Nov 4, 2011
Quality always sells

This Choice/Select spread has been an interesting market segment to watch the past few weeks. For quite some time, the value difference between Choice and Select cattle wasn’t much of an issue, it seemed like $2-5was the norm, with an occasional spike over $10. The current Choice/Select spread is now over $18/cwt. and it has been fairly stable there over the past month.

The beef industry has done a remarkable job producing high quality beef. Ten years ago, we would see Choice beef production run between 52-55 percent of the national slaughter mix. Today, 60-65 percent of the slaughter mix is grading Choice.

A couple of weeks ago, Walmart, the nation’s largest food retailer, announced that they were going to start offering Choice beef in their “Superstores,” which have traditionally sold Select product to priceconscious shoppers. Walmart accounts for roughly 12 percent of national retail beef sales. They plan on stocking their stores with the upper two-thirds Choice grade of beef in order to attract more customers into their stores. This is a strategy other food retailers have used for years.

After this move, the price of Choice beef gained a few bucks, but the price of Select beef dropped more dramatically. It appears that the market for Select quality beef is fading away. We’ve heard anecdotal reports that retailers are having a hard time selling Select, and packers are saying the same thing. Select top loins were trading at the same price levels as Australian grass fed loins in Pacific Rim markets.

Retailers have been getting more customer complaints and seeing beef in their return bins. With beef prices at all-time highs, it appears that beef consumers are starting to demand a better beef eating experience, and you can’t blame them for being picky, especially when a strip loin is selling for $13 a pound.

Ironically, all the quality value in the beef animal is carried by the middle meats. A Choice chuck or round doesn’t add much value to the carcass. However, that is changing with the Cattlemen’s Beef Board’s carcass profiling research, which produced the “Flatiron Steak.”

Walmart’s announcement will have some positive impact on the market and it has put more demand on Choice beef inventories. Packers have been aggressive buyers the past few weeks and need to process a lot of cattle to service the spike in Choice demand.

The cattle industry’s job is to produce enough quality cattle to satisfy that demand. There has been some debate that the widespread use of betaagonists, products like Zilmax and Optiflex, the new generation of growth promotants, will have an impact on the industry’s ability to produce enough Choice product for the market.

It’s fairly common knowledge that some types of growth promotants will have an impact on beef quality grade and tenderness. With an $18 Choice/ Select spread, cattle feeders will have to weigh the value of quality vs. the production efficiencies of these modern growth stimulants, which can add 3-4 percent yield to a carcass.

I suppose the question is, will this current Choice/ Select spread become normal.

The beef industry has quietly been producing more Choice cattle over the years. Genetics and feeding protocol have played a major role in creating additional quality. Although USDA carcass grading has a hand in this phenomenon, the implementation of instrument grading over the years has provided meat graders with a solid objective benchmark to evaluate carcass quality. The old visual appraisal method of grading pulled more Choice carcasses down in to the Select grade. This is why Walmart has specified they want the top two-thirds of the Choice grade; that bottom one-third Choice would have been Select under the visual grading system.

If Walmart customers embrace their new Choice beef offerings, this could change beef industry dynamics and give cow/calf producers a clear perspective on the value of quality cattle. Seedstock producers have kept an eye on carcass traits for some time and have been careful to identify cattle with good carcass qualities.

Angus breeders have seen the most direct benefit through their Certified Angus Beef program. Calving ease and growth are the primary bull selection criteria for commercial producers. But now, it might be worth paying more attention to carcass traits. — PETE CROW