June 2007
Hi everyone,
It is hard to believe that summer is here. Late May produced some extremely high temperatures with dry conditions. Hay crops and pastures were stressed hard at that time. June arrived and we were met with cooling temperatures and some multi-million dollar rains. Some producers took advantage of the early dry conditions and put their hay up but the majority of folks will be haying at the usual time.
This newsletter will look at selling finished cattle using the grid or formula pricing method. I will also discuss the price spread between carcasses that grade choice versus those that grade select, why this is occurring and how it will affect you as a local producer.
Finally, I am introducing a new program for 4-H and FFA steer project exhibitors called the Steer of Merit Award. This letter will outline the criteria needed to win this award.
I hope you enjoy the articles in this newsletter. Feel free to call me at 208-983-2667 if you have any questions or concerns regarding the beef cattle business.
Sincerely,
Jim Church
University of Idaho
Extension Educator, Livestock
Price Premiums/Discounts on the Grid
A large volume of finished cattle in this country are marketed using the grid basis to determine the price. What this means is the cattle are slaughtered and then given a value based on the animal’s quality and yield grade. A base price is offered for cattle that grade low choice and are a yield grade 3. Carcasses can receive a premium over the base if they grade higher than low choice and have a yield grade lower than 3.
The opposite is true as well. Carcasses will be discounted if they grade below low choice and if they have a yield grade of 4 or 5. There are a lot of combinations for the quality and yield grade premiums and discounts. To determine these premiums and discounts, the packers have them plotted on a grid. This is where the term, “sold on the grid” comes from.
Below is a USDA five mid-western state average direct slaughter cattle premiums and discounts report for the week of June 4, 2007:
Quality Grade Range Weighted Avg.
Prime 3.00-28.00 17.05
Choice 0.00 0.00
Select (13.00-10.00) (11.00)
Standard (28.00-14.50) (16.35)
Dark Cutter (55.00-25.00) (37.90)
( ) minus
Yield Grade
1.0-2.0 0.00-8.00 4.37
2.0-2.5 0.00-3.00 2.07
2.5-3.0 0.00-2.50 1.99
3.0-3.5 (1.00)-0.00 0.00
3.5-4.0 (1.00)-0.00 0.00
4.0-5.0 (20.00-10.00) -15.15
5.0/up (25.00-15.00) -22.57
Carcass Weight
400-500 lbs (55.00-14.00) (35.97)
500-550 lbs (30.00-12.00) (23.82)
550-600 lbs (7.00)-0.00 (0.72)
600-950 lbs 0.00-0.00 0.00
950-1000 lbs (10.00 )-0.00 (0.29)
Over 1000 lbs (35.00-10.00) (24.38)
As you can see on the grid example, there is a large discount from the base price if the cattle don’t grade choice. For example let’s say that we have a steer that grades Select and is a yield grade 2.7. On June 4, 2007 the base price in Nebraska for Choice, yield grade 3 carcasses was $148 per cwt. If we use the grid we would have been discounted $11.00 per cwt because this carcass was a Select and been given a premium of $1.99 per cwt because the carcass had a yield grade of 2.7. The price we would receive for that carcass is: $138.99 per cwt.
Base Price = $148.00Minus - Quality Grade Discount (Select) = $11.00
Plus - Yield Grade Premium (YG 2.7) = $1.99
($148.00-$11.00+$1.99)
Price Received = $138.99 per cwt.
So how much money did we lose because this steer didn’t grade choice? If the steer had a carcass weight of 775 pounds we have 7.75 hundred weights. Multiply this by $11.00 which equals $85.25.
Let’s do another example. Our steer grades average
choice but is short and dumpy, has average muscle thickness with a lot of external fat so the yield grade is 4.2. We would get no premium for the quality grade (some packers offer premiums for carcasses grading average or high Choice) but we would take a discount for the yield grade. So, if the carcass weighs 775 pounds again we have 7.75 hundred weights. Multiply this by $15.15 and we have a discount of $117.41.
What’s Coming This Year?
According to several beef economists, the Choice/Select spread may hit record levels this year. In June 2006, the weekly average Choice/Select spread hit a record of $23.08. If we pass this mark, things could get interesting.
Typically the Choice/Select spread is less than $10 with an average around $6-$8. The USDA published a report that shows the average Choice/Select spread over the last six years. The following table outlines the spread:
Annual Average Choice-Select Boxed Beef Price Spread
Year Price Premium Choice over Select
2000 4.00
2001 4.00
2002 3.00
2003 6.50
2004 8.00
2005 9.00
2006 14.00
Experts are indicating that the projected wide spread is due to several factors:
1. There is a very tight supply of Choice graded beef. Why? Feed costs are causing feeders to ship cattle quicker out of their feedlots. Dr. Jim Mintert, Kansas State University economist, said that the spread reflects changes in costs to produce Choice versus Select beef.
Feeders don’t want to feed that expensive corn any longer than they have to. If the spread is wide, feeders can offset the additional feed costs through the premiums received for higher quality cattle.
Let’s do another example. Our steer grades average
choice but is short and dumpy, has average muscle thickness with a lot of external fat so the yield grade is 4.2. We would get no premium for the quality grade (some packers offer premiums for carcasses grading average or high Choice) but we would take a discount for the yield grade. So, if the carcass weighs 775 pounds again we have 7.75 hundred weights. Multiply this by $15.15 and we have a discount of $117.41.
What’s Coming This Year?
According to several beef economists, the Choice/Select spread may hit record levels this year. In June 2006, the weekly average Choice/Select spread hit a record of $23.08. If we pass this mark, things could get interesting.
Typically the Choice/Select spread is less than $10 with an average around $6-$8. The USDA published a report that shows the average Choice/Select spread over the last six years. The following table outlines the spread:
Annual Average Choice-Select Boxed Beef Price Spread
Year Price Premium Choice over Select
2000 4.00
2001 4.00
2002 3.00
2003 6.50
2004 8.00
2005 9.00
2006 14.00
Experts are indicating that the projected wide spread is due to several factors:
1. There is a very tight supply of Choice graded beef. Why? Feed costs are causing feeders to ship cattle quicker out of their feedlots. Dr. Jim Mintert, Kansas State University economist, said that the spread reflects changes in costs to produce Choice versus Select beef.
Feeders don’t want to feed that expensive corn any longer than they have to. If the spread is wide, feeders can offset the additional feed costs through the premiums received for higher quality cattle.
However, the feeders will have to monitor the spread very carefully when making marketing decisions or they could lose large amounts of money.
2. The demand for Choice graded beef is very strong. The restaurant trade demands high quality beef. That market is constantly getting bigger. On the other hand, the grilling season peak that occurs during the summer tends to narrow the spread. Packers are able to move more Select graded beef for this market.
How Do I Use This Information on My Ranch?
Discounts and premiums are a fact of life for all segments of the cattle industry. We need to pay attention to the discounts for both quality (Choice/Select spread) and yield grades. Our breeding decisions should be made with this in mind. Choose breeds that compliment each other in terms of carcass acceptability. Breeding for just quality grade, may hurt you in the yield grade department if you are not careful. Breeding for just yield grade, will hurt you with quality grading.
Carefully analyze carcass EPD’s when selecting new herd sires. This information is tremendously valuable and will help you determine which bulls will sire calves that will hang high quality carcasses. Don’t forget about the growth and efficiency of the cattle. Selecting for just carcass traits can be disastrous. There has to be a balance in your breeding program. I will look at breeds and crossbreeding programs in a future newsletter.
Steer of Merit Program for Idaho County 4-H & FFA Members
A new program called the Steer of Merit Program will be introduced in Idaho County this coming summer. The purpose of the program is to recognize exhibitors and breeders of elite steer projects. Steers will have to meet a set of extremely strict criteria in order to qualify for the award. The steers will be analyzed for live performance and carcass quality.
In order to be classified as a Steer of Merit, the following minimums must be met:
A new program called the Steer of Merit Program will be introduced in Idaho County this coming summer. The purpose of the program is to recognize exhibitors and breeders of elite steer projects. Steers will have to meet a set of extremely strict criteria in order to qualify for the award. The steers will be analyzed for live performance and carcass quality.
In order to be classified as a Steer of Merit, the following minimums must be met:
Live Performance:
Live Placing in Show ring = Blue Ribbon Required
Average Daily Gain = 3.2 pounds per day or better
Pounds Feed Per Pound Gained = 6.5 pounds of feed or less
Carcass Quality:
Ribeye area per 100 pounds of live weight = 1.1 square in.
Fat Thickness over Ribeye = 0.4 inches or less
Marbling Score = 5 percent Intramuscular Fat Score
Ultrasound data will be collected on the project steers during the Idaho County Fair. Rate of Gain and Feed Efficiency information will also be gathered at that time.
Steer exhibitors that have raised a project that meets the minimum criteria will be awarded a framed Steer of Merit Certificate. The breeder of the steer will also receive a framed Steer of Merit Certificate. Data on how well the steer performed will be included on the certificates.
Sponsors of the Steer of Merit Award are the University of Idaho, Idaho County Extension System and the Idaho-Lewis County Cattle Association. The award winners will receive their certificates at the annual Idaho-Lewis County Cattle Association banquet held in October each year.
Live Placing in Show ring = Blue Ribbon Required
Average Daily Gain = 3.2 pounds per day or better
Pounds Feed Per Pound Gained = 6.5 pounds of feed or less
Carcass Quality:
Ribeye area per 100 pounds of live weight = 1.1 square in.
Fat Thickness over Ribeye = 0.4 inches or less
Marbling Score = 5 percent Intramuscular Fat Score
Ultrasound data will be collected on the project steers during the Idaho County Fair. Rate of Gain and Feed Efficiency information will also be gathered at that time.
Steer exhibitors that have raised a project that meets the minimum criteria will be awarded a framed Steer of Merit Certificate. The breeder of the steer will also receive a framed Steer of Merit Certificate. Data on how well the steer performed will be included on the certificates.
Sponsors of the Steer of Merit Award are the University of Idaho, Idaho County Extension System and the Idaho-Lewis County Cattle Association. The award winners will receive their certificates at the annual Idaho-Lewis County Cattle Association banquet held in October each year.
posted by Extension Office at 9:52 AM
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