Speer: Real Money For Real Value

Prime is leading the pack!  During the past ten years, it’s essentially become a category unto itself.  Annual sales have grown at an annual rate of nearly 17% during the past decade (versus just 7% and -3% for Choice and Select, respectively) and now surpass $7B.  Marbling is the difference maker when it comes to quality, consistency and consumer satisfaction.  And consumers are seeking out, and paying up, to ensure a favorable eating experience.  

None of this is an accident. It’s the direct result of industry focus on the consumer and subsequently creating dollar signals to meet differential demand in the marketplace.  The outcome being, as noted in two previous columns, “…huge differences in value and market share across USDA quality grades and the cattle that produce them.”  That’s resulted in enormous opportunities for cattlemen along the way.  

That reality is best demonstrated by some customers of Gardiner Angus Ranch.   Outlined in the table below is a summary of settlement sheets from U.S. Premium Beef between April 2017 through September 2022.  The data represents more than 16,000 head of fed steers and heifers, sourced from 300 different lots, fed at 19 different feedyards.   

Let’s turn our attention to the dollars (that’s what really matters).   The average premium (or “kicker” or “dividend” or however you want to think of it) is better than $140/head across four-and-a-half years.   That bonus is the direct result of: 1) producing high-quality cattle, 2) implementing excellent management, and 3) selling the cattle into a responsive grid that rewards those efforts.  As noted earlier, none of this is an accident / anomaly; it’s the cumulative outcome of careful and intentional efforts over an extended period of time.  

The chart below details monthly averages and the corresponding Prime / Choice spread.  Several key take-aways are especially important:

1. Even amidst the market’s turmoil stemming  from the Holcomb fire and Covid, these commercial cattlemen were achieving $100+ kickers.  That is, marbling proved to be an important add-on and served as a buffer against the broader market’s negative action.     
2. Last month saw the very best premiums of all – several lots returned nearly $500/head above the base market to the owner of the cattle!  (That’s equivalent to $35/cwt on a live basis.)  That is, the intentionality of these cattlemen in previous years is now paying HUGE dividends as the Prime premium is rising.
3. And as noted several weeks ago, those premiums are likely to expand even further amidst shrinking cattle numbers:  “The chase will be on as supplies get even tighter in the next several years.”        
4. Producers who have implemented diligent genetic selection and management should increasingly explore retained ownership opportunities in order to take advantage of those investments.  
5. Cattle are NOT fungible – the variance in value across the slaughter mix is enormous.  Any attempt to mandate artificial levels of cash trade negates that reality.  And ultimately, it limits the ability to grow the business and subsequent foundation for producer success going forward.  
6. The data and cattle are self-explanatory.  More significant are the broader business principles:  data-driven decision making, business discipline and intentionality, industry value drivers, power of synergistic supply chains and importance of long-run focus on consumer.  Mark Gardiner shared the following observations with me – it speaks to those important themes (note the emphasis on knowledge and learning): 

And in the end, he succinctly summarizes it all:  “Real money, for real value.” 

Nevil Speer is an independent consultant based in Bowling Green, KY.  The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship.  He can be reached at nevil.speer@turkeytrack.biz.