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Beef cutout price spreads: Prime still leads in premiums paid

There is more premium product in the marketplace. And yet, there’s still a significant and consequential premium for Prime and Branded product.

Nevil Speer

November 14, 2018

2 Min Read
Beef cutout price spreads: Prime still leads in premiums paid

Last week’s Industry At A Glance highlighted the persistent upward trend in terms of the percentage of the slaughter mix achieving the Prime quality grade. As noted in that column, “…we’re into November and the industry is fast encroaching on 9% of the population achieving Prime – all-time high. That’s no fluke, though. That’s the result of a long-running trend. The 52-week moving average is now 7.5% - versus just four years ago when it was only 4%.” 

Within that construct, the concern among producers is often around the risk of  “more means less.” That is, more Prime product in the marketplace means smaller premiums on a per-head basis. This week’s illustration provides some context around that discussion.   

The graph features wholesale value differences (four-week moving averages) between Prime, Branded and Commodity Choice versus Select. Not surprisingly, the price spread between Prime and Select has declined due to increased product availability; bigger volume has effectively narrowed the spread. 

November-2018-beef-cutout-spreads.png

However, that said, the Prime spread is still running above $20 per cwt – the equivalent of $180 per head. That’s a significant value difference – nearly double the current premium for commodity Choice. Meanwhile, the branded spread has been trending in an upward fashion since the summer low. 

Related:We’ve come a long way in producing high-quality beef

Bottom line: There is more premium product in the marketplace – that’s the result of a higher proportion grading Prime coupled with bigger beef production volume. And yet, there’s still a significant and consequential premium for Prime and branded product. That speaks to the demand equation for high quality beef.  

What’s your read on this trend within the beef complex? How do you perceive the long-run implications of these trends? Leave your thoughts in the comments section below.  

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY. Contact him at [email protected].

 

About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
 
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
 
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
 
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

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