Hitting the Target

Improved genetics, management and attention to detail, some of which began a generation ago, are paying dividends for America's cattlemen. Those changes give today's consumer more beef products they desire, and reward stakeholders in every industry segment.

Advancements in genetics and management are most evident in the significant improvement to the quality grades of cattle offered for harvest. Last month USDA's Agricultural Marketing Service (AMS) reported the percentage of cattle grading Prime and Choice for the week ending Jan. 7, was a whisker shy of 79%. That's the highest percent Choice and Prime ever.

Additionally, the Choice-Select spread is consistently higher, says CattleFax analyst Lance Zimmerman.

"The Choice-Select spread has been relatively consistent in the $8 to $9 per cwt range," he says. "We see steeper discounts for an animal that can't grade Choice, and the Prime versus no roll spread is $420 per animal."

Efforts to improve beef quality began with the landmark 1991 National Beef Quality Audit. That study involved producers, packers, processors, retailers and consumers, identifying the quality defects and missed opportunities at the root of diminishing demand. That audit famously found $280 per carcass in lost value (using market prices at the time), with $200 of loss due to excessive fat. Yet, while the industry needed to eliminate waste fat, there was a clear signal more taste fat (marbling) was desired.

Subsequent quality audits revealed the industry made progress in the 1990s and early 2000s, reducing bruises, injection site blemishes and other management-correctable defects. A greater emphasis on genetics was also underway, but quality grade concerns remained. Over the past decade, however, that has changed.

"Beginning in 2007, the industry saw annual advances, with the exception of 2012, in the percentage of fed cattle carcasses grading Choice," says Paul Dykstra, beef cattle specialist with Certified Angus Beef LLC. "The 2006 average of 51.7% Choice remarkably improved to a 2015 average of 69.1%."

Dykstra recently published a white paper, "Why Quality Grades are Improving," which examines the trend, its causes and implications. Along with gains in the Choice category, Dykstra notes the percentage of Prime carcasses—locked in the 2% to 3.5% range for years—"jumped to 4.2% in 2014 and 5.1%" in 2015.

"People may recall hearing about higher quality grades several decades ago, but in the 1970s and '80s many carcasses were not offered for USDA grading," Dykstra says. "Today's U.S. cattle herd is producing the largest amount of high-quality beef ever."

Dykstra says a shortage of high-quality beef was prevalent a decade ago, with the share of Choice carcasses often dropping below 50%. "That led to market incentives, fueling the turnaround in grade. The 2015 average of 69.1% Choice was a 17.3-percentage-point improvement in annual grading since then."

Slide the center bar to see the breakdown of percentages in 1995 v. 2016. (Lori Hayes/Farm Journal)

Along with the increase in Choice, the industry has also witnessed a remarkable increase in carcasses grading Prime. By November 2016, the percentage of Prime in the fed-cattle slaughter mix was 6.7%, on top of 70.8% Choice.

That's a "dramatic" improvement in quality grades, Zimmerman says, and those grades are "influenced by a lot of moving pieces."

While genetic improvement "has obviously played a role," he says, other factors contribute. "We've also increased days-on-feed and more cattle are being managed on an individual basis by feedyards. Other factors include better use of dry and wet distiller's grains, which is a very palatable feed, and better health management of cattle."

Feedyards were encouraged to increase days on feed by the drought-induced markets post-2012. The price of corn declined 35% during the summer of 2013, lowering the cost of gain for feedyards. Subsequently, the price of fed cattle increased throughout 2014 to a high of $171 per cwt. Feeder cattle prices also increased dramatically during that time, raising costs for feedyards and encouraging them to add days to cattle already in the yards, rather than purchasing expensive replacements.

"As a result, feedlots had incentive from late 2014 through early 2016 to feed cattle longer," Dykstra says. More days on feed results in heavier carcass weights, research shows, and both help increase marbling and quality grades. "This substantiates the industry trend that indicates increasing carcass weights and days on feed factor into the improved carcass quality grade levels in the past decade."

While market conditions helped boost overall quality grades, there's ample evidence improved genetics made the leap possible. Price incentives through grid marketing have encouraged producers in every sector to incorporate "marbling selection in their breeding plans," Dykstra says. "Consequently, positive selection pressure for marbling by the seedstock industry, as well as demand for higher marbling genetics from the commercial sector has led to significant marbling advancements in the Angus breed and others."

American Angus Association data indicate the average marbling EPD for Angus cattle has quadrupled since 1995. Marbling progress among other popular beef breeds is also evident over the past decade.

"Seedstock producers in several breeds embraced the commercial market signals rewarding greater marbling levels and have consequently made breeding selections in pursuit of that end," Dykstra says. His review of quality grades also notes the impact of grid and formula marketing of fed cattle. "A shift toward formula pricing has encouraged heavier carcass weights and additional days on feed, bringing along increased marbling and quality grades in the process."

Note: This story appeared in the February 2017 issue of Drovers.