MARKET UPDATE
In the last two weeks the average weekly fed cattle harvest total has been 480,000 head, a total reduction of 30,000 head (-3%) over the two-week span compared to a year ago. Progressing into February, we’re now in a period where the year-over-year comparisons become more meaningful since the January 2024 supply chain was hindered with storm-interruptions reducing harvested head counts.
Recent estimates place packer margins in a range from -$175 to -$200 per head. This has firms pulling back throughput in an effort to more evenly align cattle cost with boxed beef values.
Supplies of market-ready cattle appear to be tight with emphasis on the northern feeding region. This didn’t stop cattle values in the region from deteriorating last week as heavy pressure in Live Cattle futures prices adjusted recent market euphoria lower.
The boxed beef trend is typical of February with a weaker demand and price tone continuing for the second week through last Friday. Buyers are cautious about acquiring much volume as prices trend lower short term. In the big picture, both CAB and Choice wholesale cutout values are recently 10% higher than a year ago.
Despite the softer Feburary pricing trend, price spreads remain wide up and down the quality spectrum. The Choice/Select spread has been cut to less than half of its December all-time record of $38/cwt. Yet the latest $16.20/cwt. spread level remains record-wide to start the week. As well, the CAB/Choice spread widened last week with a cutout difference of $19.54/cwt., a 6% premium for the CAB carcass over Choice.
Moving ahead these spreads should narrow into March as a richer grade trend historically develops and consumer demand is far from focused on middle meat steak items. Since middle meats carry wider quality-based price spreads than end meats, total carcass cutout spreads tend to narrow in the first quarter.
Prime Trends Up
All of the beef industry’s advancements in carcass quality grade have happened in the last 20 years. In that time period, carcasses grading USDA Choice increased from 51% to 72% of fed cattle, while Premium Choice Certified Angus Beef ® brand (CAB) acceptance rates rose from 13.5% of eligible carcasses certified to 32.4% last year.
The uptrend in USDA Prime was slower to develop, as one might expect, given the additive nature of marbling deposition. Incremental genetic improvement first generated a large shift across the industry from nearly half grading Select, replacing those with Choice. These advancements were followed with notable gains in the USDA Prime grade share, primarily occurring in just the last decade.
Last year’s Prime carcass production total, estimated through USDA data, was record large. Prime carcasses totaled 2.55 million head in 2024, up from 2.25 million the prior year. The 10.5% Prime share of fed cattle for the year was more than double the percentage seen just 10 years earlier, a 221% increase in head count.
Sticking with the last decade, in 2015 CAB captured just 7% (251K carcasses) of its total certified for the year in the brand’s Prime label. This ballooned to 13% (777K carcasses) of the brand’s certified total in 2024.
The practically irrelevant USDA Prime category of 20 years ago has risen to an achievable and relevant target for many cattlemen today. The dollars-per-head impact generated through packer grids have motivated a product-oriented segment of cattlemen to achieve upwards of 50% Prime carcasses through focused breeding.
The chart displays the relationship between weekly estimated Prime carcass volume since 2010, along with the Prime carcass cutout premium to Choice at the wholesale level. Except for 2017, the Prime premium to Choice declined from 2010 to 2018 as Prime carcass tonnage grew each year. As supplies leapt higher in 2018, continually increasing, the retail grocery sector woke up to the fact that Prime beef cuts could be accessed dependably throughout the year. Prime was no longer reserved for only the high-end restaurant customer. Simply put, creating availability at the grocery level unlocked consumer demand where it hadn’t been tapped before.
The largest annual Prime cutout premium to Choice was achieved in 2022, apparently the year when burgeoning new retail grocery demand found the premium limit. While the premium relaxed from the 2022 peak to average $32/cwt. in 2024, demand remained impressively strong amidst record supply.
The Prime grade trend began the new year strong, record-high again at 10.6% of fed cattle carcasses. With fed cattle harvest set to come in lower this year, increases in Prime carcass volume are unlikely, even as potential exists for half of a percentage point increase in the Prime carcass share. The Prime category is increasingly important to cattlemen as advancements within herds have shown tremendous results on grid payment sheets. Economic gains remain uncapped downstream for all Prime beef users in the supply chain, including the Certified Angus Beef ® brand.
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Chuck and Round Cutout Contribution Increases
In the past two years the chuck and round carcass primals have edged their way upward relative to their contribution to total carcass value. One of the primary reasons for this is the decline in domestic supply of lean grinding beef from cull cows.
CAB Drives Brand Relevance with Specification Update
Evolution of cattle type, management technology and production economics continue to shape the beef business. As a pioneer in the branded beef space, the Certified Angus Beef ® brand has remained relevant throughout the supply chain via continued innovation. Effective the first week of March, the brand will modify its ribeye area (REA) specification from the current 10 to 16 square inch acceptable range to include carcasses wth ribeyes measuring up to 17 square inches.
Seasonal Shifts in Beef Item Demand
Seasonal demand shifts for different cuts constantly change the percentage of total carcass value that each cut represents. Often those changes are subtle, but January is typically characterized by more dramatic adjustments with contribution from several cuts shifting total carcass value.