Higher Choice Beef Demand Brings Industry Response

The eating quality of US grain-fed beef has been improving over the last 10 years partly because lower-quality beef has sold at a widening discount to average quality, said a beef cattle specialist with the Certified Angus Beef brand in a recent white paper.

Paul Dykstra recently published the white paper, “Why quality grades are improving,” and said, “Angus cattle have risen to dominate the US beef supply chain because their owners and managers exploited the breed’s ability to marble.

“That’s independent of other economically important traits related to maternal and growth performance,” Dykstra said.

 

CONSUMERS AWOKE TO MARBELING’S BENEFITS

 

The market began to demand more highly marbled beef, and producers responded, he said.  Genetics, cattle management and marketing strategies then all played a role in filling the demand.

“Ten years ago, we had a shortage of high-quality product, with the weekly share of USDA choice often dropping below 50%,” he said.  “That led to market incentives, fueling the turnaround in grade. The 2015 average of 69.1% choice was a 17.3 percentage point improvement in annual grading since then.”

Moreover, the highest quality, prime had struggled to account for more than 3% of beef for many years but has effectively doubled its share, Dykstra said.  By late November 2016, prime was averaging 6.7% of the US fed cattle, on top of 70.8% choice.

“People may recall hearing about higher quality grades several decades ago, but in the 1970s and ’80s many carcasses were not offered for USDA grading,” Dykstra said.  Today, nearly all fed steer and heifer carcasses are assigned a quality grade, giving a more realistic assessment of the quality grade mix of carcasses and a more challenging field when it comes to choice as a percentage of the whole.

“Today’s US cattle herd is producing the largest amount of high-quality beef ever.”

 

WHY THE IMPROVEMENT?

 

Besides instrument grading, which evened out the differences in human graders and encouraged cattle producers to aim higher, there were other things that were influential in the shift, Dykstra said.

In the summer of 2013, the price of corn began to drop sharply, from $7.14 a bushel the week of July 8, to $4.56 for the week of Sep. 23.  The cost of corn distillers grain also dropped, and the total cost of gain fell sharply.

At the same time, fed cattle prices broke out of a narrow trading range and began a marked increase in 2014 when they reached a weekly high of $171.38 per cwt for the week of Nov. 24.

Those high fed cattle prices and the low availability of feeder cattle that came with a low cow herd brought about a sharp rise in feeder cattle prices.

As a result, feedlots were incentivized to feed cattle longer, which brought cattle to their full genetic marbling potential, which also was improving.

Slaughter weights have declined a bit, but choice carcass output continues strong, a testament to better genetics.

 

CASH CATTLE TRADE HIGHER

 

Average Superior auction prices Wednesday were $2.21 per cwt higher at an average of $112.68, versus $110.47 a week earlier.  Cash cattle then traded at $113.25 to $114 on a live basis, up $2.50 to $3.25.  Dressed-basis trading was up about $4 at $174.

The USDA’s choice cutout Wednesday was $0.38 per cwt lower at $197.25, while select was up $2.23 at $185.90.  The choice/select spread narrowed to $11.35 from $13.96 with 103 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $132.04 per cwt, up $0.09.  This compares with Wednesday’s Jan settlement at $130.22, up $0.22.