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Cattle grading above the norm

Prime Cuts with Steve Kay, from the April 2016 issue of Canadian Cattlemen

As befitting the title of this column, it’s appropriate to note that fed cattle in the U.S. graded a record percentage of USDA Prime and Choice for three consecutive weeks in February. This was despite miserable feedlot conditions that took a lot of weight off finished cattle.

A combination of better genetics, improved feeding techniques and a longer time on feed are the main reasons why cattle are grading at such high levels. The number of cattle grading Prime set a new U.S. record in seven out of nine weeks last fall. The record stands at 6.69 per cent set the week ending November 20. Choice grading this February exceeded its previous record of 70.65 per cent set in late February last year. The record is now 71.96 per cent.

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calves in a feedlot

This meant a record 77.75 per cent of cattle graded either Prime or Choice the week ending February 19, while a record-low number (16.83 per cent) graded Select. This is far above the same week five years ago. That week saw 69.87 per cent of cattle grade Prime or Choice and 24.84 per cent grade Select.

Such improvement would not have occurred without a higher uptake of Prime and Choice beef. Wholesale club Costco led the way some years ago by offering Prime beef at affordable prices. Its members could buy a high-quality steak for less than $15 per pound, one-third the price they would pay at a top steakhouse. At the same time, supermarket chains moved to more Choice beef programs, in part to differentiate their beef from Walmart’s. The latter, a major user of Select beef, was then forced to introduce its own Choice selection.

The result is that Choice beef at the wholesale level is currently selling at quite a premium to Select beef, despite the record small number of cattle grading Select. The price spread between the Choice and Select cut-outs on March 11 was US$8.93 per cwt, versus US$2.59 the same day last year.

The strong Choice cut-out in March reflected another aspect of the U.S. beef market that has retailers concerned. Ground beef sales have been disappointing for some time and were weak in January despite aggressive retail features. Ground beef’s woes likely began after its average monthly price rose above US$4 per pound for the first time in September 2014. It is still above that level. Ground beef was the one beef retail item that competed price-wise with pork and chicken. It doesn’t anymore.

During the recession many Americans were forced to trade down from the most expensive items to ground beef to get their beef “fix.” Now ground beef “fatigue” might have set in. In addition, the retail price of steaks has moderated. Ground beef sales were so disappointing in January that after that retailers featured steaks more than normal despite February and March being the two weakest demand months of the year. Consumers responded because prices are lower than a year ago, and they are treating themselves more to a steak at home.

End meat prices meanwhile are weak in part because of the weak ground beef market. A stronger market would see more chucks and rounds going through the grinder. USDA’s comprehensive boxed beef report for the week ending March 4 showed that the price of ribs and loins, which represent 25 per cent of the carcass, were five per cent below a year ago. In contrast, chuck and round prices were 24 per cent and 22 per cent below 2015’s, respectively.

However, the start of the grilling season is just around the corner. Packers and retailers both hope Americans will grill even more steaks but also a lot of hamburgers, thus reviving the ground beef market.

About the author

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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