Producing High-Quality Beef, Risk Management Strategy for ProducersTue, 24 Mar 2015 12:08:04 CDT
Beef demand is the ultimate factor driving the size of the cattle industry. University of Missouri ag economist Scott Brown said during this expansion phase, farmers and ranchers must remember that.
Brown asked, "How do we rebuild herds in a way that makes sure that we maximize potential revenue to the industry and that focus seem like it could really be a quality focus, all of the sudden looking at demand for Prime beef, for Upper Choice, what does that look like relative to Select beef? Cause I will tell you honestly, if we can get into a situation where we don't have to compete, pork and chicken for example, it's a much better situation for the cattle industry as we move ahead."
Consumers will trade lower quality beef for other proteins when prices are high, yet Prime beef does not see the same substitution effect. Brown says that explains the steady premiums available for it.
"When I think about agriculture today, the one word that always comes to mind is risk and how do I manage that risk," Brown said. "We talk about it in all sectors of agriculture and so when I look at cattle in particular and you see that choice select spread, a lot of volatility, it depends on where we are in that year in terms of seasonality in terms of that Choice-Select spread, but all of the sudden I look at the prime over the choice premium a much more stable premium we have seen over the last several years. All of the sudden I go, what a good risk management tool for the industry."
Today, Prime only makes up about three to five percent of the harvest mix. Genetic improvement could start to shift that upward.
Brown asked,"If we grow that to let's say 10%-15%, do we out strip the demand growth?" And all we really have said is, when I look at the demand equations, we can estimate over the historical period, there is a very strong positive trend in front of it in terms of Prime demand today."
Brown estimates premium beef added $4.5 billion to the beef economy in the nine years from 2005 through 2013. To read the full research report, click here.
This video news is provided by CAB and the American Angus Association.
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