| It’s an interesting time in the beef business. We can’t speak about a specific aspect of the market or supply chain without drawing upon several other factors across the beef supply chain that influence the first. A close inspection of boxed beef prices and the difference between quality grades and branded beef programs is a multi-factorial discussion. Supply and demand are the basic economic influencers on price. Yet, what we knew 15 years ago about industry production volume of each quality grade and CAB carcasses didn’t provide insight to the mix of carcasses produced today. The change in quality has been nothing short of revolutionary, as producers responded to economics and consumer preference. The CAB brand has seen supply grow from 1.8M carcasses certified in 2006 to 5.9M in our fiscal 2021 data, as the share of eligible animals qualifying under the brands 10 specifications more than doubled. |
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| Just as brand-qualified carcasses were dramatically more plentiful, the CAB cutout price continued to elevate above commodity Choice. In the period from 2008 to 2021 the whole CAB carcass premium (cutout value) above commodity Choice increased by 178%. Bringing the discussion into the fourth quarter of 2021 has us looking back at the pricing sheets with regard to the Prime quality grade. In September of this year, we shared that the packer-reported Prime grid premium had doubled that of a year ago, reaching just over $20/cwt. This, at a time when the Prime share of all fed cattle carcasses, just over 9%, was on par with the record-large 2020 proportion for September. CAB Prime carcasses have increased by 140% in the past five years. Since our September Insider report, the Prime grid premium has amazingly increased by an additional 50%. The latest $30.84/cwt. weighted average packer premium sets the record for the highest reported number in the report. Seasonality is such an important feature of fourth-quarter boxed beef pricing that it deserves a nod in regard to the discussion around Prime. Most purchase orders for Prime boxed beef items are for middle meats. Of course, consumers want high-quality middle meats for holiday celebrations in December. This means that price spikes are normally a common feature of the fourth quarter. Yet last week’s Prime cutout price was $82/cwt. higher than Choice, according to USDA. That’s 2.5 times the price spread for the same week a year ago. The supply side of the picture shows that Prime carcasses are relatively abundant, second only to a year ago, gauged by the late-October data. A couple of dynamics influencing the pricing scenario come to mind. The most glaring is that packers need to fill orders for Prime cuts, either in the spot market, forward contracted, or likely both. Second, although cattle are achieving the Prime grade at a very high rate, the slip down to the 9% range, just below last year’s 10% at this time, is not quite keeping up with demand. |
