'Black' Beef Premiums Still Near $5 per Cwt.

CAB value-added premiums hold despite the recession.

Compiled by staff

Published: Mar 4, 2010

The Certified Angus Beef brand continues to return a value-added premium of $5 a hundredweight, despite 30% more cattle qualifying for the brand since 2007 and a softer consumer market. That's the most important bottom line, according to Brent Eichar, CAB LLC senior vice president.

Cumulative grid premium rewards for hitting the CAB brand target stood at nearly $300 million at the end of last year, and are growing at an annual rate of about $25 million paid to producers. These values don't include premiums for Yield Grades, USDA Choice over Select, Prime over Choice, source- and age-verified, or cash live bonuses often paid for expected CAB acceptance.

Widespread grid premiums for CAB-accepted cattle appeared in the mid-1990s. By 1998, all the major packers featured CAB premiums in their grid or formula pricing.

Ted Schroeder, Kansas State ag economist at Kansas State University, adds that the combination USDA calls "formula plus negotiated grid sales" has been steadily increasing since a dip in 2003-2004. "We believe they include premiums for quality, although not all formula selling involves grid pricing."

The fact that cattle keep earning premiums says the industry's herds continue to improve, suggests Clem Ward, professor emeritus at Oklahoma State. "If we're paying premiums above the average cash price, then it suggests premiums are exceeding discounts. One might argue it means we are moving toward desired quality cattle — or moving away from those discounted by the marketplace."

Urner Barry's Yellow Sheet reports over the past several years show a CAB/Choice boxed beef spread that's often more robust and certainly more stable than the Choice/Select spread. Demand for CAB product held up much better than that for Choice, especially in last year's challenging economy.

The narrower Choice/Select spread has led retailers to step up to higher quality beef, particularly CAB and CAB brand Prime. "As demand continues to grow, we'll see the market signals calling for still more," Eichar concludes.