Premium Beef Decline Pushes Incentives
More cattle have graded Select this summer than last.
The latest Choice grade percentage is 69%, 6 points lower than the 74% seen a year ago. Through early July it was easy enough to explain away the dip in Choice carcasses by suggesting that the Prime grade had captured a few more carcasses.
An abnormally wide Choice-Select boxed beef price spread was driven primarily by unexpectedly strong rib demand in the month of July. The Choice premium has remained very strong, at or above $20 per hundredweight (cwt.) for a period of 11 weeks now (on. Sept. 11), according to Urner Barry data. That unseasonal July demand gave way to an “August to remember” from a boxed-beef market standpoint, furthering the quality premium to Select.
Most recent USDA data shows a deepening pattern of lower-than-expected Choice quality grade percentages begun back in May. The latest Choice grade percentage is 69%, 6 points lower than the 74% seen a year ago. Through early July it was easy enough to explain away the dip in Choice carcasses by suggesting that the Prime grade had captured a few more carcasses.
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However, the year-on-year pattern shows the Select grade from July 1 to present is increased by 1.5 percentage points to average 19% for that period vs. 17.5% last year. More cattle have graded Select this summer than last. Certified Angus Beef® (CAB®) carcasses are currently qualifying at the rate of 32% of those eligible, just tenths of a decimal point below a year ago. That’s about one in five of all fed cattle qualifying for the CAB brand.
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It’s important for fed-cattle marketers to know what is affecting grid pricing today. The Choice-Select spread will likely remain robust, ahead of holiday beef demand, only as long as supplies are reflective of this lower grade trend. The USDA grid premiums and discounts report lists values in mid-September placing a 900-pound CAB carcass at a $104-per-head advantage to the weighted average cash price. Prime carcasses should be near a $245-per-head advantage.
Editor’s note: Paul Dykstra is a beef cattle specialist with CAB. Read more of Dykstra’s biweekly comments in the CAB Insider at http://bit.ly/CABInsider0911.
