Larry Corah, K-State Emeritus Professor, Supply Chain Consultant for Select Sires
Historically, one of the challenges for the beef industry has been adding value to cattle. From the early days of cattle drives, to the advent of large feeding companies, the search for more profit was hard.
Why has that been the case?
A likely reason is that like most agricultural products, beef was a commodity. Cattle of greater quality covered the cost of poor quality cattle and all sold for nearly the same price. Another reason is the beef industry is a very segmented industry so for years the only way to make money was at the expense of another segment.
Are we making progress? I’d argue yes. Two big industry changes have started the trend.
The first was the large feeding companies moving to formula and grid marketing as they sold cattle to packers. Once all cattle were sold live today, nearly 75 percent of all fed cattle are sold on a formula or grid. Nearly all of these contain premiums for certain carcass traits.
Certainly, I’m biased from my days with the Certified Angus Beef® (CAB) program, but CAB changed the industry bringing premiums for producing a higher grading carcass. First CAB turned the industry toward black-hided cattle, and then started bringing premiums for those cattle that could hit the target. Today a CAB qualifying carcass will bring $40-60/ head over a Choice grading carcass, and up to $150-180 over a Select grading carcass.
Has the industry responded to these price signals? Absolutely. Fifteen years ago we were producing cattle that graded 55 percent Choice and Prime and today we are over 80 percent Choice and Prime. Folks, that is progress in a short period of time. Prime was once considered an aberration when it first occurred. It is, and should be, a target for cattle producers. Today, we are making progress over 10 percent of fed cattle grade Prime, which is up from the common 3 to 4 percent level that we have seen for years.
So how have our consumers responded to what I will argue, is the highest quality beef product ever produced? The way you would hope. By paying more money for quality. One of the best examples of that is the past nine months. With a pandemic causing skyrocketing unemployment we first saw ground beef flying off the shelves, but to my amazement we have paid more money for Premium Choice and Prime. The Choice-Select spread has approached all-time highs while the CAB-Choice spread, as measured weekly by the Urner-Berry Co., has nearly doubled it’s normal rate. That to me is real demand, producing more for a higher price. WOW!
So where do we navigate to next and how will that impact what we do at Select Sires? First, we continue to supply genetically superior semen that allows producers to hit these targets. Select Sires has made that possible with the elite lineup of bulls.
The next step is to build supply chains that allow all segments of the industry to profit by hitting goals. I believe in 2020 we made great progress in accomplishing that for the huge supply of beef-on-dairy calves being produced today. Our next goal is to get that done for straight beef calves, and we are making progress in that arena as well. More details will be forthcoming in 2021.
The bottom line is that I couldn’t be more bullish on the future of this great beef industry and the opportunites for Select Sires customers.