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.”

Old ranch, new ways for CAB award winner

When Mother Nature gets mean, new technology and high-quality goals gain the upper hand

by Steve Suther

Joe Mayer has always looked for better ways. That’s second nature to anyone whose family has made a living on harsh land for generations. All who thrive on the 35,000 acres that comprise Mayer Ranch near Guymon, Okla., must continually adapt.

For his example that proves high-quality ideals and cattle can flourish here, Mayer earned the 2013 Certified Angus Beef LLC (CAB) Commercial Commitment to Excellence Award, presented at the CAB annual conference in Palm Desert, Calif., Sept. 18-20.

Once part of The Comancheria, Mexico and Texas, the Cimarron Strip may have looked like its 19th century nickname, No Man’s Land, when Mayer’s great grandfather rode across it in 1873. Bound from Savannah, Mo., to manage a branch of the XIT Ranch near Texline, Texas, he would cross the strip many times in the years ahead, trailing cattle to Dodge City, Kan.

When settlement was opened as part of Oklahoma Territory in the 1890s, the family had already been ranching there seven years.

Mayer grew up on a part of the ranch at nearby Hardesty, Okla., moving to the Guymon ranch to ramrod a new part of the spread while earning a degree at Panhandle State University where he met and married MaryAnne.

All the cattle were straightbred Herefords then, but calving ease was a common concern. That led to the first use of Angus bulls on heifers a few years later, though the black baldies were discounted at auctions.

Early adapters of artificial insemination (AI), the family tried most of the continental breeds before coming back to exclusively Angus 20 years ago.

“We follow the market,” Mayer says, “and that’s why we went with Angus.”

In 1993, he started buying bulls that would sire uniform performance and quality, from Gardiner Angus Ranch, Ashland, Kan.

“They were paying attention to marbling before anybody else even knew it was going to be important,” Mayer says.

Before that, he produced for the prevailing commodity market and went about the daily business of ranching while he and MaryAnne raised Katie, now an attorney in Colorado, and Paul and Margie, who are part of the ranch business today.

“We fed a lot of cattle, and all kinds, but that was back before grids and none of that mattered,” Mayer says. Now that it mattered, carcass data through the Gardiners and U.S. Premium Beef helped him identify and cull the tail-enders.

He sends calves to CAB partner yard Triangle H, near Garden City, Kan.

“Joe has the right ideas on how to work with leading genetics to send us some of the best calves we’ve fed,” owner-manager Sam Hands says. “And we’re working together to help take that to a new level.”

The straightbred Angus herd of 1,400 cows conformed to plans, as once leading-edge outlier genetics became the norm.

Mayer tries to keep expected progeny differences (EPDs) balanced, but he pushes the top end of the $B index that combines EPDs for growth and carcass traits with economic data. Bulls for heifers must be in the top 1% for calving ease.

But drought created new challenges by 2010 when culling had to go much deeper than expected.

“We sold the oldest and then the next oldest,” Mayer says, noting finally, all mature cows had to be sold. “It tore my heart out.”

And it still wasn’t enough when 2011 opened up even drier.

“It got down to where it was hurting us to even keep bred heifers, but we had spent too much money and time, worked too hard to build our genetics to just lose that,” Mayer says. “We started looking for some place to go, and maybe we should have left here.”

Anyone would have had doubts when grass that survived the Dust Bowl began dying.

“We started driving until we found something green,” he says. But the inside insight came from Mayer’s AI specialist, Doug Tenhouse, originally from Illinois. He knew of a 1,640-acre ranch for sale in the Green Hills near Unionville, Mo.

“We closed on a deal and shipped cows two days later,” Mayer says. Those 2011 first-calf heifers are now the oldest cows in a herd of 1,090, and 624 of them in Missouri. That’s only half the herd it could be.

“If we could ever get a rain here—and it would take two or three years—but we could run a couple thousand,” he says. “It has got to start doing a whole lot of raining first.”

Meanwhile, calves from this ultra-culled herd now make 70% CAB and 15% Prime. Mayer plans to push that to 25% Prime in the near term.

He’ll cull any cow that can’t produce a CAB calf, and let technology ensure the repopulated herd can gain and grade at the very top.

Planning for precipitation to return to its 18- to 20-inch annual average, last fall Mayer bought 500 heifers from five ranch dispersions. When the drought didn’t break, he turned to realism and a new tool, the GeneMax™ (GMX) genomics test from CAB.

Gate-cut sampling from each set identified the top two strings, from which all heifers were tested. Only those scoring above 80 on the 99-point GMX scale were kept in each case.

“We thought at that level, they should be able to produce a CAB or Prime,” Mayer says. The test cost $17, but prorated over a six-calf productive life, “it seemed reasonable.”

Expectations are high every day. By the time calves finish in the feedlot, “our steers and feeder heifers need to weigh at least 3 pounds for each day they live,” he explains.

When 2,000 cows are in on that plan, producing only CAB and Prime calves, Mayer may allow himself a moment of satisfaction to enjoy the better days. He’ll probably order a steak, medium rare…

More than one path to cattle profit

by Steve Suther

Crossbreeding may fit most producers, but it is not the only logical path, says a leading cattle feeder and an animal scientist.

Tom Brink, president of J&F Oklahoma Holdings, says feeding 1.6 million cattle per year at Five Rivers Feedlots has led him to conclude: “Planned crossbreeding is not the problem. Planned straight breeding is not the problem. Breeding cattle without any consistent plan is the problem.”

He commented at the 45th Annual Beef Improvement Federation (BIF) meeting June 12 in Oklahoma City, where a series of presentations and a panel discussion examined the rationale for breeding systems.

Nevil Speer, University of Western Kentucky animal scientist began by clarifying that he does not advocate one system over another. Speer’s 2011 paper, “Crossbreeding: Considerations and Alternatives in an Evolving Market,” granted every advantage to crossbreeding before exploring why the practice is losing ground in the commercial beef industry.

A proliferation of Angus branded beef programs, and especially market premiums paid for the original Certified Angus Beef brand, has added value to Angus cattle at every segment, Speer noted. However, consumer satisfaction is the driving force, and no breed or system of breeding should be evaluated without respect to the core quality of beef and its impact on demand.

He said the 21st century beef industry is more consumer driven, compelled by a competitive protein market. Efficient but demand-responsive cattle ranches will likely face “increasing delineation” around premiums and discounts. Crossbreeding can be valuable to producers and the industry, Speer reiterated, “but opting out of such an approach isn’t necessarily flawed.”

Brink agreed and used a baseball metaphor where right-handed batters represent those using planned crossbreeding with the lefties using straightbred Angus.

“We should not coach each and every producer to bat right-handed by telling them that crossbreeding is the only solution,” he said. “Each producer line up on the side of the plate where they feel most comfortable and go hit the ball!”

He shared data on the top 10% to 15% of cattle Five Rivers has fed (see Table), noting better feedlot performance worth $154/head above average, with grid premiums adding $65 for a net $219/head advantage.

“This illustrates what is possible and that we can pay much higher prices for feeder cattle and calves that are known to create such exceptional value,” Brink said.

If the crossbred advantage proven in older data still holds true, it can be represented as one extra 600-lb. calf per cow, or six such calves compared to five for a straightbred cow, he suggested, laying out the math. Additional carrying costs of $600 for another year would make a net $300 profit for the crossbred, given calves at $1.50/lb.

A “high-end Angus straight-breeding program” can match those results, Brink said. “As shown above, stacking top growth and carcass genetics can result in cattle that are worth $200+ per head above average.” Multiplied by five calves rather than six shows a $1,000 advantage.

“If cow-calf producers can capture just 30% of this value, they have matched the crossbreeding example,” he said, allowing some would argue the numbers: “That is fine…the key takeaway, however, is that these two approaches to breeding beef cattle are financially closer that many people think.”

Yes, structured crossbreeding would fit most U.S. producers, Brink said. “Straightbreeding is appropriate for others who are serious about creating high-performance, high-value calves that will top the market. This appears to be the reason why a significant number of producers forego known advantages of crossbreeding to pursue a different path they find equally rewarding.”

Beef demand may vary with quality

by Steve Suther

The gap is widening between key indicators of demand for premium and commodity beef. Non-branded USDA Choice beef saw eroding demand since its 2010 peak, as consumers apparently turned toward a premium branded alternative.

Details are in an updated research paper from Kansas State University (K-State), “Defining and Quantifying Certified Angus Beef ®(CAB®) Brand Consumer Demand, 2013 Revision.”

Pounds of CAB product sold increased every year since 2005, but it took economic modeling and research to see the demand effect.

K-State economist Ted Schroeder and 2010 Master’s student Lance Zimmerman conducted the initial study that year. Zimmerman took a break from his role as analyst with CattleFax to update his college work with new data to characterize demand through 2012.

Methodology and results are explained in that research paper, available at https://cabcattle.com/research.

That index provides a measure of demand change over time, and features a new timeline comparison (Figure 1). “Since CAB product is a branded subset of the USDA Choice-and-higher marketplace, demand for the aggregate quality category was expected to share more similarities than the non-branded USDA Choice index used in the 2010 research (Figure 2),” the paper says.

The results show three different demand growth patterns among the indexes. Demand for the aggregated Choice-and-higher grading product actually outpaced CAB from 2008 to 2010 before declining in 2011 and 2012, while CAB product continued its improvement. Demand growth for both categories was similar through the first nine years of the study.

“However, as much as the early growth patterns point to the similarities, the divergence of demand patterns most noticeable in the last two years of the study suggest there are perceived differences in CAB relative to its greater product category in the mind of consumers,” the paper says.

Demand eroded nearly 27 percentage points for Choice-and-higher beef in 2011 and 2012, while CAB demand increased 25 points.

“It is reasonable to assume that Figure 2 points to at least some of the demand differences seen lately between CAB and the Choice-and-higher product category. The graph shows demand for CAB has outpaced non-branded Choice consistently since 2009. Demand for CAB increased 79% over the 10 years, and Choice demand increased 3%, according to the updated paper.

The model results explain demand trends over time for each beef product as it relates to larger macroeconomic trends. Since each measure is based on wholesale demand, it includes sales to retailers, foodservice and international.

The CAB demand index had its largest year-over-year improvement in 2010 when demand improved 38 points reaching 154.8. That coincided with the 100-million-pound annual increase in sales and 13% increase in per capita consumption even as cutout values grew.

“Beef demand remains a concern in the post-recession environment. Consumer incomes have made relatively small improvements in recent years, and incomes are a key beef demand consideration,” the paper states. Since the 2009 recession lows, the CAB cutout value has improved 6.6% annually and per capita consumption improved each year as well. In the other categories, boxed beef values improved at the expense of per capita consumption.

CAB awards Colvin Scholarships

by Steve Suther

Five students pursuing agricultural careers have been awarded $15,000 in Colvin Scholarships by the Certified Angus Beef^® brand.

“We are honored to present these awards to tomorrow’s beef industry leaders,” said John Stika, Certified Angus Beef LLC (CAB) president. “These young people are the future and we’re happy to play even a small role in paving the way to success.”

2011 Colvin Scholarship Awards:

$5,000 – Jordan McHenry, Castle Rock, Colo. – Colorado State University
$4,000 – Shannon Watson, Stillwater, Okla. – Oklahoma State University
$3,000 – Karl Dawn Hobbs, Beloit, Kan. – Kansas State University
$2,000 – Amy Sents, McPherson, Kan. – Kansas State University
$1,000 – Erin Karney, Las Animas, Colo. – Colorado State University

The award began in 1999 when Louis M. “Mick” Colvin retired as CAB executive director. The scholarships recognize his role in making dreams a reality and inspiring others to be their best. Colvin co-founded the CAB Program in 1978, leading the company to establish the world’s premium brand of fresh beef.

Scholarship applicants wrote an essay addressing the following: As the next generation of producers, what do you see as the significant challenge(s) facing the CAB brand and the beef industry in the next 10 years? What solutions would you offer for meeting those challenges?

Top applicant Jordan McHenry wrote, “There is an ever-increasing need to educate consumers about where food comes from, specifically animal agriculture. By ensuring we provide safe, wholesome beef for families, Americans will believe in the importance of agriculture. As a result of education, consumers will be better able to make informed decisions at the grocery meat case. The Certified Angus Beef^® brand and the beef industry must meet these challenges …”

McHenry is a senior animal science and agriculture business major at Colorado State University and received the $5,000 Colvin Scholarship. Upon graduation, she plans to pursue a master’s degree in meat science to prepare for a career as an industry advocate.

Shannon Watson is an agricultural economics and agricultural communications major at Oklahoma State University. She will pursue a career in agricultural advocacy through law, legislation, economic analogy and communications. Watson plans to study abroad this spring in Sierra Leone, Africa. An active member of the Oklahoma Collegiate Cattlewomen and Agricultural Communicators of Tomorrow, she enjoys barrel racing, team roping and taking an active role in Four Aces Cattle Connections, at Blairstown, Mo. She received a $4,000 Colvin Scholarship.

Karl Dawn Hobbs is a senior at Kansas State University, double majoring in agriculture education and animal science and industry production. She plans a career teaching agriculture to both high school and college students. A member of the KSU Collegiate Cattle Women and the KSU Livestock Judging Team, Hobbs received a $3,000 Colvin Scholarship.

Amy Sents is a senior at Kansas State University majoring in animal science and industry/pre-vet, and international agriculture. In 2010, Sents was an international 4-H Youth Exchange representative to Germany and Switzerland, and participated in the KSU animal science industry tour to South Africa. In 2009, she was a USDA White House liaison intern. Sents received a $2,000 Colvin Scholarship.

Erin Karney is a junior animal science and agricultural business major at Colorado State University. She plans to attend graduate school and earn a meat science degree. On the CSU intercollegiate meats judging team and participant in the Reciprocal Meat Conference, Karney received a $1,000 Colvin Scholarship.

Funds for the scholarship are raised annually at the CAB Annual Conference through a golf outing and auction. The top two scholarship recipients win an all-expense-paid trip to the 2011 CAB Annual Conference in Sun River, Ore., for an opportunity to interact with leaders throughout the production, packing, retail and foodservice industries.

The CAB brand, owned by some 30,000 members of the American Angus Association, works with thousands of ranchers across North America to provide consumers with the most consistent, highest quality beef available. For producer information, visit www.cabcattle.com; or for consumer information, www.certifiedangusbeef.com.

Genetics and marbling in beef

Texas scientist finds variation affects marbling, from research design to cattle type and management

by Steve Suther

Marbling drives value-based beef marketing. How to infuse enough of this quality-grade potential into herd genetics – or even how much is enough – has remained something of a mystery.

That’s partly because of the wide range of research results and advice, along with a segmented supply chain and erratic market signals.

Producers selecting for quality may already know marbling is “moderately to highly heritable,” averaging near 45%. Heritability is the part of the variance in an observed trait after allowing for environmental factors.

Looking at the upward trend in marbling expected progeny differences (EPDs), it’s clear genetic selection is effective. But one advisor says back away from marbling selection because you have plenty, while another says you should maximize it while avoiding single-trait selection.

Until now there was no comprehensive review of research into the genetics of marbling, but Texas A&M geneticist Andy Herring recently completed the white paper, “Genetic aspects of marbling in beef carcasses.” The literature review encompasses 52 studies spanning several decades.

Among those were comparisons of high- and low-marbling-EPD registered Angus bulls bred to composite cows at the USDA Meat Animal Research Center. The top bull EPDs were +.33 and the low bulls were -.35 in the 1995 Angus Sire Summary, but fat thickness EPD was similar for all. Progeny were fed and harvested in two groups 60 days apart.

Calves from high-marbling bulls averaged 52% and 96% Choice, compared to 17% and 78% Choice for the progeny of low-marbling EPD bulls, while Yield Grades did not vary significantly. Further analysis suggested the higher marbling progeny also may have a faster rate of marbling deposition.

Despite the diverse results, research demonstrated selection can increase marbling ability without increasing external fat or causing detrimental effects on other feedlot or ranch traits.

Although the marbling heritability average estimate is .45, the reports range from .12 (barely worth the selection effort) to .88, or 88% effective selection. The amount of genetic variation itself varies, and the relationship of marbling to other traits is probably not constant across all breeds, Herring says (see Table).

The variability in external fat appears to be larger on average than that for marbling with heritability estimates from .02 to .86 across several studies.

“Fat thickness is thought of as the result of feeding management, but there are significant genetic differences when cattle are subjected to the same environment,” Herring says.

Phenotypic correlation estimates between marbling and fat thickness have ranged from slightly negative to moderately positive.

“That means fat thickness phenotype alone may only describe 0.64% to 9% of the variation in marbling,” he explains. Ironically, most cattle are marketed on quality grids based on estimated back-fat thickness.

Marbling-related research varies in methodology of carcass end-point constant, from age to weight to fat-thickness basis. Most genetic research uses an age-constant basis, while nutritional studies favor a fat constant one. Herring calls for more research looking at both in the same trial, “especially as age verification programs become more popular.”

He says the industry needs to find better ways to evaluate and incorporate herd and calf genetic and management factors when evaluating marbling ability and other carcass traits.

“Several reports document the influence of animal age at harvest, age of dam, effects of creep feeding, individual year-effects, and other traits that may be viewed today as ‘nuisance’ variables,” Herring says. “They are generally not known on most feedlot cattle, yet variation in these types of effects could mask genetic differences if not documented.”

Feeders who must make the most of unknown genetics have little chance at efficiency, he points out. “Cattle of differing genetics are fed and managed the same because their potential is ineffectively projected based on appearances or stereotypes,” Herring says.

“The main point about cattle that grade Prime is that they have the genetic ability to marble, and it is not because they are fat,” he says, noting results of three National Beef Quality Audits.

As producers apply selection pressure to get a few more Primes and pounds, cows change. Herring says there’s a shortage of research, but mature cow weight and height may be lowly, negatively correlated with marbling score. Cow body condition score seems not correlated with marbling, slightly with carcass weight and moderately with fat thickness of steers.

“Within beef production systems, we must always consider the relationships between cowherd and end-product traits,” he concludes.

For detailed tables and bibliographies of the original studies, see Herring’s white paper at http://www.cabpartners.com/news/research/index.php.

Tag: Steve Suther

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