It’s Prime time for the U.S. beef industry. Excuse the pun, but how else does one describe how the industry is producing a record or near record amount of USDA Prime beef week after week? This conveniently comes as the U.S. economy continues to grow. Consumers who love great beef thus have more money to splurge on a Prime steak. So, the beef industry continues to have a strong incentive to produce more of it.
The industry for years struggled to produce more than 3-4 percent Prime beef. For example, cattle graded only 3.21 percent Prime the first week of November 2008. The same week last year saw a then record 9.81 percent Prime. The industry slowly increased the percentage of Prime-grading cattle after 2008. But the biggest year-on-year increase was in 2018. The 9.81 percent far surpassed the 6.57 percent figure of the same week in 2017.
The year 2008 is a valuable reference point for another reason. That’s the year warehouse giant Costco introduced Prime beef to its members. To say its Prime program has been a huge success is an understatement. Between 18 percent and 20 percent of all Costco’s beef sales are Prime, says Bob Huskey, Costco assistant vice president, meat department. Moreover, Costco’s Prime beef sales continue to grow by double digits every year.
Costco carries Prime beef in all its 534 U.S. warehouses. It sells at least three items in these stores: New York steaks, ribeyes (in two forms), and top sirloins (in two forms). But it sells a number of other items such as briskets, tri-tips, and short ribs as well, depending on the location of its warehouses.
Ironically, the 2008-2009 recession was why Costco introduced Prime beef, after selling only Choice beef for many years. When the economy took a big downturn, the supply of Prime beef got backed up because white tablecloth restaurants—the main users of Prime then—were losing business, says Huskey. Packers needed another outlet for their Prime beef. Introducing Prime in Costco’s warehouses allowed it to be a good partner with packers and offer a broader portfolio for them, he says.
The dramatic improvement in the Prime percentage in recent years is the result of numerous factors. The most significant is that the U.S. beef cow herd now contains the highest quality genetics in the industry’s history. This is because cow-calf producers forced to reduce their herds because of the 2010-2012 drought sold their poorest cows and then rebuilt their herds with cows with much better genetics.
Relatively cheap corn prices the last few years have also encouraged cattle feeders to feed cattle to higher quality grades. Feedlot operators are also using more technologies to track how cattle are performing and have adjusted their feed rations.
In addition, more heifers were on feed and in the slaughter mix last year than in past years. This raised the percentage of Prime because heifers have the ability to add more marbling than steers with no additional back fat. The industry also continues to produce calf-fed Holsteins, which grade a higher percentage of Prime than any other breed.
Another factor is that last year saw little or no dip in grading percentages in April-June, which usually occurs because of a seasonal increase in calf-fed cattle in the slaughter mix. Either there were fewer of these cattle on feed than in prior years or they were fed longer and graded better. Packers also report seeing far fewer heiferettes and dark cutters in their slaughter mix than in past years.
The result of all these factors was that cattle graded a record 11.03 percent Prime the first week of December last year, beating the previous week’s record 10.27 percent. The number has been above 9 percent every week since then except for the last week of January this year.
What is also interesting is that the growth of the Prime percentage has come not at the expense of the Choice percentage but at the expense of Select beef. The third week of January this year saw a new record for a combined Prime and Choice percentage of 83.02 percent, with Select beef down to 14.20 percent.
Sam’s Club is also now offering Prime beef in all its stores after a pilot program in 2018. It offers Prime tenderloins, ribeyes, strip loins and whole briskets. Its success will depend on the willingness of enough of its customers to buy Prime beef and on price. But its entry into the Prime market will offer even more competition. This will benefit the U.S. beef industry at all levels and Americans who love a top-quality steak at a reasonable price. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
