CAB Insider: 2023 Carcass Primal Premiums Review
Last week’s cattle harvest was notably smaller with the President’s Day holiday that shortened Monday’s fed cattle harvest by 20% compared to the following weekdays. Regardless of the holiday, packers continue reducing hours to regain leverage given the sector’s estimated recent losses.
Last week, fed cattle prices increased again on strong February Live Cattle contract prices and increasing boxed beef values.
Carcass weights posted a correction to the upside in the week of February 12 as steer carcasses added 3 lb. to average 912 pounds each. Steer weights landed at 10 pounds heavier than the same week last year even as they’ve shed a net 30 pounds since their December highs. The 912 pound average is still nearly 7 pounds lighter than the records for the period, marked in 2021 and 2022.
Last Friday’s Cattle on Feed report indicated a slightly larger January placement number than analysts’ pre-report estimates had guessed. However, the January number was just 92.6% compared to last January and the smallest in decades. The month’s severely inclement weather was a factor in feedyards opting to place fewer cattle.
The boxed beef market saw strong increases in prices last week with restricted supply yet again a driver. Discussion about softening demand or customer pushback at recent price levels is nullified by the evidence of boxed beef values marching higher. The current price rally is reminiscent of a year ago even though late February beef demand is typically quiet.
Chuck and round prices are quite firm as consumers move toward value-priced items. Earlier this week, the cutout report shows very strong support for multiple beef cuts from each of the subprimals, adding credibility to further upward price moves to follow last week’s generous increases.
There is a bit of a juxtaposition in the price position of several cuts versus this period a year ago. Ribeyes, tenderloins and 0x1 strip loins are cheaper than a year ago whereas many of the lower priced cuts from the chuck, round and skirts are higher.
2023 Carcass Primal Premiums Review
In the brand’s continued effort to track carcass premiums, there is logically a tendency to focus on total carcass cutout values. In other words, the weighted average price of each subprimal cut from the carcass summarized into a singular price for the entire carcass. Comparing cutout values across USDA quality grades and Certified Angus Beef® brand carcasses provides the quality pricing component of fed cattle values for grid and many formula sales.
Last November, we focused on CAB chuck and round primal price differences between the Certified Angus Beef® brand, USDA Choice and USDA Select carcasses. That study revealed a trend where CAB chuck primals increased 285% over Choice since 2018. Slightly less dramatically, CAB round primal premiums 170% compared to Choice. The combined chuck and round CAB premiums increased by 223% over five years while the CAB cutout total increased 39% for the period. The per-head value addition changed from $20.66 in 2018 to $48.99 in 2023. This compares to the $17.84 premium for USDA Choice chuck and round primals over Select in 2023.
Looking at the other major primals it’s easy to see that the largest value gains in the middle meat rib and loin primals are achieved moving from USDA Select to Choice. More moderate gains are achieved upgrading from Choice to CAB as the Choice middle meats already command a significant premium. Even so, moving to the higher quality CAB rib and loin primals generates another $84 per carcass.
Historically the widest Choice/Select cutout spread of $204.51 per head (basis an 880 lb. hot carcass weight), achieved in 2023, set the general tone for increasing demand for higher quality grade and premium branded carcasses. Yet the CAB premium added $147.05 per head, on top of Choice, for brand-qualified carcasses.
Carcass cutout values are not equivalent to grid payment prices for fed cattle, with packers keeping a share of the premium and passing a portion back to the feeder. As well, we tend to see premiums tighten when cattle supplies shrink, as they are currently. This is likely to create a pricing scenario where all cattle are priced at, or near, record-high levels yet the premium outcome may pause or retreat some as was the case in 2014-2015.
However, the message from our customers and consumers has strengthened the votes for higher qualty carcasses in the 2023 cutout data. Preference for highly marbled beef with added specifications under a brand with a reputation for quality will not fade even if the magnitude of premiums does.
