Jan. 2, 2012
FOR IMMEDIATE RELEASE
For more information contact:
Miranda Reiman,
Certified Angus Beef LLC Industry Information Assistant Director, at
308-784-2294 or MReiman@certifiedangusbeef.com
Photos:
http://www.cabpartners.com/news/photos/m_polzer.jpg
http://www.cabpartners.com/news/photos/FranklinHall.jpg
http://www.cabpartners.com/news/photos/MortKent.jpg
Wholesale
Beef Demand Sends Signals
Producing the most
nutritious food in the world doesn’t count for much if you don’t have any
buyers. Luckily for cattlemen who target high-quality beef, that’s clearly not
an issue.
Those who purchase meat
for foodservice and retail outlets say they want the highly marbled beef,
because that’s what their customers want.
“We sell to people who
are going to cook product and please guests—they’re not buying for themselves
and they’re not shopping for price,” says Mort Kent, U.S. Foods of Denver,
Colo. “They have a reputation to uphold and their customers expect consistency
and quality, and they’re willing to pay for it.”
A recent analysis of Urner Barry wholesale beef pricing data supports that
claim. During the two years from July 2010 to July 2012, the value difference
between USDA Choice and Select grade beef was $62.31 on an average 830-pound
(lb.) carcass.
The wholesale price for
the Certified Angus Beef®
(CAB®) brand over Select was more than double that at $127.10. That’s
$15.31 per hundredweight (cwt.). The analysis is part of an updated “Black Ink
Basics” technical report from CAB.
“I look at it that I am
the purchasing agent for my customers, and so how can I do the best job for my
accounts? Because I am really representing them,” says Franklin Hall, the third
generation to operate Lone Star Foodservice, in Austin, Texas.
Just as a cattle buyer
fills orders for a certain type and class of cattle, Hall acts on requests from
his high-end restaurant clientele.
“My job as a processor
and distributor is to make sure I am purchasing the best product at a fair
price and when I receive that product the systems in our company are set up to
respect that product—to properly age that product, to artfully cut that product
and package and deliver it in a way that helps our customers and makes them
look good.”
“Our goal is to have
their guests have a wonderful eating experience,” he says.
If that means paying
more for better beef, they’ll do it.
“We need to be able to
have everyone in the chain of distribution make a little bit more on CAB than
on a commodity product, otherwise it becomes a commodity product,” says Mark Polzer, vice president of business development for the
brand.
That’s why distributors
typically pass along that higher price they’ve paid to their customers.
“The foodservice market
that we’re in is much more quality driven than it is price driven,” Kent says.
“So producing the highest quality, most consistent beef with the best genetics
is critically important.”
If farmers and ranchers
answer that call, they’ll be rewarded, says Ted Schroeder, Kansas State
University ag economist.
“Producers who sell fed
cattle on a grid most directly and immediately benefit from added premiums
associated with high-quality cattle,” he says.
Schroeder tracks USDA’s
published “branded boxed-beef premium,” which is not as specific as the Urner Barry-reported number but shows a similar pattern. That
number compared to the Choice weighted-average grid premium shows, “the two are
highly positively correlated.”
“That means, as the
wholesale premium for CAB increases, so does the producer’s premium for CAB fed
cattle,” he says.
Schroeder estimates 64%
of the wholesale premium for branded beef over Choice is passed back to the
producer. Of course, he points out, those bonuses vary
greatly from one grid to another.
Can that trend continue
as beef prices inch higher?
“Generally higher beef
and fed cattle prices tend to result in larger premiums for CAB cattle and
beef,” Schroeder says. “If the recent pattern is an indicator of the probable
future—and I think it likely is—then higher beef and fed cattle prices will
translate into greater premiums for high-quality branded wholesale beef and CAB
grid cattle.”
Meat buyers have
already implemented creative solutions as a way to deal with higher prices. Kent
says many chefs are lowering quantity, not quality.
“If you cut the portion
size down by a couple of ounces and have a great starch and great vegetable to
go with it, people will have been well fed, and they will leave with the memory
of a great meal.” he says.
The fear that
high-priced beef leads people to trade down while pinching-pennies is unfounded
when the beef is good enough.
“To my knowledge, our
beef packers do not have beef backing up in their coolers and warehouses. They
are selling every single pound they produce, and so are we,” Kent says. “The
customer demand is for higher quality, better marbled young cattle with
consistent flavor, juiciness and tenderness.”
That helps explain
CAB’s sixth consecutive record sales year in 2012, which Polzer
also attributes to an “insurance policy” effect.
“CAB gives them the
best chance to make money,” he says, “because of the additional quality
assurance, the consistency that the product provides and ultimately the
customer retention.”
Numbers at every level
prove that marketing high-quality beef, whether on the hoof or on the plate,
leads toward more profit.
For more information on
this analysis, look for the Black Ink Basics technical summary, “Premium Prices
Send Clear Signals,” at www.cabpartners.com/educators/index.php.
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