Chicago ? When the first U.S. case of mad cow disease was confirmed last winter, the bottom dropped out of the cattle market, and farmer Mark Lower lost $70,000 in a few weeks.

This summer, though, Lower is doing so well that he’s bought a new feed truck, is upgrading a silo and is refinishing a hog house.

Beef sold at record prices last winter, and despite a second mad cow scare in June, it again has climbed to prices well above average.

“The ag industry is looking pretty good,” said Lower, who grows corn and raises cattle and hogs on his 1,500-acre farm in Lanark, Ill., about 140 miles west of Chicago.

The combination of high beef prices and a bumper corn crop expected later this year means a profitable autumn for farmers, who should be banking more money than they have in several years.

Processors take hit

But the strong commodity prices that are buoying hopes in the heartland also are crimping profits for food processors such as Kraft Inc. and Sara Lee Corp., both based in the Chicago area, as well as Springdale, Ark.-based Tyson Foods Inc.

Libby Lawson, a Tyson spokeswoman, said the company charged 6.3 percent more for beef in the quarter ended June 26, compared with the year-earlier period. Pork prices jumped 21.4 percent, and chicken rose 13.2 percent. Lawson attributed the increases to tight supplies of chicken and beef, along with increased international demand for pork. Producers have been shipping more pork abroad to replace U.S. beef exports, which are still banned in Japan because of the mad cow case.

In response to rising raw materials costs, Sara Lee has raised prices on some delicatessen meats.

Mark Lower raises cattle and hogs and grows soybeans and corn in Lanark, Ill., about 140 miles west of Chicago. Lower, who was pictured Aug. 12, said high commodity prices have provided a boost to his farming business. He is expecting a bumper corn crop this fall.

Increases in milk, cheese and other commodity prices were partially responsible for a 25 percent drop in Kraft’s second-quarter earnings per share.

Eating up profits

Further down the food chain, price hikes are hurting the nation’s restaurants, many of which are small businesses. It is yet another blow for the struggling restaurant sector, which is just starting to recover from the post-Sept. 11 slump.

“I don’t see any cheap beef in the future,” said Bill Farrahi, chef and partner at the Chicago Chop House, which specializes in prime rib and sirloin.

“I’m paying almost double what I used to pay for meat. You can’t double menu prices, so we just went up two or three dollars.”

The restaurant, Farrahi said, had been paying $5 a pound for beef tenderloin, and is now paying $9.75.

After 44 years in the food business, Bill Farrahi definitely knows how to cut a steak. He is a partner at Chicago Chop House in Illinois. Farrahi, who is shown Aug. 12, says he's paying almost double what he used to pay for meat.

For Barbara’s Kitchen, a comfort food eatery in Chicago’s Edgebrook neighborhood, higher food prices along with a lease issue convinced owner Barbara Mott to shut the doors at the end of May.

Running a neighborhood restaurant that served meatloaf, real mashed potatoes and fresh-baked cookies had been a dream of Mott’s when she opened in 1997. But higher prices for everything from ground beef to butter cut into already thin profit margins.

“No matter how good it is, there is only so much you can charge for meatloaf,” said Mott, who did the cooking herself.

Higher butter prices also were a blow because from the beginning Mott had served free cookies with every meal. She didn’t feel she could start charging customers for the tasty treats.

“No cookies, no restaurant,” she said.

At Paulina Market in Lakeview, Ill., co-owner Jerry Lekan said he was paying $1.50 per pound for whole cattle about a year ago. Prices spiked at $2 a pound before dropping slightly beginning in April.

“It was a roller-coaster ride and a headache,” he said.

Lekan said he passed some of the higher costs along to his customers, but the rest came out of his bottom line. The butcher shop’s first quarter brought less profit than usual, although Lekan blames the slack economy in addition to beef prices. The last quarter was better, he said.

Dealers report upswing

Not everyone is complaining, though. Business hasn’t been this good in years for sellers of farm equipment, a different kind of trickle-down effect from rising commodity prices.

“These guys are looking at a very good crop,” said Mark Curtis, whose family runs a John Deere dealership in western Illinois. “I think our customers are feeling good about the next two or three years.”

The Curtis dealership recently has sold some big-ticket items, including two $250,000 combines.

It’s a similar story in northern Indiana, where Jon Castognia manages three Deere dealerships. So far this year he’s sold 15 combines, up from the usual 10. He’s also sold three of his largest planting machines, which spread seed over a 60-foot swath of field and cost $130,000 each.

“Before that, we hadn’t sold three total in our history,” said Castognia.

Demand is high

Industry experts attribute the resilience of beef prices to a confluence of several factors.

Millions of people following the strictures of the Atkins and South Beach diets are eating more protein. People also are eating out more often, and diners often splurge by ordering meat, restaurateurs say.

The beef industry also has made cooking its products easier, says Jim Robb, director of the Livestock Marketing Information Center.

“There’s been some product innovation that has helped to move us away from the old days of wearing an apron and cooking a roast,” he said. “You can throw something in the microwave and it’s pretty good.”

While beef demand is high, supply is not.

Last December, after federal regulators spotted mad cow disease in a dairy cow imported from Canada, they halted imports from north of the border. Years of drought have winnowed herds in the United States.

But some commodity prices are backing off.

Meat typically gets cheaper during the winter, and cattle ranchers, eyeing the rich prices for steers, have started breeding more calves. That could mean more beef cattle for sale at lower prices.

Milk and corn prices have dropped recently, too. The large corn crop that will be harvested this fall should push prices down, too.

But rising demand for grain and meat may ultimately keep prices climbing, said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis.

“The demand around the world seems to be pretty healthy,” he said. “I don’t know whether we should expect a continuing dip.”