News Update

Cattle-Fax sees opportunity in high quality
Feb. 23, 2007

It’s a challenge to grow demand when the supply is limited.

According to Randy Blach, Cattle-Fax vice president, the beef industry puts its future in jeopardy when it ignores consumer preferences and limits the supply of highly marbled beef. He spoke at a seminar that CAB cosponsored last fall.

“We’ve got 300 million people spending $75 more per year for our product than they were in the 1990s. That’s a heck of a story,” Blach said. “The demand pool is coming to this higher-grade product, the upper two-thirds Choice and Prime.”

Today, about 50% of beef is sold through retail stores, down from 70% a generation ago, Blach said. As more beef is marketed through the restaurant trade, demand for higher quality heats up. Data analysis suggests that by 2010, foodservice may account for 55%-60% of all beef sales. “We’re not putting enough high-quality product out there to go through that shift,” he said.

Export markets also depend on higher quality, Blach said, citing the 2005 National Beef Quality Audit (NBQA). “The global standard for beef quality is described in five terms: U.S. Prime, U.S. Choice, Certified Angus Beef ^® (CAB^®), U.S. beef and corn-fed beef,” he said. “Does anybody see the word Select up there? It’s not on the list.”

Blach said export opportunities will knock. “Are we going to have the product to be able to open that door and win back market share quickly?” he asked. Prior to 2003, exports accounted for about $175 per head for the value of all fed cattle, he said. Today that number is $95.

The market tells producers what kind of beef it wants, he said. During a three-year period ending October 2006, CAB premiums added as much as $12.60 per hundredweight (cwt.) to qualifying carcasses. The CAB-Select spread was $23 per cwt.

“Is there a high enough percentage of our population with enough disposable income that they’re willing to differentiate and pay for this? The answer is loud and clear: ‘Yes, absolutely,’ ” Blach said.

The available premiums, along with discounts for poor cutability and marbling, further illustrate what the industry needs. “The market’s doing a pretty darn good job of communicating these values all the way through the system,” he said.

Yet, the industry continues to fall short of consumer expectations.

“Each year for the past 10 years we’ve been between 52% and 54% Choice. Nothing’s changed,” he said. This nearly flatlined trend comes during a time of heavier carcasses and longer feeding periods, Blach said. “You would think that putting on much more weight in the feedyard would improve grade, but obviously we haven’t done it.”

Part of the blame for yield grade challenges should rest on mixed market signals. From the early 1980s, when cattle all brought virtually the same amount, the price structure transitioned into premiums for Yield Grade (YG) 1s and 2s and later docks for YG 4s and 5s.

“The pricing system needs to come up to where we’ve got bigger incentives and bigger disincentives on both ends,” he said. Blach expects higher corn prices to rein in the trend toward heavier, overfat cattle: “Economics drive the whole thing.”

Looking to the future, Blach predicted the number of Choice cattle will increase, but only due to cow herd expansion and not an improvement in grade. That means the Choice-Select spread will continue to climb.

“Over the last 16 years, though volatile, the spread has been trending upward with record highs last year,” Blach said. He explained that shows higher demand for more marbling as it reflects less demand for Select beef. In addition to the NBQA, the growth in branded beef points to an increase in Choice and Prime demand.

“Existing brands appear to be gaining strength in major retail and foodservice distribution, and new brands continue to appear,” he said. “The market signal to differentiate has been clearly transferred to producers in the forms of premiums and discounts. Expect this trend to continue.”

For more information on this topic, or others related to quality beef production, see the proceedings of the Feeding Quality Forums at www.cabpartners.com/events/past_events/index.php.

— release provided by Certified Angus Beef LLC