The Ground Beef Market and Price Signals

by Steve Suther

Beef’s getting better, to judge by the uptrend in quality grades and resurgent consumer demand. However, an increasing share of that demand has been for ground beef – and an average pound of that versatile staple now sells for more than $4.

Last year a Rabobank AgriFinance white paper entitled “Ground Beef Nation” (GBN) questioned the industry’s priorities now that Americans consume 11 billion hamburgers each year. It called for greater efficiency and retooling to fit a changed market for one-third to half of young cattle, and warned business as usual could lead to weakened market share for beef over time.

Everybody began to discuss the implications as the Choice beef cutout quote touched $2.50 per pound. They had seen the rise of giant burgers 10 years ago in step with low-carb dieting. They saw another move forward when ground beef was the go-to promotion in the 2008-09 recession, and last year as many steaks were priced two or three times higher than the grinds.

Could cattle ranchers, feeders and packers have it wrong? Will a slice of the market ignore quality again, and if that turn is coming, how should seedstock producers reorient genetic selection?

The Angus Foundation set out to learn more, commissioning its own white paper. The 35-year-old nonprofit arm of the American Angus Association funds education, youth and research for the breed and broader beef community.

“Whether we’re talking about ground beef or high-end cuts, it’s important to know their relative values and the market signals that originate with consumer demand for each,” said Foundation President Milford Jenkins. “That helps guide the breeding plans of registered and commercial Angus breeders toward more profit.”

The resulting paper, “Changes in the Ground Beef Market and What it Means for Cattle Producers,” was authored by Nevil Speer while a professor at Western Kentucky University; Tom Brink, the founder and president of Top Dollar Angus; and Mark McCully, vice president of production for the Certified Angus Beef^® brand. The full paper is available at http://www.angusfoundation.org/fdn/Research/FdnWhitePapers.html and at https://cabcattle.com/news/research.php.

“Ground beef is an awfully important part of the brand’s business, but it still doesn’t carry the value of the middle meats and most whole-muscle cuts,” said McCully. “Most cattlemen don’t realize how incredibly complex the entire ground beef market is – from varying lean points, to different raw material options, to premium opportunities.”

Speer summarized the reasons for the current white paper, highlights of which were presented at the Cattle Industry Convention in San Antonio, Texas, last month.

“We wanted to explore and outline some of the important dynamics around the ground beef category,” Speer said, noting the paper looks at “the economics and efficiencies associated with meeting the growing demand for ground beef within the current structure.”

People may think hamburger is hamburger, he said, “but the ground beef market is complex, representing a wide array of ingredients from a variety of sources coming together to make different types of products.”

That’s not a sign of inefficiency – just the opposite, Speer noted.

“The decision as to how to most appropriately combine materials for ground beef is based on a least-cost approach, given the market for various cuts at any given time,” he said. “That decision is complex and dynamic,” but working well today.

Despite rapid growth, ground beef does not overshadow sales of steaks and roasts, still driven by a combination of quality and price. While ground beef makes up 63% of foodservice volume, it’s just 37% of value; at retail those numbers are 49% and 39%, respectively.

Even with ground beef at $4, the average for all beef was at $6 per pound, offering little incentive to forego the greater figure for the lesser, Brink said.

What if forces outside of the market set up production of steers and heifers solely for grinding as GBN suggests?

“It would reduce industry revenues, elevate production costs and unnecessarily raise consumer beef prices,” Brink said, citing price relationships. “Fed cattle have been trading at a growing price premium versus cows over the past 15 years (See chart).”

The paper concludes there is no empirical evidence to support producing cattle specifically for the ground beef market.

“The trend toward a larger and more precise focus on marbling and quality grade has served cattlemen well,” McCully said. “We are producing a higher quality product in the end and driving consumer demand.”

Quality up in the face of drought

Darnall Feedlot earns back-to-back Quality Focus Awards from CAB

by Jill Dunkel

What’s better than winning first place? Doing that three out of four years, including two in a row and despite one of the worst droughts in history.

That’s exactly what Darnall Feedlot, Harrisburg, Neb., managed to do with Quality Focus Awards in 2010, 2012 and 2013 for Certified Angus Beef LLC partners with more than 15,000-head capacity. This year’s mark of 49% Certified Angus Beef^® (CAB^®) brand and Prime shot past the previous year’s 40% and 33% in 2010.

The time span is for cattle fed from June through the end of May.

This year, Darnall Feedlot managed to increase the grade while dealing with a harsh climate and high feed prices.

“Ranchers around here changed some management systems because of drought,” explains Gary Darnall, who manages the yard with his son Lane. “Many weaned early to reduce nutrient requirements on the ranch and to try and salvage as many cows as possible.”

That led to an influx of light-weight calves, some as light as 300 pounds, and a few, even lighter. Darnall put them on a grower ration, making sure they consumed good protein and energy, and grew the cattle until they were five-weights.

“At that point, we started treating them like other cattle in the feedyard,” he says.

In the process, Darnall realized first-hand what research has proven before: early-weaned calves have some advantages.

“Yes, we did get better carcass quality than we normally do,” he says. “I think it’s because of having a higher energy diet earlier in the life of the feeding period.”

Gary and Emilie Darnall accepted the award at the Certified Angus Beef LLC annual conference in Palm Desert, Calif., Sept. 18-20.

Cattle in the family’s yard are ultrasound-scanned and a projected marketing date is set as a matter of routine. With that system, Darnall says some of the calves in his program brought $4-plus-per-hundredweight (cwt.) in premiums. Those premiums were a blessing considering the cost of feed.

“It was high priced corn and as a result, these cattle lost money,” says Darnall, basing his calculations on their value as feeder cattle. But the premiums helped buffer the large losses other cattle feeders endured. Some of the cattle were off his Darnall Ranch, while others were from ranchers who retain ownership.

“We are fortunate in the fact we have ranchers that retain ownership with high-performance cattle. We’re very fortunate to be able to feed those cattle,” he says.

Most of the customers represent repeat business, some feeding with him for 10 years or more.

“The ranchers come back, year in and year out, so they have a program set up. They don’t vary much. But through retained ownership, they have definitely had a positive profit margin,” he says. “Now, last year they probably had red ink on the bottom line, like all of us did. But if you average that over a period of 10 years, they’ll be on the positive side of it.”

Looking at the next six months, Darnall says many ranchers have weaned early once again and are anxious to get into new-crop corn and the feeder-friendly prices that come with it.

It’s time to pay attention

As the quality spread widens, prepared cattlemen profit

by Laura Nelson

Boxed beef climbed 15% in value to start the year, but with the passing of summer into fall value trends began a dramatic differentiation. “At these prices, buyers wanted better quality,” said Larry Corah, vice president of Certified Angus Beef LLC (CAB).

The spread between USDA Choice beef and lower quality Select, moderate since 2008, shot up $15 per hundredweight in a matter of weeks. It was partly attributed to a major retailer switching to higher quality beef, but others had set the stage.

“Two of the largest retailers in the United States had added a premium-Choice program to their marketing plans in the past couple of years,” Corah noted. They were winning more satisfied customers, and the competition was quietly building demand at the high end.

The latest retail shift signaled a sudden need for more Choice and better beef, he said, but more importantly an excess of the low-Select product formerly in those cases.

“Combine the retail factors with an improving middle-meat market in our upscale, fine dining restaurants and a whole new demand profile for high-quality beef has been created,” Corah explained.

What does it mean at the feedlot and ranch? More money for informed marketers.

“There’s no reason not to sell high-quality cattle on a grid,” said Paul Dykstra, beef cattle specialist for the Certified Angus Beef^® brand, commenting on prices for CAB Prime. “When you’re looking at nearly $250 per head in premiums, that makes a guy pay attention.”

Those figures are based on mid-October calculations of an 850-pound (lb.) carcass, sold on a popular Nebraska grid (Table 1). The difference is much larger when compared to Select, which brought $187-per-head less than CAB on the grid. The premiums for quality represent a significant jump from recent annual averages.

Before anybody tallies potential premiums, Dykstra warned that it’s important to understand how area-weighted averages work (Table 2).

“Many people believe they’ll get the full Choice/Select spread over and above the carcass price for Choice,” he said. “Not true. It all depends on the plant location and grid structure.”

If a plant averages 65% Choice, the packer will likely pay 35% of that Choice/Select spread on every Choice carcass. Southern plants with historically lower grading may pay up to 50% of the spread, Dykstra noted.

Even in Nebraska, where quality competition is fierce, there’s plenty of reward for those who have focused on carcass quality.

“Select is always a discount by the full Choice/Select spread below the base, and Choice is that area-average premium over the base,” Dykstra said. “The spread covers the up- and the down-direction from the base.”

Regardless of whether you think about quality, it affects your price, he added: “Cattle with a track record for quality are the ones now bringing higher bids as calves and feeders.”

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Beef demand demands taste

June 1, 2011

If it’s been said once, it’s been said a thousand times: People eat beef because it tastes great.

We know that beef is an important part of a healthy, nutrient rich diet. But the fact of the matter is, we’re willing to pay more (130% more than chicken; 29% more than pork, in fact) for beef because we love how it tastes.

We love the simplicity of throwing a steak on the grill. We relish in a great steak’s ability to stand on its own: no need for special marinades, rubs or long preparation. Great steaks shun ketchup-abusers, and chef and grillmaster gloat in compliments on their expertise while watching the meat sizzle over hot coals. Steak-lovers have a fascination with our product that is based on all these sensory factors.

But if we fail at delivering that incredible product, even once, those former steak lovers will never forget. Case in point: ever had a terribly tough, dry steak at a restaurant? Ever go back to that restaurant for steak again? Didn’t think so. Ever had one of those less-than-stimulating eating experiences and wondered, *gulp,* what if that steak came from my ranch? Continue reading “Beef demand demands taste”

Mythbuster Monday talks variation

If you have kids or pets, it shouldn’t be that hard to disprove this morning’s myth. You know that two people, or animals—even with the same lineage—can be as different as night and day. (Quick example: At 2 ½, my oldest will talk the ear off a stranger, while my 1-year-old daughter refuses to leave my arms in a new place.) The same thing goes for pets. Yet, we still get this one all the time:

Myth—Cattle are cattle. There’s really not much difference from one herd to the next.

Fact–All cattle are not created equal. Ask Sam Hands, of Triangle H, in Garden City, Kan.

Sam Hands, Triangle H, Garden City, Kan.

We looked at 8 years of data on more than 25,000 cattle that went through his family’s feedyard. Continue reading “A cow is a cow is a cow….BULL”

I’ll start this post by getting one thing clear: I am NOT a morning person. I never have been. My family knows this better than anyone, which is why it shocked me so much to receive a 6 a.m. phone call from my father the other day.

Some of the first calves on the ground at Nelson Farms — yes, that is a second tail behind the little guy. Calving season kicked off with healthy twins and just got better with some outstanding heifers, thanks to solid handling practices early in their lives.

He called just to chat – it was 4 a.m. back in Nebraska, and he was out checking heifers. He bought this set of first-calf heifers in the fall, and had been pleasantly surprised with them so far. Things were going so well, in fact, that rather than having to assist any of their calving efforts, he had time to call his youngest daughter to chat oh-so-early in the morning.

“They’re calm, gentle, easy to work with – they just handle well. They take good care of their babies and are all nursing just fine. These ol’ girls are going to make some great cows. Someone really did some fine work with them before they arrived at our place,” he told me.

I got to the office later that morning, still pondering that group of heifers. What had gone so right at the ranch before ours to create such a peaceful condition back home? Continue reading “Start early to make calving season a breeze, Part I”

Demand still favors higher quality

February 20, 2011

What a wild beef market these days!

I’ve read articles that assume beef prices are going up simply because cattlemen have demanded more in the face of higher corn prices. Of course it’s not that direct, but true in the long run because of supply and demand. The recently narrow spread between Choice and Select boxed beef prices—negative for a day or so—had some reporters speculating again as to the logic behind this supply and demand signal.

Some said it was the bad weather that reduced dining traffic at high-end steakhouses, turning them instead to Select at retail; others said it was the good weather that allowed cattle to better realize their Choice potential. Continue reading “Demand still favors higher quality”

Straightforward success

GG Genetics awarded 2009 CAB Small Feedlot of the Year

by Laura Nelson

A couple of empty semi-trailer trucks and a signed, blank check arrived at a southwest Montana ranch late one fall. The rancher helped load some of his best calves, and then watched the trucks head back to GG Genetics feedyard in Ida Grove, Iowa. The check stayed in Montana; the value returned to Iowa.

That’s the kind of businessman Mason Fleenor is.

“He’d just tell me to fill in the numbers on the check,” recalls Ron Benson, Dillon, Mont., one of the Iowan’s early feedlot customers. “That’s just how honest he is.”

Fleenor sure doesn’t skate around the truth when it comes to the kind of cattle he likes to feed, either. “They’re all pretty purely Angus. I won’t buy anything else – I don’t even want them. I guess I’m kind of prejudiced,” he laughs.

Not just any black cattle will do for the Certified Angus Beef^® (CAB®) brand’s 2009 Small Feedlot of the Year. “I think it has to be CAB or USDA Prime to have a good carcass. That’s my opinion – that’s what quality is.”

Fleenor refuses to raise or feed anything short of the best at GG Genetics, where he has combined a successful registered Angus bull business with a small feedyard. He fills the 500-head yard with home-raised cattle and calves from bull customers. It’s stock-full of genetics he and wife Diane have been perfecting for two decades. The couple accepted their Feedlot of the Year award this September at the brand’s Annual Conference in Scottsdale, Ariz.

The Fleenors started in the feeding business in the 1980s. Once they realized the overall influence of genetics in the feeding process, they decided the bull business was next. Last year, their 413 CAB-enrolled cattle averaged 81.1% Choice, 16.7% Prime and 74.6% CAB, including CAB Prime.

“One of the main reasons our cattle grade so good is that they’re all out of our genetics,” Mason says. “We don’t buy commodity cattle. We want to know what we’re getting when we buy cattle to feed.” What they get is a return on the genetic package so painstakingly guided toward perfection. They’ve kept carcass data on every animal in the feedlot for more than a decade.

Although he owns full interest in all cattle fed, Mason still makes a point to share that information with the previous owners. Taking a further step, he tries to help ranchers make decisions in their cow herds that will complement the bulls he sells to produce the best calves.

Then it’s up to Mason’s feedlot management to bring home the real value. They use minimal implants and feed a high-energy, high-roughage ration. Close proximity to three ethanol plants allows the judicious use of distillers grains as well.

“We don’t push our cattle like a lot of the feedlots do,” Mason explains. “If you start with the right genetics, you don’t have to.” Mason then relies on a skilled eye and rigorous sorting to make up consistently uniform loads.

While their cattle look uniform, the Fleenors put little stock in aesthetics. “To me, the biggest issue with the cattle industry is looks,” Mason says. “A lot of guys want to use bulls because they look good. But you’ve got to have a commitment to use the right genetics. If a bull doesn’t meet the trait, forget about it. Just because he looks good – why use him? You get the hide off of ’em and looks don’t matter much.”

What does matter, Diane says, is focusing on the final product. “Everybody says, well, if all the cattle in the market were Prime, then the market for quality would go away. I say if every calf was Prime, our consumption would increase so much it wouldn’t matter, because overall cattle prices would rise,” Mason says. “Nobody is going to complain about an extra 50 cents for a good steak. But you know they’ll complain about getting a bad steak.”

Complaints are few and far between when it comes to GG Genetics – from the bulls the Fleenors breed to the calves they feed to the steak they put on the table. Customers from every end of Mason and Diane’s varied enterprises will tell you, that’s the honest truth.

AngusSource ’08 contest winners

by Miranda Reiman

The top groups in the 2008 AngusSource® Carcass Challenge (ASCC) “blew the doors off” average quality grades, says program director Sara Snider.

Three feedlots won more than $1,000 in cash and prizes for first through fifth place finishes during the inaugural year of the contest. Entries consisted of at least 38 head of age-, source- and genetic-verified calves fed through the network of Certified Angus Beef LLC (CAB)-licensed partners.

“Our goal was to illustrate the value of those calves in the feedyard and recognize those procuring AngusSource calves and targeting the brand,” Snider says.

Beller Feedlot, Lindsay, Neb., received $500 for the winning group that went 80.7% Certified Angus Beef^® (CAB^®) and Prime. That’s more than four times the national average.

Those 62 steers were purchased from longtime Montana customers Mike Green, Dennis Green and Scott and Traci Glasscock.

“We scanned for high marbling and took the top 62,” says Terry Beller, feedlot owner-manager. “These were kind of the heart of them, but even the ‘out’ cattle did extremely well.”

The third-place entry, at 68.2% CAB and Prime, also belonged to Beller Feedlot. That earned them an additional $100.

Neighboring feedyard, Beller Corporation, scored second and fifth place in the ASCC. The cattle purchased from Gray’s Angus Ranch, near Harrison, Neb., went 69.1% CAB and Prime. Their number five group went 67.4%.

“There’s a big advantage to buying from the same source: You know what you’ve got,” Doug Beller says. He, along with brothers Dennis and Duane, collected $350 in prize money.

Cattleman’s Choice Feedyard, Gage, Okla., and Jimmy Taylor, Elk City, Okla., split the $100 prize for their fourth-place entry. Taylor’s first time retaining ownership showed 66 steers going 67.7% CAB and Prime.

“We set the standards pretty high here. I’m going to have to work really hard to keep it at this level,” says Dale Moore, owner-manager of Cattleman’s Choice.

In the fourth-quarter 2008 ASCC results, 45 heifers harvested Nov. 24 at the Cargill-Schuyler (Neb.) plant surpassed national quality grade averages but did not make it to the final round, Snider says. Still excellent, high-value cattle, they were fed by Beller Feedlot, which bought them from Schroeder Ranch, Thedford, Neb. Second- and third-quarter ASCC winners were previously announced.

Snider says the American Angus Association is looking forward to this year’s contest, which will continue to name quarterly winners in each region before bestowing a national title at the end of the year.

“We’d really like to see the contest grow,” she says. “If you’re feeding at or selling to a Certified Angus Beef licensed feedyard, just make sure they know you are interested in the ASCC. There’s no cost to enter and the paperwork is minimal.”

In addition to the 38-head minimum, cattle must be harvested in one lot. They can be steers, heifers or mixed-sex groups and can come from multiple operations, if all are AngusSource enrolled.

To learn about the AngusSource program or the ASCC, visit www.AngusSource.com, contact Snider at 816-383-5100 or email her at ssnider@angus.org.

Tag: quality pays

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