Quality Holds Up Under Lighter Carcass Weights

From a cash price perspective, both cattle and beef markets continue on a relatively bullish run the past few weeks. The fed steer price has increased $9.37/cwt. since the week of January 23, yet the pace of that increase has been doggedly slow. That’s potentially a better pace for cattle feeders versus large upward jumps followed by downward corrections. At $265/cwt., dressed carcass prices were more attractive than the live steer price at $165/cwt. last week. This is due to muddy pen conditions pulling dressing percentages lower than normal. The $265/cwt. market average is equivalent to a $168/cwt. live market at a 63% dressing percentage.

Packers have rated the pace of fed cattle slaughter quite well for a number of weeks now as 2023 weekly head counts have pulled well under a year ago. We’ve noted the pullback in Saturday slaughter schedules, which have shrunk to average just 7,000 head over the past three Saturdays. This compares to a 35,000 head Saturday average for the same weeks last year.

Last week’s $1.00 increase in the fed cattle price didn’t hurt packer margins as the comprehensive price was up $7.05/cwt. on the week prior. The Certified Angus Beef (CAB) cutout was up $3.80/cwt., Choice was up $4.98/cwt. and Select was up $6.55/cwt. Strength in Select and Choice pulled the quality price spreads a bit tighter. Narrowing of the Choice/Select price spread has been rapid since the beginning of the year, but last week’s average of $15.13/cwt. remains record-wide for that week of the year. Similarly, the CAB cutout spread over Choice is historically wide with last week’s $16.28/cwt. value $3.32/cwt. higher than a year ago. The Prime cutout premium to Choice is $1.70/cwt. higher than a year ago at $36.24/cwt., greatly reduced from the October peak of $92.21/cwt.

Fed cattle carcass weights have tracked a decidedly lower course this winter with the steer/heifer mix 18 lb. lighter since January 1. Winter weather has left a lasting mark on feedyard performance this season as feed efficiency has slipped away and industry production pounds followed lower.

That reality easily leads to a discussion about the weather impacts on carcass quality grades and CAB carcass certification rates. The logical initial perception might be that prolonged cold weather events and muddy, icy feedlot pen conditions would result in decreased marbling deposition. From several recent years of observation, extended periods of winter weather extremes suggest that the industry quality grade mix and associated marbling scores are not harmed during these periods. In fact, Choice and Prime quality grades, along with CAB acceptance rates, are often improved above normal seasonal expectations during significant cold weather events. That’s not especially intuitive when set alongside the more obvious detriment to weight gain and efficiency.

On the other hand, an analysis of carcass weight trends shows that heavier carcasses, on average, tend to result in higher marbling scores. A relatively recent study of nearly half a million head of fed cattle shows that the top one-third of carcass quality groups were 14 lb. heavier than the average. Quality grade and CAB acceptance rates improve, on average, at higher pen average carcass weights. This is a counterpoint to the more generic observation about winter weather impacts described above.

Several feedyard managers have stated that recently harvested fed cattle are showing carcass results in-line with expectations. The only difference is the lighter finished weights and disappearance of 30 days of performance, or a similar sentiment anyway. That’s painful on the bottom line but at least there’s a silver lining on the grid payment sheet. Quality spreads have been healthy with Prime premiums exceptionally high along with very good values on CAB and Choice carcasses as well.

The latest data shows the national percent Choice grade at a record-high of 75% of the total for the week of February 20. Prime at 9.6% of the mix is fractionally lower than the same week last year where 10.1% was achieved. The CAB acceptance rate for brand-eligible cattle has been pressing higher, touching 40%, equal to the 2021 record for that week. While smaller slaughter levels are testing the customer base and pushing cutout values higher, the proportion of high-quality carcasses in the mix is providing a short-term assist. We’ll see the seasonal peak in carcass quality during March if the historical trend holds true.