DID YOU KNOW?

Opinion
Feb 14, 2014
by WLJ

Prime is the new premium target

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The run-up in the fat cattle market surprised virtually everyone in the industry with how quickly it occurred and the magnitude of the jump. In late December, we were trading at $1.30/lb. and by mid-January we were chasing $1.50, and trade at that level was confirmed in Nebraska. Holding prices in this new range all depends on what the consumer is willing to pay for beef relative to the cheaper proteins available.

You’ve watched all the cattle move higher, but what you likely did not know is how the price spread for quality continues to widen. And we’re not just talking about the Choice-Select spread, which was slightly above $10/cwt. for 2013. The spread most producers never see is how many more dollars Prime is bringing over Choice: that 2013 average was $17/cwt. Doing the math for an 850-pound Prime carcass shows nearly $150 more than Choice. Some grids even pay $25/ cwt. for Prime over Choice, which equates to more than $200/head (real money for sure).

What you also likely did not know is how effectively quality-minded cattlemen have become at selecting and managing to hit that Prime grade target. Through stacking generations of above-average marbling in a herd, it’s not uncommon for some of those pens to achieve 20-25 percent Prime, and we have seen groups exceed 40 percent. Just watch what happens next: Today’s genetics are making it easier to achieve Prime, so volume can keep moving up as it has since 2007 (see Table 1).

Because of the predictably high quality eating experience that drives demand for Prime, it continues to grow its way onto restaurant menus, and has become a feature in many grocery stores. That’s why the Certified Angus Beef brand Prime extension grew by 15 percent in the 2013 fiscal year that ended last Sept. 30. Enjoy these prices but if you want them to stay, the quality target of the future is not Choice, but Prime. — Larry Corah, Vice President, Certified Angus Beef LLC

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