Prime and Choice beef dominating productionPrime and Choice beef dominating production
Over the past 15 years, Choice and Prime beef have grown to a bigger share of overall production.
June 22, 2016
Last week, we highlighted the importance of the recent spike in the Choice / Select spread. The focus included implications of a concurrent price surge for middle meats (rib and loin) versus the end meats (chuck and round). That is, the rib and loin now account for over 52% of the overall cutout value – a jump of nearly 10% since the start of the year. In combination, it appears that consumers are opting for the top end of the market – in terms of both selected cuts and quality grade.
Meanwhile, this week’s illustration depicts the importance of the Choice-Select spread from a different perspective. The graph depicts the influence of the grading trend during the past 15 years on beef production. Last year, the beef industry produced record tonnage of Prime and Choice beef. That occurred despite the beef industry producing only 23.8 billion pounds in 2015, including production from non-fed cows and bulls – the lowest total since 1993.
Given those considerations around overall production trends, the beef industry has been successful in shifting the supply curve of Prime and Choice product over time, versus simply increasing quantity produced. The biggest driver of that shift falls under the category of “conditions of production” or sometimes referred to as “technology.” In this instance, that would include better genetic tools and selection, feeding management, and a whole host of other factors.
As explained last week, though, given other things staying constant, the expectation would be for the spread to narrow as more Prime and Choice product becomes available. In other words, less scarcity of Choice product would typically force it to garner a lower relative price to clear the market. But that’s not been the case. Rather, it appears the market is working within the framework of a new, and more favorable, demand for Choice product: tastes and preferences have shifted in a favorable manner.
This all bodes well for the beef industry’s position in the marketplace. What’s your general assessment of beef and the consumer? Are these favorable signs the consumer made a long-term shift to high-quality beef that won’t be reversed any time soon? Leave your thoughts in the comments section below.
Nevil Speer is based in Bowling Green, Ky., and serves as vice president of U.S. operations for AgriClear, Inc. – a wholly-owned subsidiary of TMX Group Limited. The views and opinions of the author expressed herein do not necessarily state or reflect those of the TMX Group Limited and Natural Gas Exchange Inc.
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