It’s time to pay attention

October 21, 2011

Have you taken a look at what calves like this are worth lately? While I was trying to catch up after two weeks on another continent, the rest of our team was swapping emails, crunching numbers and speculating on exactly how much money is out there to be made by savvy cattlemen who focus on carcass quality and beef performance.

I gathered up the email chain and tried to sort out the most important information. So sharpen your pencils and get ready to follow this money trail. Our Paul Dykstra is the math whiz behind the figuring:

Earlier this week, when a CAB^® carcass was worth an extra $3.00 / cwt. and the Ch/Se spread was $16.10 / cwt., then the premium above the 5-area weighted average would be about $73.40 per head for an 850-lb CAB^® carcass on a widely available Nebraska grid.

The Choice premium is $47.90 /head and the CAB^® premium is $25.50/head.  The advantage over Select is $162.35/head.  This adds $5.48/cwt. to the live market average price.  The YG 4 discount figures to only -$3.18/cwt. live, -$5.00/cwt. carcass, so there’s no reason not to sell quality cattle (over 65% Choice pens) on a grid. 

But what about Prime carcasses?

With the Choice/Select spread the same, the Prime premium is $21.71/cwt., carcass basis, according to USDA.  So, Prime is worth another $184.54/head, in the meat,on top of the $47.90/head for Choice. Total is $232.44/ head above the weighted average (not above Select,mind you).  The Prime live price premium over weighted average is $17.37/cwt. on an 850-wt. carcass (1338 live weight).

What does the area weighted average mean?

If plant average for percent Choice is 65%, then 100% minus 65% equals 35%.  The packer will pay 35% of the Ch/Se spread on every Choice carcass.  So, the new number, $19.04 / cwt. gives you the following math results.

Here’s how that’s all figured:

• Regional avg. weekly carcass price: $180.00/cwt.  (for example)
• Ch/Se Spread = $19.04/cwt.
• Amount to add to $180.00 / cwt. = $19.04 x 0.35 = $6.66 /cwt. = Choice carcass price of $186.66 /cwt.
• Select carcasses are discounted the full Ch/Se spread from the Choice price, so:  $186.66 minus $19.04 = $167.62 /cwt. for Select carcass
• If the CAB^® premium is $3.00/cwt., add that to the Choice price.  $186.66 + $3.00 = $189.66 for CAB^®
• The Prime premium, at $21.71 /cwt., is figured like the CAB® premium.  It’s expressed in dollars above Choice.  So, $186.66 + $21.71 = $208.37 /cwt. for Prime

So, you can see that the regional average carcass price is actually between the Choice price and the Select price. This is a very important fact because many people think that they will be paid the full Ch/Se spread over and above the market average “in the meat” price for a Choice carcass.

Not true! In Texas you might get 50%, in Kansas you might get 45%, in Nebraska you might get 35% or 30%.  Depends on the plant and the grid structure.

Bottom line is, Select is a discount below the base and Choice is a premium over the base.  The spread covers the up and the down directions from the base.

Now, to the per head values for a 850-wt. carcass:

• Regional avg. = $180.00/cwt. = $1530 /hd.
• Choice = $186.66/cwt. = $1586.61 /hd.  ($56.61 premium/hd. over regional avg.)
• CAB^® = $189.66/cwt. = $1612.11 /hd. ($82.11 premium/hd. over regional avg., $25.50 premium/ hd. over Choice)
• Select = $167.62/cwt. = $1424.77 /hd. ($105.23 discount/hd. below regional avg. and $161.84 discount/hd. below Choice)
• Prime =  $208.37 / cwt. = $1771.15 / hd. ($241.15 premium/hd. above regional average)

Questions? Give Paul a call (308-874-2203) or shoot him an email (pdykstra@certifiedangusbeef.com). Happy Friday, friends!

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