Did you know… Maybe we need to set the target higher
By: Larry Corah, for Certified Angus Beef LLC
Speaking to cattle feeders more than 10 years ago, a distinguished professor of beef nutrition at South Dakota State University said, “Maybe we’re aiming at the wrong target. Instead of Choice, maybe it should be Prime.”
As you can imagine, what Robbi Pritchard said caught everyone’s attention because as an industry, we were barely at 55% Choice or higher with about 2.8% grading Prime.
We all knew cattle that could grade Prime created a great eating experience, but that small percentage in the mix said they were an aberration rather than a practical target.
Few of us had read the stories about tightly focused herds already getting some loads to achieve 60% and even 80% Prime, but things were quietly changing.
Let’s look at where they stand in 2016, to the surprise of many: 75% Choice or better with Prime at double its historical rate to 5.7% of fed cattle, year to date.
With supplies increasing now, this is not simply a case of percentage growth. As Paul Dykstra recently noted in his bi-weekly “CAB INSIDER” (a must-read newsletter on the premium beef market), the 101 loads of Prime beef sales per week this spring is nearly double the volume in 2011.
Much of that is from improved marbling genetics, and ranchers are sharing closeouts that show what is possible. An Iowa cow-calf and finishing operation recently sent data to CAB on a load of home-raised cattle that graded 93% Prime.
Those results are exceptional, but many feedlot managers these days say they’ve sold pens of Angus-type cattle that achieved a range of 20% to 25% Prime. You may have done the same or know someone who has.
But here are more details that lead to what you likely DID NOT KNOW about Prime grading carcasses.
Why is Prime even important to the beef industry? Two big reasons, and they are BIG: money and eating satisfaction.
We all know beef demand determines the future of this industry, and what drives people to eat beef is its unique flavor, in turn driven by marbling. As quality grade improves, so does eating satisfaction. Colorado State University meat scientist Daryl Tatum recently authored a white paper on the topic.
His summary of the work showed that 3% of Prime middle meats were unacceptable to the consumer, compared to 18% for low Choice cuts and 34% for Select-grading cuts. Tatum’s data and numerous other studies also show consumers are willing to pay premium prices for a satisfying eating experience.
OK, that’s great they will pay a premium, but will I as a producer get some of it? The answer is a resounding YES. A recent survey of market grids used by feeding companies revealed the typical Prime premium ranged from $16 to $20 per hundredweight (cwt) OVER Choice for EACH carcass that qualified.
Today’s industry average of a 900-lb. carcass grading Prime earns a $150 to $180 advantage over Choice, and perhaps $250 over the Select carcasses. You can see that as few as 10% Prime changes the pen value pretty quickly.
So how does this translate to the price of various middle-meat cuts? The table below shows Prime beef from 2012 through 2014 was priced about $3 to $3.50/lb. above commodity Choice and $4 to $4.50/lb. over Select, all justifying packers paying more for these high-quality-grade cattle.
For many years, the only place you found a Prime steak was at an exclusive white-linen-tablecloth restaurant. Not so today. What is driving this demand is the many retail stores now selling Prime as part of their full-service meat cases.
That allows retailers to sell a quality product, once strictly a restaurant item, to their premium-minded shoppers. When one of the major national retail chains started selling Prime nearly five years ago, their annual reports began to show the boost in profitability, attributed to adding Prime to the meat case.
Starting in the late 1990s, the Certified Angus Beef ® brand created a CAB® Prime brand extension. Now hundreds of restaurants and retail outlets use this premium product to create a destination for quality minded consumers. CAB Prime sales continue to grow annually.
OK, it sounds like demand is growing and producers can get paid, but what do I give up to hit that target?
The first myth to refute is that only over-fat carcasses can hit the Prime grade.
Carcass closeouts typically show a slight (2- to 5-percentage-point) increase in yield grade (YG) 4s associated with those grading Prime. But we now know proper sorting of fed cattle, and cow-calf producers paying as much attention to ribeye as marbling, means most YG 4s can be avoided.
We all know single-trait selection does not work, but neither does it serve your industry’s future to ignore carcass traits. The answer is to include marbling and ribeye at above-average levels concurrent with selection for other important traits when buying your next herd sire. Heritability on carcass traits is fairly high, so you can make progress without sacrificing growth and maternal function.
Just what is a realistic target for the beef industry? It’s always best to walk before you run, but when 5.7% is average, a target of 10% Prime seems very doable; if you’re just about there or just need a bit more focus, perhaps your target should be 20% to 25%.
Not so fast, you might say: if we all produce more Prime beef, those nice premiums will go away.
Two arguments counter that: First, if the premiums were even half of what they are today, $75 to $90 per head is still real money.
Second, look at the record for the leading premium brand with respect to paying producers over the last decade. In 2006 only 14% of Angus-type cattle qualified for CAB vs. 28% today, and greater tonnage sold each year. Yet CAB premiums paid on grids are generally higher today, and USDA quoted a record $10/cwt. in February: demand for high-quality beef can grow to keep up with increasing supply.
Bottom line: Yes, Robbi, you were onto something with those visionary comments 10 years ago.