It has taken decades to reach this point, but the U.S. beef industry is now producing the highest quality beef in its history. This comes from improved genetics in the beef cow herd, innovations and advances in all aspects of cattle feeding, encouragement of packer premiums through grid pricing and growing consumer demand for high-quality beef.
Cattle are now grading at a percentage of Prime and Choice that would have been unheard of 20 years ago. Cattle graded an average 10.08% Prime, 72.48% Choice, 14.36% Select and 3.08% other in 2021. The weekly record for Prime and Choice is 86.07%, set the week of Feb. 20 last year. Grading this summer has been lower because of the heat. But cattle on the week ending Aug. 20 still graded 79.64% Prime and Choice.
The increased production of Choice beef has had some interesting price consequences. For example, the price spread between the Choice and Select cutouts narrowed early this year, and the Choice cutout was discounted to Select on Feb. 22 by $2/cwt. The last time this occurred was on Sept. 12, 2017. The spread though has been much wider this summer, generally well in excess of $20/cwt. It was $22.82/cwt the week before last.
Another fascinating consequence is that the price spread between Prime and Choice beef is historically high. That’s because the percentage of Prime being produced is lower this summer, as noted above. But both retail and food service demand have remained remarkably strong. Wholesale Prime beef prices the week before last averaged $333.45/cwt, while Choice prices averaged $261.07/cwt. This means the price spread was $72.38/cwt.
The high quality of U.S. beef is valued by consumers both at home and abroad. Retail beef sales for the Labor Day holiday and over the prior week were expected to be strong because retailers gave their customers ample beef features to choose from. Another reason is that beef prices are slowly but surely becoming more competitive with the prices of other meats.
Beef prices recorded all-time record highs in October 2021, but were well below that peak a year later, analysts say. The prices of competing meats have gone in the other direction, which is positive for beef’s competitiveness in the retail meat case. Media reports in the past several weeks, including an extensive report in the Wall Street Journal, have detailed how retail beef prices, especially those of the more expensive middle cuts, have fallen sharply. This bodes well in encouraging consumers to buy those cuts as well as ground beef, the price of which has continued to be stronger each month.
USDA reported that its July all-beef retail price averaged $7.34 per pound. This was down a penny from June and was up 3.4% from July last year. Choice beef prices averaged $7.62/lb., down four cents from June and up 1.2% from July last year. Pork prices averaged $4.94/lb., up a penny from June and up 7.4% from June last year. Chicken prices averaged $2.45/lb., the same as in June and up 17.8% from June last year.
Average Choice beef prices in July were $0.28/lb. below their October 2021 peak, says Andrew Gottschalk of HedgersEdge.com. By the end of August, average prices were likely below the prior year’s levels, enhancing beef’s competitiveness versus the competing meats. By October, average Choice retail beef prices could trend as much as 4% below the prior year. In sharp contrast, monthly average prices for the competing meats are trending sharply above prior year levels, he says.
Retailers continue to enjoy large margins on their beef sales for two reasons. They are lowering their beef prices only slowly but are buying beef at much lower wholesale prices than a year ago. The comprehensive cutout (cuts, grinds and trim) the week before last averaged $263.78/cwt. This was down 21% from the same week last year, so retailers have a lot of latitude to lower their everyday beef prices this month and feature beef even more aggressively.
The high quality of U.S. beef is increasingly recognized around the globe. That is why U.S. exports smashed volume and value records last year, surpassing $10 billion for the first time. This means they almost doubled in value in 10 years. Exports remained on a red-hot pace in the first half of this year, topping $1 billion for five of the six months. For six months, exports increased 6% from a year ago to 743,904 metric tons and were valued at $6.19 billion, up 33%. This indicates that beef lovers everywhere are paying more for the finest beef in the world. — 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.)
