Premiums for quality beef continue to grow as packers seek cattle, MU economist says

MOUNTAIN GROVE, Mo. – Beef feeders can look for continued payment of quality-grid premiums from packing plants, said a University of Missouri Extension economist.

“This only happens because they really need quality cattle,” said Scott Brown, an agricultural economist who follows the beef markets. “With high demand and short supplies of quality beef, packers are more willing to share.”

Brown’s advice for beef farmers seeking to capture quality-grid premiums: “Shoot for prime. That’s where the money is. Don’t stop at choice grade.

“Choice-select spreads are attractive at times, but prime premiums are more consistent over time,” Brown continued. “Now, prime premiums are increasing faster.

“Top grid premiums of over $35 per hundredweight of prime-quality carcass are paid to help meet the demand for high-quality beef.” Brown spoke at an educational event for members of the Missouri Beef Industry Council.

Brown expects premiums for USDA prime quality grade beef to continue to rise as the economy recovers.

Demand comes from U.S. consumers, but especially from global buyers. U.S. beef producers should be excited about the continued opening of new trade agreements, such as one just confirmed with South Korea, Brown said.

Even in the recession, U.S. consumers increased their shopping for choice and prime cuts, he said. “Consumers will pay for prime. They want a quality eating experience.”

Brown said consumers pay for quality, and not just in beef. “Who would think we’d pay over $2 a cup for a Grande Starbucks coffee? We could make a cup of coffee at home for 15 or 20 cents.”

With rising demand and shrinking beef supply, consumers may face higher prices at the meat case.

“I don’t know if we will meet consumer price resistance,” Brown said. “I’m not a great believer that higher meat prices cause demand destruction. Consumers send signals about the meat they want through prices.”

Brown said an early indicator of the general economic recovery came from the restaurant index, which gauges optimism of food-service operators.

“Restaurants took a real hit in 2009, in the depth of the recession,” Brown said. “But the index grew by 1.1 percent in the February report after a strong January. Sustained growth will show consumer confidence and create more demand pull.”

Producing prime calves doesn’t happen by chance, Brown told farmers. Prime quality can be reached by using protocols developed at MU Thompson Farm. Dave Patterson, MU Extension beef specialist, has proven that prime becomes possible on a regular basis by using proven, high-accuracy AI sires.

Using timed artificial insemination results in uniform lots of calves sought by feed yards and packing plants. Buyers pay more for groups of uniform calves of the same quality.

“The Show-Me-Select Replacement Heifer Program brought better genetics to the state of Missouri,” Brown said. “It shows how to get high-quality calves. The program not only produces quality replacement heifers, but steer mates are worth more at the packing plant.”

Brown is a member of the Department of Agricultural and Applied Economics in the MU College of Agriculture, Food and Natural Resources, Columbia.