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CME: Daily Livestock Report

24 February 2011

US - The percentage of cattle grading USDA Choice hit a new high the week of February 5 at 66.25 per cent. That number surpasses the old record of 65.43 per cent set last March and continues the long-term uptrend for this measurement of beef quality, report Steve Meyer and Len Steiner.

At the same time, the percentage of cattle that graded USDA Select was at 26.15 per cent the week of February 5, approaching its all-time low of 25.54 per cent, also set last March. As for the Choice percentage, these low figures for Select grading percentage also continues a long- term downtrend that dates back to 2006. Why are these per cent- ages changing and what it the implications of the changes?

First, a bit of background. USDA’s beef carcase grading system is voluntary. Packers can choose to have cattle graded or not have them graded. There are two components, the quality grad which we are addressing here and a yield grade system that as signs a numerical score from 1 to 5 representing the amount of closely trimmed boneless retail cuts (CTBRC) that a carcase contains. Yield grade 1 is given to carcasses that will yield 52.3 per cent or more of CTBRC while yield grade 5 is assigned to carcases that yield less than 45.4 per cent CTBRC.

The quality grade (Prime, Choice, and Select are the ones most frequently seen) is based on five factors that affect the palatability of beef. They are carcass maturity, firmness, color and texture of lean and the amount and distribution of marbling within the lean muscle.

By far the most important of these are maturity and marbling. Maturity is determined by visual inspection of various exposed cartilages in the carcase. As cattle mature, these cartilages begin to turn to bone and the amount of this “ossification” determines the maturity classification. Only carcases from cattle less than 42 months old (A and B maturity) can grade USDA Prime, Choice or Select as cuts from these animals are generally — not always, but generally — more tender. The carcases with high degrees of marbling are graded Prime. Cuts from these animals usually find their way into white tablecloth restaurants.

Carcases with lower degrees of marbling receive Choice and Select grades. Select carcases have less marbling than do Choice carcases. Specific brands such as Certified Angus Beef will specify the characteristics that carcase must meet to be eligible for their brand program. Some retailers have proprietary programs that do not involve USDA grades, per se, but might be based on the same criteria.

For many years, all carcase grading was done by visual inspection by USDA trained graders. The grader would simply inspect the carcass with particular attention paid to the ribeye muscle and the fat covering it and, based on his training and experience, assign both quality and yield grade. Though USDA tried hard to be consistent, graders differed sharply across regions and plants. In recent years, USDA has introduced optical electronic grading systems that are being used to either actually grade carcasses or as quality control devices for human graders. The introduction of these more objective systems is one factor in the higher Choice grading percentages.

But there are other factors that are very important as well. First and foremost is the improvement of cattle genetics for marbling, the key determinant of quality grade. Much of that improvement has come form the widespread adoption of the Angus breed but other breeds have improved marbling genetics, too. In addition, advances in nutrition have helped improve grading percentages and these advances are not limited to feedlots.

Discoveries of the important role played by a calf’s energy and nutrient intake from early in its life have led to management changes on ranches that predispose cattle to grade Choice. And this research is now suggesting that the cow’s nutrient intake while carrying her calf plays a role in that calf’s future quality grade.

And what are the impacts? First and foremost, the price spread between Choice and Select beef has narrowed considerable (see the chart on page 2). While still quite variable on a seasonal basis, the spread has stayed within the range of $0 to $10/cwt. at almost all times since 2008. Its simple supply and demand — more Choice product has driven Choice prices lower while less Select product has driven Select prices higher thus making the spread smaller. We wonder if this lower spread may be quite positive for beef demand in the long-run as beef buyers who would normally buy the less expensive Select product look at Choice product that is only slightly more expensive and decide it is worth the cost to trade up. While Select beef can be quite good, Choice is deemed better for a reason and many Choice muscle cuts will be noticeably juicier and yield a better eating experience. Our experience is that most businesses thrive when they bring their customers better products, especially if they are only slightly more expensive than the next alternative.

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