sales over $250 million. These companies had to have detailed
financial reports in the mail to the Council by June 21.
William Walker, acting deputy director of the Council, said that
more than 500 of the 800 companies required to file the reports had
them in June 22.
The council said the review of all companies with annual sales of
more than $50 million is part of the “profit sweep” announced by the
President in his June 13 speech which imposed a 60-day price freeze.
The IRS — as in Phases I, II, and III — is acting as the enforcement
agency of the freeze.
Phase III rules require the largest, or Tier I, companies to file a
quarterly financial report with the council. Following Nixon’s speech,
those requirements were extended to the Tier II companies, those with
annual sales between $50 million and $250 million. These companies
had to file with the Council by June 30.
Walker said that even though Tier II companies are now required
to file with the Council, on-site inspections of their financial records by
IRS agents are necessary because the quality of financial reports filed
during Tier II “left something to be desired.”
Walker said that firms found in violation would be ordered to roll
prices back. He said that after July 15, IRS agents would conduct at
least a month of intensive investigations following up on the possible
violations uncovered during the audits of early July. Firms which
cannot document their financial reports will be the first targets during
these follow-up investigations. _
Walker and other officials at the briefing said the information they
had on Phase III violations was still too sketchy to project where or
how many violations the President’s profit sweep would uncover.
However, James McLane, deputy director of the Council, and
head of its special price-freeze group, said at least nine industries
were expected to have widespread violations. He cited the electrical
equipment industry by name.
It costs more to live, sure ’nuf
(C) 1973, The Washington Post
WASHINGTON — Propelled by higher food and
fuel prices, the Consumer Price Index shot up
another 0.6 per cent in May, the Bureau of Labor
Statistics reported.
The increase, which is adjusted for seasonal
variation, matched the April jump but was smaller
than the increases recorded in February and
March. The Index stood at 131.5 per cent of its 1967
average, meaning that a bundle of goods which cost
$10 in 1967 would cost $13.15 today.
None of these figures reflects the effects of the
price freeze imposed last month by the President.
The Labor Department said that the June Index,
which will be released in late July, will be based on
data collected both before and after the June 13
price freeze.
At the same time, the Labor Department
reported that real spendable earnings declined 0.4
per cent in May and were 0.3 per cent less than a
year ago.
AFL-CIO president George Meany noted that
while workers can buy less with their paychecks,
“Profits and interest rates, as well as prices, have
been soaring... The test of equity and fairness calls
for all segments of the economy to share equally in
the burden of fighting inflation.”
At the same time, the Committee on Interest
and Dividends, an adjunct of the administration’s
anti-inflation program, announced that it would
liberalize its “voluntary” guidelines on corporate
dividend payments.
Seasonal factor
For the three months ended in May, consumer
prices have increased at an annual rate of 9.2 per
cent. In that same three-month period, the cost of
food in grocery stores has risen at an annual pace of
24 per c$nt.
Meat prices fell 0.1 per cent on an adjusted
basis, but usually fall much more in May. As a
result, on a seasonally adjusted basis, meat prices
rose 0.6 per cent in May.
The increase in the food component of the
consumer price index rose 1.1 per cent over April.
Although large, that was the smallest increase this
year. In May 1972, the food portion did not increase
at all on a seasonally adjusted basis.
The retail price of commodities other than food
increased at a seasonally adjusted rate of 0.4 per
cent in May, the same as in April. The price of
services, which are not adjusted for seasonal
variation, increased 0.4 per cent in May, compared
with a 0.3 per cent increase in both March and April.
The labor department noted a sharp increase in
gasoline for the second consecutive month and
pinpointed non-seasonal increases in prices of fuel
oil and new cars — which failed to fall as they
usually do in May.
The 0.4 per cent increase in services was ac
counted for primarily by increases in rent, mort
gage interest costs, home maintenance services and
housekeeping services. In addition, physicians’ fees
and laboratory test prices were higher, while
hospital rate boosts slowed down.
Herbert Stein, chairman of the President’s
Council of Economic Advisers, said that the May
CPI shows the “effect of the ceiling prices imposed
on meat in March 29.” He noted that the “rate of
increase of prices for non-food items remained
about where it had been for several months.”
Music to our ears
In a separate statement, Stein said that the
President imposed the price freeze for mainly
psychological reasons — to inform the nation “that
he did not intent to pursue any longer the course of
gradual, limited and uncertain reduction in the rate
of inflation along which we seemed to be moving.”
Stein called the freeze “only the first overture,
necessary to create the atmosphere for the opera
that follows, but disappointing if the opera does not
satisfy. The opera is Phase IV.”
He said Phase IV will bring the rate of inflation
down to about 3 per cent — from the recent 9 per
cent — and will stabilize the price of food at the
retail level. What policies will be necessary to
stabilize food prices, he said, “ate not yet clear.”