USDA Prime, Choice, Select and Standard have been the staples of graded beef, at least since the system was overhauled in the 1970s. The Choice grade may have been made too broad for effective use, because in recent years its upper two-thirds has further segmented into a kind of fifth grade: premium Choice.
The industry is half a billion dollars ahead each year because of that.
Cattle-Fax published a paper in July, called “Value of Quality Analysis,” which considered what would happen if all the premium quality categories and brands went away.
“If we went back to a Choice/Select basis on everything we produce today, it would cost us, on average, $2.59 per hundredweight (cwt.) of carcass,” says Brett Stuart, Cattle-Fax analyst and author of the paper. He compared a weighted Choice/Select cutoutto that of the current “premium cutout” including premium Choice values to get that figure.
“The fact that we differentiate higher grading beef, including CAB (Certified Angus Beef â), is worth roughly $20 per head,” he says.
Multiply that by the annual harvest, and it shows that, from 2004 to 2007, premium categories added $470 to $601 million each year (See chart).
“That premium is on the live side of the industry,” Stuart notes. “That is not the meat premium received by the packer, it’s the premium paid by the packer to the seller of the cattle.”
Feeders and cow-calf producers retaining calves through harvest take home the biggest share of the added revenue, but Stuart says it’s good for everyone on the cattle side.
“Even the guys selling calves at weaning benefit. That $20 a head filters through the live side of our industry,” he says. “If you look at long-term profitability in the feedyard and packing plant, it’s less than $13 a head. Something that adds upwards of $20 per head in total value is highly significant.”
More cattle grading premium Choice will strengthen this trend, not derail it.
“As more high quality beef is produced, does it saturate the market, creating a decrease in total market value?” Stuart asks. “This research showed, no, it doesn’t. You actually add value with more quality.”
Every percent increase in Choice grade is worth $0.20 per head more than the Choice/Select baseline cutout. The converse is also true, showing that a drop in grading will weaken this premium.
“Over time, there has been growing demand for high-quality beef,” he says. “If quantities increase over time while this demand builds, the extra product is easily absorbed.”
If the percent of Choice-grading cattle increased a couple of points each year, this added value should hold up.
“We feel there’s some pent up demand that’s not being serviced with the current supplies of high-quality beef today,” Stuart says.
That sends a clear message to cattle producers that it pays to shoot for premium brand targets such as that represented by CAB.
“This demand for higher quality beef will continue to grow in the future,” he says. “As we differentiate, we have more opportunities to add value.”