September 22, 2020

In The Cattle Markets

Josh Maples, Assistant Professor & Extension Economist

Department of Agricultural Economics, Mississippi State University

Record Levels of Prime Grading

The percentage of steer and heifer carcasses grading prime so far during 2020 has outpaced normal levels. The average percent prime for the first seven months of 2020 was 10.6 percent which is the highest January-July average on record and about two percent higher than during the first seven months of 2019.

Dressed weights have also been higher during 2020. Average steer and heifer dressed weights were 899 and 829 pounds, respectively, during the first 8 months of 2020. For steers, that was a 32-pound increase over the same period in 2019 while it was a 25.5-pound increase for heifers. Cattle dressed weights are usually seasonally lowest during late spring and then peak in late fall. In 2020, the seasonal decline in the spring did not materialize due to the processing disruptions forcing cattle to stay on feed longer.

The percentage of cattle grading prime was steadily increasing before the 2020 disruptions. Percent prime averaged 4.1 percent during 2010 through 2015 and 7.4 percent from 2016 to 2019. On the opposite end of the grading scale, the percentage of cattle grading select has been declining. Percent select averaged 28.3 percent during 2010 to 2015 and 18.5 percent from 2016 to 2019. The average select percent for the first seven months of 2020 was 14 percent which is the lowest seven-month average on record and 3.5 percent lower than during the first seven months of 2019.

In the middle, the percent of cattle grading choice has increased from 67.3 percent during 2010 to 2015, to 74 percent during 2016 to 2019, and averaged 75.2 percent through July in 2020. Putting prime and choice together, 85.8 percent of cattle graded either prime or choice during 2020 through July. There are longer-term trends that are leading to increasing quality grades; but the percentages in 2020 have been exceptionally strong.

While prime percentages increased, the weighted average carcass premiums for grading prime decreased. The USDA-AMS 5-Area weekly premiums and discounts report showed the average carcass premium for prime from April through July 2020 was $8.37 per cwt. This was $3.52 lower than the same period of 2019. For comparison, the average prime premium during April through July for 2015 to 2019 was $14.03.

The larger totals of prime beef in 2020 occurred as demand for prime took a significant hit. A sharp decline in travel and dining at high-end restaurants impacted the demand for prime beef. The demand decline was coupled with the supply increase and the premiums received for prime carcasses declined. These shifts in supply and demand of prime carcasses in 2020 limited the reward for achieving the prime carcass grade.

The USDA-AMS national weekly comprehensive boxed beef cutout report shows the value of prime relative to choice has increased since the low points earlier this year. From April through July 2020, the prime boxed beef cutout value averaged only $10.59 higher than the choice cutout. Since the start of August, the weekly difference has averaged $23.71 including consecutive weekly increases over the past five weeks. This suggests that the difference between choice and prime cutout values may be returning to more normal levels moving forward.

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