Demand for the Certified Angus Beef ® (CAB®) brand surged higher in 2011, which helps explain a 40% jump in packer-reported CAB grid premiums. Licensed packers paid owners of CAB-accepted finished cattle $32.3 million last year, compared to almost $23 million in 2010, according to February reports. That does not include related premiums paid for Choice and Prime grades.
The news ended a general downtrend in annual grid premiums for the brand from the historical high of nearly $37 million in 2002 (see Chart 1). CAB volume had gained more than 40% over the eight years and premiums often decline in the face of more supply. However, during those years, the value added by CAB was becoming relatively more important in comparison to the weakening premium for USDA Choice over Select beef.
The latest fed-cattle premium spike is supported by what happened on the boxed beef side.
“A simple average across five middle-meat items—the rib, strip, tender, butt and short loin—shows that the CAB product premium in 2011 jumped roughly 20% over 2010,” says industry analyst Julian Leopold, of Leopold Foods.
That was after a “pretty flat” period for CAB premiums following the 2008 crash in the overall economy, he says. “It looks like demand is picking back up though, and likely at restaurants as well as retail.
“The other side of the equation would be the volume, as the 4% increase in 2011 CAB sales over 2010 could have further increased the total dollar premiums in the system.”
Grid premiums for CAB-accepted cattle have reached a cumulative total of $352 million, with packers paying producers about $28 million per year for hitting that target over the past 10 years.
“We’re seeing the premium nature of our brand on both the product and cattle side of the industry, with rewards to all of the stakeholders and partners who are committed to quality,” says Certified Angus Beef LLC President John Stika. “The investment and focus in taking the high road above commodity beef pays off with more and more satisfied customers.”
The numbers come from a “Here’s the Premium” project that has surveyed packers on annual CAB grid premiums paid since 1998. They report total dollars but not volume of grid cattle bought, and individual data remains confidential.
The trust and integrity built into the CAB program may limit the precision of reporting on price signals, but that’s more of a problem for USDA’s Mandatory Price Reporting (MPR) system. Its “Five-Area Weekly Weighted Average Direct Slaughter Cattle – Premiums and Discounts Report” shows a weekly CAB grid premium, but that reflects only the narrowly defined 15% of value-based marketing that is “negotiated,” and does not include formula grids that pay higher CAB premiums.