In recent weeks, Industry At A Glance has focused on the improving grading trends within the slaughter mix and the resulting long-run shift in production. All that discussion has some very important ramifications upon beef sales.
More specifically, the improvements in USDA Quality Grade have served to increase the relative supply for beef sold as Prime or via a branded program. Clearly, that’s a beneficial occurrence for the beef industry, as beef sold at the higher end of the market generates more revenue that ultimately gets transferred back to the production sector. Moreover, beef sold at the higher end of the market possesses increased quality and consistency. Thus, selling more of it means more consumers purchasing product with a higher probability of a favorable eating experience. With all that said, the industry witnessed an important occurrence in early 2015. The eight-week moving average for sales of Prime and Branded (combined) surpassed the Select category for the first time. Moreover, the gap has widened in the ensuing weeks; at the end of March, Prime and Branded sales (combined) comprised 17% of total sales, while Select accounted for only 14%, respectivelyThe evidence points to a favorable reality. Consumers are buying more product that demands a price premium and decreasingly competes head-to-head with other proteins in a commodity setting. That ultimately sends price signals back into the production sector to create even more product to meet that demand. The occurrence seemingly reveals the importance of a virtuous loop for the beef industry. Lastly, that decommoditization buffers the market from conventional/traditional market corrections that typically occur when operating in a strictly commodity orientation.
How do you perceive these long-run trends in the industry? What implications might occur from this transformation in the future? Do you foresee this trend continuing in the years ahead?
Leave your thoughts in the comments section below.
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