Breakaway Prime begins to swamp demand

by Paul Dykstra, Certified Angus Beef
     As carcass quality grade trends have risen over the years, we’ve seen Prime carcasses pull some of the head count away from the Choice grade in 2018. Year-to-date figures show Choice grade declining by 1 percentage point (ppt) this year, only to be augmented to the positive side for that “Choice or better” total by a 1.77-ppt. increase in Prime carcasses. That seemingly small hike, from 5.17% to 7.48%, equates to a YTD explosion of 34% more total Prime tonnage. A shift of this magnitude was not to be ignored by the marketplace and, predictably, has sent Prime cutout value much lower relative to the next-highest-price category, which is all USDA-branded-beef products. The first chart shows that relationship in 2018 with a Prime to Branded spread of just 10¢ per lb. versus 28¢ last year through mid-October. Granted, 2017 saw an abnormally high summer Prime-price spike, brought on by one large retailer’s large spring booking of Prime product. Even so, the years 2015 and ’16 also featured 20¢ to 23¢ Prime-over-Branded premiums for the first 3 quarters of those years, at least double the 2018 premium so far. This year’s additional tonnage, as seen in the second chart, is clearly the impetus for the reduction in Prime’s cutout value. It’s hard to predict if the premium structure will change but, for now, it appears that Prime boxed products have been much easier for end-users to trade up to since last March.
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