November 1, 2011
US cattlemen see profit amid rise in consumers' expectations
As value trends began to distinguish significantly, some US cattlemen were able to profit from better quality beef.
Earlier in the year, boxed beef rose 15% in value. But as summer transits into fall, value trends began to differentiate dramatically. "At these prices, buyers wanted better quality," said Larry Corah, vice president of Certified Angus Beef LLC (CAB).
The spread between USDA Choice beef and lower quality Select, moderate since 2008, increased US$15 per hundredweight within weeks. This increase was partly due to a major retailer switching to higher-quality beef, but others had set the stage.
"Two of the largest retailers in the US had added a premium-Choice program to their marketing plans in the past couple of years," Corah said.
They were winning more satisfied customers, and the competition was quietly building demand at the high end.
This latest retail shift signalled a sudden need for more Choice and better beef, he said, but more importantly, an excess of the low-Select product formerly in those cases. "Combine the retail factors with an improving middle-meat market in our upscale, fine-dining restaurants, and a whole new demand profile for high-quality beef has been created," Corah said.
What it means at the feedlot and ranch is more money for informed marketers.
"There's no reason not to sell high-quality cattle on a grid," said Paul Dykstra, beef cattle specialist for the Certified Angus Beef brand, commenting on prices for CAB Prime. "When you're looking at nearly UA$250 per head in premiums, that makes a guy pay attention."
Those figures are based on mid-October calculations of an 850 pound carcass sold on a popular Nebraska grid. The difference is much larger when compared to Select, which brought US$187 per head less than CAB on the grid. The premiums for quality represent a significant jump from recent annual averages.
Dykstra warned it's important to understand how area-weighted averages work before anybody tallies potential premiums. "Many people believe they'll get the full Choice/Select spread over and above the carcass price for Choice," he said. "Not true. It all depends on the plant location and grid structure."
If a plant averages 65% Choice, the packer will likely pay 35% of that Choice/Select spread on every Choice carcass. Southern plants with historically lower grading may pay up to 50% of the spread, Dykstra said. Even in Nebraska, where quality competition is fierce, there's plenty of reward for those who have focussed on carcass quality.
"Select is always a discount by the full Choice/Select spread below the base, and Choice is that area-average premium over the base," Dykstra said. "The spread covers the up-and the down-direction from the base."
Regardless of whether you think about quality, it affects your price, he added: "Cattle with a track record for quality are the ones now bringing higher bids as calves and feeders" he concluded.