Aug. 21 (Bloomberg) -- The buttery porterhouse that Peter Luger steakhouse has served up since 1887 may be the next victim of the U.S. drought.
Steer that would normally be fattened and aged to produce the highest-grade steaks are instead being killed young and thin.
“They are slaughtering the cattle before they achieve the size and the marbling,” said Amy Rubenstein, an owner of the Brooklyn-based restaurant that’s famous for aging prime sides of beef.
The worst Midwest drought since 1956 has scorched crops and sent the price of corn, the main ingredient in livestock feed, up 62.8 percent since mid-June. Ranchers are culling herds to avoid feed costs, flooding the market with cheap supplies of beef.
There’s a parallel decline in the quantity of animals that yield the highest-quality prime cuts, which require months of extra feeding. The shift will be felt in steakhouse menus down the road.
“Today’s issues are next year’s price increases,” said Lee Hanson, co-chef and an owner of the Minetta Tavern, one of only two Michelin-starred steakhouses in New York (Peter Luger is the other), in an e-mail.
To make a prime steak, prairie-fed steer are fattened for an additional two to three months on a high-calorie corn diet and penned in so their muscle turns to marbled flab before they’re slaughtered. The best cuts are then dry-aged in a humidity-free cooler for six to eight weeks before they’re served.
Corn prices reached a record $8.49 a bushel this month, and fewer ranchers can afford to fatten cows to prime.
The drought prompted President Barack Obama to help farmers with $170 million in government meat purchases.
“We’ve got a lot of freezers,” Obama told a campaign rally in Council Bluffs, Iowa, on Aug. 13. The government is also considering cuts to ethanol mandates after livestock producers complained that too much grain is being diverted to make fuel.
“The effects are going to be felt probably in October, November and December,” said Stanley Lobel, the patriarch of the eponymous family-owned butcher shop on Manhattan’s Madison Avenue.
Lobel says the closely held company sells millions of dollars of dry-aged prime meat each year, mainly through the company’s mail-order division.
“The word on the street is that it’s going to happen and that it will be scarce and be available at a premium,” Lobel said.
Prices for prime steak are already at a premium to USDA choice grade beef. A 1.5-pound bone-in New York sirloin sells for $45.95 at Peter Luger, and the 2.5-pound Porterhouse for $93.90. (The famed creamed spinach and scalloped potatoes are extra.)
Minetta Tavern charges $140 for its cote de boeuf for two. That’s a 56 percent increase from May 2009, when the restaurant charged $90. The smaller strip steak, at $58, is up 61 percent from its $36 price tag three years ago.
Droughts often mean higher prices for prime meat a season or more later. Smaller herds yield fewer calves, which take 14 to 18 months to reach slaughtering weight. The high cattle prices that are expected to follow will make it hard for ranchers who walk away now to return to cattle, said John Nalivka, president of Sterling Marketing Inc., a livestock consulting firm in Vale, Oregon.
“If I were a steakhouse selling prime steaks, I’d be more concerned about 2014-2015,” Nalivka said.
Even before the current beef crisis, droughts dating to the 1980s had cut the U.S. herd by 35 percent, to 30.5 million head of beef cattle in July from 46.9 million in 1975, according to the USDA.
Bruce Bozzi, Jr., executive vice president at The Palm steakhouse in Manhattan, says his meat costs rose about 4 percent in the past year, and the drought will only make things worse. While his vendors haven’t yet indicated a shortage of high-quality meat, next year will be different.
“I think it’s going to be available, but I think it’s going to be expensive,” Bozzi said.
The U.S. drought is hurting pasture conditions across the country.
Prime cattle put on as much as half of their 1,200-1,300-pound slaughter weight in the feedlot, says Larry Corah, vice president of the Certified Angus Beef Program, a meat-marketing association in Manhattan, Kansas. U.S. feedlots probably bought 10 percent fewer young cattle in July as feed costs climbed, the Department of Agriculture said in a report on Aug. 17.
“With these kinds of feed prices, we would expect there would be fewer animals out there that’ll be fed to prime beef quality,” said Joe Horner, an extension associate in agricultural economics at the University of Missouri in Columbia. White-tablecloth restaurants in the U.S. must also compete with strong demand from importers led by South Korea and Japan, Horner said.
Cuts certified as prime by U.S. Dept. of Agriculture inspectors account for only about 3.5 percent of U.S. beef. That could drop significantly if the drought continues and farmers are forced to slaughter more cattle before they can be fattened, Horner said.
The prospect has Peter Luger’s Rubenstein concerned. The cost of a New York strip steak is up 11 percent this year, and 45 percent since 2010, she says. “We think the price rise is yet to come, and we’re afraid that perhaps the quantity of meat that will be offered will be diminished.”
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