Beef Demand, Quality Up

by Paul Dykstra, Weekly Author of Rearview Mirror on Quality

Head counts at federally inspected packing plants (See table) have been running on par with 2010 numbers, which were already three percent larger than 2009, according to USDA.
With favorable feeding weather through the winter and spring, fed-cattle carcass weights were above 2010 by nine pounds for steers, with an eight pound margin for heifers. That was a rebound from a 12-lb. decline the year before when feeding conditions were very much the opposite. The net effect of head count and weight this year has been a 1.12 percent increase in fed cattle carcass tonnage. And yet the live cattle market has soared with 16.5 percent higher prices than last year, basis the USDA 5-Area Weekly Average.
Much of the strength and resiliency that we’re seeing in cattle prices has been boosted by export demand. Cattle-Fax projects a 21 percent to 25 percent increase in beef exports for 2011, taking up 11 percent of U.S. production. Match that with a projected historically low import ratio to domestic production (seven to eight percent), and it’s easy to see how world trade has been a boon.
U.S. beef quality remains on the rise (See graph). We continue to report year-over-year increases in the percent of carcasses grading USDA Choice and Prime. The past four years brought on rapid advances in those categories, prompting the question, when will it end? Not yet.
The first half of this year shows another six months of improvement with Choice displacing Select tonnage by an added 1.48 percent of the harvest mix and the Prime category advancing by 0.4 percentage points (ppt.) Good news for consumer demand.
As far as regional quality, the South made the most progress. In the “big three” packing states USDA details in weekly reports, Texas saw the biggest improvement for 2011 to date, bringing the Choice of its fed-cattle harvest 3.5 ppt. higher to average 54.44 percent by mid-July. Kansas followed nicely with its 64.04 percent Choice representing a 1.5-point increase over 2010. Nebraska packing plants remained relatively steady at a lofty 68.6 percent Choice, but that was down just a fraction of a point.
Similar to the Prime grade ratio, the proportion of carcasses certified by USDA into premium-Choice brands is a more difficult number to move. Growth is limited by the higher requirement for marbling, coupled with additional specifications such as the nine others imposed by the Certified Angus Beef® (CAB®) brand. Mid-year figures peg 2011 growth in all certified premium-Choice brands at only half a percent. However, CAB brand acceptance improved 1.6 ppt. for a six-month average of 25.4 percent, despite the share of black-hided cattle in the mix declining slightly, down less than a point at 62.88 percent.
This discussion can’t be complete without noting the declining U.S. cow herd, certainly worrisome for the beef sector. Indeed, shorter supplies are partially credited with bolstering calf and feeder cattle prices nationwide, as cow-calf and stocker operators cashed in on the windfall—or gave thanks that selling price held firm despite other problems.
Although cow slaughter was 3.3 percent below 2010 as of early July, the second half of 2011 may bring larger numbers to town in the South as feed resources are depleted. At least for years, the drought-induced selloff does not bode well for any industry players there. Packers and cattle feeders with infrastructure to handle greater numbers than they can access are wondering, “Where are the cattle going to come from?”
The July 1 inventory of U.S. beef replacement heifers was down 5 percent from 2010, so the question does merit concern. A sustained decline in cow numbers will logically decrease infrastructure if the trend isn’t reversed. Beyond the intermediate term, with today’s market signals, producers need only a change in the weather to rebuild cow numbers and keep beef competitively priced as the U.S. beef quality keeps growing global demand.    ©
Paul Dykstra writes a weekly column on beef quality grading that appears in FEED•LOT eNews, which is published every Wednesday. Don’t get the eNews? Log on to www.feedlotmagazine.com and sign up today!

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