CAB Insider: Record Ratio of Prime, CAB in First Quarter

The rate of steer and heifer carcasses grading USDA Prime remained in a stalwart, stagnant range of 2%-3%, from 1997 (the first year of USDA’s grading report) to as recently as 2013. Genetic improvement, feedlot management and cheaper costs of gain moved the annual average to 4% in 2014, 5% in 2015 and 6% in 2017. Data would also suggest an improved Prime influence from a growing share of Holstein steers in the mix as beef cattle declined in the 2012 to 2015 calf crops.

An update on fed cattle carcass quality grades is anything but routine this week as we’re seeing a noted push in carcass quality, setting records in the first quarter this year. USDA data through the first week of March shows the Prime grade rate at 7.9% of the steer/heifer carcass mix, a veritable leap of 1.67 percentage points over last year’s record highs for the period. What’s more, the last 5 weeks each notched a Prime grade greater than 8%.

The accompanying line graph shows the “big three” fed-cattle harvest states with Nebraska printing a Prime rate that you have to see to believe, just under 12% at the recent high. Regions 1-5 on the USDA report, encompassing a huge swath of geography from Minnesota to all states east of the Mississippi, reached a 16% Prime grade two weeks ago to lead the charge. The gap in that particular region, representing 9% of the total animals back in 2016, is likely a function of high-quality, Angus-influenced cattle, farmer-feeder “grade friendly” management strategies and greater dairy influence in some Northeastern packing plants.

Finally, we must give a nod to the seasonal impact of longer-aged yearling cattle, particularly heifers, now making it into the premium grades (and CAB) due to recent implementation of the dentition rule change in carcass maturity qualification.

As a parting shot, the Certified Angus Beef brand pulled in a record 35% of those predominantly blackhided, brand-eligible carcasses during the first week of February. The quality-grade trend tells that story. With 10 carcass standards to meet, historically and still, insufficient marbling is to blame for carcasses falling short of the brand label 9 out of 10 times.

Market Update

Last week’s fed cattle harvest was another small one at 595,000 head, 6,000 more than the same week a year ago, but in recent weeks we’ve not seen quite the percentage of a year-on-year increase as we will in the near future. Current packer profit margins are very much in the black, and restricted harvest head counts to this degree will keep them there. The weekly cash fed cattle market did see a small increase last week with a move up from the prior week’s $126/cwt. to a range of $127 in Texas to as much as $129/cwt. in Iowa. Steer carcass weights were lower by 1 lb. last week to average 882 lb. each, 6 lb. heavier than a year ago at this time.

Boxed beef cutout values increased again last week, to continue a theme that sees the spring buying demand ramping up in the face of smaller supplies from the fed cattle and packer side. The Urner Barry weekly update draws attention to the CAB cutout price being just 2% higher than a year ago at this time while the Choice cutout is 5% higher. That’s only logical, as we recently tallied a huge 100K-head week of total brand certification across the CAB-licensed packing base.

Across the CAB carcass, we see further middle meat price inflation in last week’s market activity with ribs and strips driving the carcass cutout higher with increases on ribeyes, strip loins and peeled tenderloins in a range of 20¢ to 25¢/lb. at wholesale. Tri-tips were also a noted mover on the week with a 12¢ move to the upside and an average price of $4.65 to $4.95/lb. Chuck and round items were mixed in terms of subprimal price direction, but both yielded a small net-lower price last week despite the overall increase in the total carcass cutout value. We’ve been keeping a finger on the thin meats lately as they fulfill seasonal expectations for this period with more increases on flank steaks, up 10¢/lb. to a range of $5.50 to $5.75/lb. Larger price increases were seen on skirt steaks, with inside skirts up 18¢/lb. (still below last year’s spring high) as outside skirts are catching demand very early in the season, taking off with a 27¢/lb. increase last week, currently priced at $7.30/lb. compared to $5.40/lb. a year ago. Brisket prices have eased just a little but it’s well-known by now that the Feb-March demand seen this year placed prices almost 35% higher than the same time a year ago. CAB grinds are capturing a little interest and are a bit higher, ground chuck leading off with a 7¢ increase ($2.05 - $2.17/lb. range), just slightly higher than a year ago. All in all, grinds are not an inflationary item in the CAB cutout summary in 2018 compared to 2017, ground round and sirloin in lock-step with year-ago values.

Cash Beats Futures

There is a directional antagonism between the CME Live Cattle Futures market and last week’s cash fed-cattle market. The futures have been trading much lower on worries over the increase in second-quarter fed supplies. That might be a correct assumption, but the cash trade last week, with over 100K head sold in the open market, was actively more optimistic with a $1-$2/cwt. weekly increase to average close to $128/cwt., and trade occurring Tuesday through Friday. Cash and futures are quite far apart as we move closer to the nearby contract month of April.