Jun 22, 2016by  in BEEF Editors’ Blog

Many a cow-calf producer has declared that the packer reaps the rewards from the high-quality genetics produced on the ranch. The math tells a different story.

“It’s been declared in many a cow camp and auction barn café, ‘I sell calves, and the packer is the one getting all of the premiums for my high-quality genetics,’” observes Paul Dykstra, beef cattle specialist with Certified Angus Beef (CAB). To determine whether or not that’s true, Dykstra did a little mathematical noodling to figure out what the recent $23 per cwt Choice-Select spread would do to improve the feedyard’s grid premium-discount structure for Choice carcasses.

The national average is about 70% of the fed cattle will grade Choice. Since packers are willing to pay for above-average cattle, Dykstra took the remaining 30% from 100% and multiplied by the Choice-Select spread to arrive at the premium for each Choice carcass. The resulting carcass premium was $6.90 per cwt using the $23 per cwt spread (Figure 1).

“Take that back to the rancher’s pocketbook with the other math in the table and you can see it puts an added $9.10 per cwt. premium there, on top of the price for a 650 pound steer, provided that two or more buyers are competing to own these Choice-grading type cattle,” Dykstra says.

A more typical $8 per cwt Choice-Select spread contributes about 3.30 per cwt to the bottom line on that 650 pound steer, he says. So the near-record spread we’ve seen of late makes the numbers look much better than the average Choice-Select spread. But a premium is a premium and often is worth pursuing.

But the Choice-Select spread isn’t the only quality-based premium out there. “That’s why we’ve got to consider the additive value of Choice premiums with perhaps 10% or more Prime carcasses at $18 per cwt. over Choice and let’s say 50% CAB carcasses at $5 per cwt over Choice,” Dykstra says. “We’re quickly back to adding almost $8.90 per cwt to the value of our 650 pound steer, even with the ‘normal’ $8 per cwt Choice-Select spread. But maybe ‘normal’ is out the window.”