Cattle are quality grading higher than they have in years. That's both good and bad news for cattle feeders. They are getting more money in their pockets as more cattle grade Choice and Prime, but the price spread between Choice and Select is historically narrow. Thus, those selling on grids are getting much smaller premiums for Choice cattle than they did previously.
Grading has improved dramatically the past three years. The number of cattle grading Choice averaged 51.71% in 2006 and 52.81% in 2007. Some people began to claim the use of beta-agonists in feedlots was impacting grading. But the percentage suddenly took off.
Cattle graded 51.45% Choice the week ended Dec. 8, 2007, but graded 58.30% Choice only 11 weeks later. The average for 2008 was 56.27%. By the week ended Feb. 28, 2009, the number exceeded 63% for the first time since the grading dataset began in early 1997. The average for 2009 was 59.75%. The number has not fallen below 58% since mid-January last year. In addition, the number of cattle grading Prime topped 4% last October and has fallen below 3% only one week since then.
Several factors appear to have contributed to the big improvement. One is that more producers are incorporating Angus genetics in their cow-calf herds, and they are identifying better the genetics within the breed that marble better.
Another factor is earlier carcass maturity. Cattle feeders have placed cattle on feed at heavier weights the past two years to offset higher-priced corn. At the same time, excellent grass conditions have helped calves begin to marble earlier. Efficient use of dried distillers grains in feedlot rations is another factor.
Improvements within USDA's grading service have also played a part. USDA spent several years developing instrument grading. Its use officially began on Sept. 1 last year and seven plants are now using it. But the improved grading began long before plants started using instruments, as USDA worked harder to ensure greater grading uniformity.
The downside is that more Choice beef, as a percentage of total production, has coincided with weak demand for higher-priced beef. So the Choice-Select spread has narrowed, which has meant smaller premiums for producers.
The spread in 2009 averaged $5/cwt., the narrowest since 1994 when it averaged $4.60. It averaged $5.90 in 2008, $9.80 in 2007 and $14.20 in 2006. Cattle feeders have partially compensated for the decline in premiums by producing more Choice-grading cattle.
One consequence is that yield grades have become an increasingly important part of overall premiums for some cattle feeders. The Beef Marketing Group (BMG), based in Great Bend, KS, markets about 500,000 head/year on behalf of its 14 member feedlots in Kansas and Nebraska.
BMG does a lot of marketing on grid programs, says CEO John Butler. BMG cattle are generally higher-yielding cattle. Based on what is happening in the market regarding Choice cattle, BMG is marketing more cattle than before based on red meat yield, he says. Yield grade is becoming more important all the time and is a vital piece of information for BMG members. They receive yield grade data on all their cattle on a group basis. Dressing percentage is also important. BMG uses grids that have a series of premiums and discounts for dressing percentage, he says.
The smaller, quality-grade premiums might also spur renewed discussion about developing a beef tenderness index. Considerable work has been carried out in recent years in developing instruments based on wavelength to measure tenderness in packing plants. But the only beef program currently using a tenderness measurement is the Nolan Ryan's Guaranteed Tender program.
I certainly hope more programs involving retailers, packers and cattle feeders consider measuring tenderness. Producers could eventually be rewarded for producing tender beef. All this would help reduce one of the biggest consumer concerns about beef, its variability of tenderness.