Kay's Korner

Nov 29, 2013
Quality always pays

Quality a l w a y s pays. This truism continues to play out in the U.S. beef industry as everyone from seedstock producers to beef packers strive to add value and produce a high quality product that will match consumers’ needs.

The industry has undergone a remarkable transformation since the 1980s.

It needed to. For years it had rested on the premise that beef was “King” and Americans would continue to gobble it up. But, beef demand began to decline because beef was too fatty and inconsistent in its eating quality. Fortunately, the industry responded to the alarm bells, although it took nearly 20 years to arrest that declining demand.

Several crucial developments occurred along the way. Producers abandoned their love affair with dozens of exotic cattle breeds and went back to the basics. Fed beef packers introduced carcass merit pricing as part of marketing agreements with cattle feeders.

They began to introduce case-ready beef. This was a far cry from an industry that once pumped out whole carcasses and strictly commodity beef. The industry also began to use an array of technological tools, from EPDs to shear force testing of beef cuts.

Fast forward to today and the results of the changes are evident. The Certified Angus Beef program in its latest fiscal year solidified its position as the world’s premier beef brand. It reported record volume sales for the seventh year in a row and an estimated $6 billion in global sales at the consumer level. CAB experienced growth in all sectors.

Its network of 16,000 licensed partners worldwide sold 865 million pounds for the year, an increase of 6.7 percent from 2012. CAB for the first time marketed more than 60 million pounds of product every month in a year.

CAB set another record, for the percentage of cattle accepted into the program. The acceptance rate, which tracks Angus-type cattle that meet all 10 of the brand’s specifications, rose to 24.2 percent. Producers aim for CAB’s standards because of the higher prices they command, says CAB. So despite a relatively static number of Angus cattle, the focus on quality genetics and management netted another 200,000 head that qualified for the brand. This was the equivalent of 66 million pounds more of CAB product.

CAB President John Stika credits leadership from CAB’s partners and rising consumer demand for premium beef for the record year. A brand that consistently satisfies consumers offers a strong value for their dollar, he says. CAB also has huge name recognition. Research conducted this year showed 92 percent recognition of the three-word phrase, and 94 percent recognition of the Certified Angus Beef brand logo, more than double over the closest other brands.

Tyson Foods meanwhile, as the largest fed beef processor, is focusing on adding value, as well. COO Jim Lochner says Tyson will concentrate on being a bestin-class producer, growing exports, and increasing revenue through premium programs and brands such as Star Ranch Angus, Open Prairie Natural beef, Reuben brand Corned Beef and its case ready program. It will continue providing customers with options by adding value to wholesale cuts, such as its closely trimmed sub-primals, he says.

It helps that Tyson, more than its main competitors, taps into the high quality cattle fed in the Corn Belt. Tyson has four plants there, in Lexington and Dakota City, NE, Denison, IA, and Joslin, IL. The four plants can process 20,000 head per day. Tyson has strengthened its buying team in the eastern Corn Belt to take advantage of more cattle being fed there and buys a lot of cattle at small auction markets. Tyson is taking advantage of what some analysts call the “invisible” supply of cattle in the region. These are cattle finished in feedlots under 1,000 head of capacity, so they don’t show up in USDA’s monthly cattle on feed data.

The industry the next 20 years will need to focus on continuing to add value and convenience to every kind of beef product. Steaks will need to be smaller to acknowledge the fact that older consumers don’t eat as much in one serving as they used to. There will need to be new products containing ground beef. One of the hottest new breakfast food categories is frozen, hand-held items. This nearly $1 billion category grew 20 percent last year. Beef needs to be part of this category.

The industry must also accept that a comprehensive, national cattle identification program is a must, both for trace-back and trace-forward in the event of a disease outbreak, and to use as a marketing tool. Today’s consumers increasingly want to know where their beef originated from. The industry must satisfy this need and be able to tell a personal “story” about more of its products. — Steve Kay

(Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707/765-1725. Kay’s Korner appears exclusively in WLJ.)