“Are we filling the demand for quality beef today?”
The answer depends on with whom you talk, according to lead speakers of BEEF magazine's 2007 BEEF Quality Summit.
Jeff Savell, Texas A&M University (TAMU) meats scientist, says recent industry surveys show the percentage of USDA Prime and Choice is at the highest level since 1991.
Larry Corah of Certified Angus Beef says “no,” but the opportunity and profits are there to do so.
Angelo Fili of Greater Omaha Packing Company, a processor that harvests 15,000 cattle/week, gives a qualified “yes.”
Mike Connelly of the Ruth's Chris Steak House chain says, “just enough,” but it will be an ever-increasing challenge to meet future demand for high-end beef.
About 300 attendees gathered in Omaha recently to hear more than 20 industry experts address the topic, “Beef Quality In The Ethanol Era.” The quartet of Savell, Corah, Fili and Connelly set the stage for the following 1½ days of discussion by providing their thoughts on the supply and demand picture for “quality beef.”
But regardless of their stance on current supply, all speakers express concern about the potential effects on quality of some emerging feeding and management trends.
Savell, TAMU Regents Professor and E.M. “Manny” Rosenthal Chair, says that while popular perception is that production of Prime and Choice beef is on the wane, the 2005 National Beef Quality Audit (NBQA) tells a different story. He says the 2005 survey (Figure 1) found the highest percentage of Choice and Prime (57%) compared to previous studies in 1991 (55%), 1995 (48%), and 2000 (51%). He did allow, however, that the ideal vs. actual quality-grade consist, as uncovered by the 2005 NBQA, does indicate a need for more top Choice and Prime beef (Figure 2).
“I don't know what the 2007 number is, other than we're feeling the pressure that the (quality) number is going down. We feel the pressure of what ethanol production is going to do, too. But at the last measurement, that number was the highest it had been since we've been measuring it,” Savell says.
Two factors that are certain, he adds, is that cattle are “getting blacker and heavier.” According to the 2005 NBQA, black hide color controlled 56% of the market, with red making up 19%. Holstein was 8% (Figure 3).
“The percentage of cattle that are black keeps increasing. Part of that has come about simply because of the number of programs that have been put into place that reward or require cattle to have this characteristic,” he says.
Meanwhile, average carcass weights continue to climb, from 759 lbs. in 1991 to 787 lbs. in 2000. It's near 850 lbs. today.
In his “Survey Says” presentation, Savell summarized other points from three landmark beef-quality studies:
2006 National Beef Tenderness Survey and
2006 National Beef Market Basket Survey (NBMBS).
He says the checkoff-funded studies found that:
Increasing weights of carcasses and cuts continue to be an issue for many in the industry.
Tenderness keeps improving with every subsequent survey (Figure 4).
Branded-beef programs where tenderness is measured or managed make up about half of beef marketed in those surveys.
Beef is leaner — with less external and seam fat — than ever before (Figure 5).
“The most common nutrition misperception about beef is related to its fat content. The 2006 NBMBS shows that the beef in our marketplace is leaner than ever before,” he says. Moreover, the true picture of beef's fat profile has been hampered by out-of-date USDA data. In fact, the 2006 NBMBS found a 34.7% reduction in separable fat compared to USDA data.
“We have product that looks great in the retail store, and it's leaner than it's ever been. From a foodservice and retail standpoint, a lot of it is performing quite well,” Savell says. “Our challenge is, as we produce beef, to think about who will consume it and what kind of products they want. Those of you in production must keep that in mind because that's what you're in business for.”
He urged attendees to study the retail counter. “If I had a dollar for every time I had a cattle producer tell me he never goes into a retail store because that's what his wife does, you would be shocked. Producers need to know what's happening with their products in the retail store, just as well as in food service. You need to go and see how it's being sold, cut and labeled,” he says.
CAB vice president Larry Corah initiated the program's supply-development program and currently oversees the production division of the world's number-one branded beef program. Today, 14,000 licensees worldwide sell more than 500 million lbs. of the CAB brand annually.
From CAB's perspective as a branded-beef company, Corah says the demand for quality-beef production in the U.S. is not being filled.
“But can we as an industry do that? Absolutely. And as producers, can you do it profitably? Absolutely,” Corah says.
He says the economic signals from consumers “have really blossomed” in the last half-dozen years.
“If the tonnage is available, we think that, as a company, CAB can hit 750 million lbs. of annual volume, which would represent about 2.5 million head of cattle,” Corah says. “That's the upside. We see a continued growth opportunity.”
He says consumers define beef “quality” first as a safe product. Next, while tenderness is a key part of the quality equation, flavor is clearly “the ultimate driver that we benefit from in the beef industry,” he adds. And it's one that can cover for other quality shortcomings. “When you reduce or lower that level of flavor, then tenderness becomes more critical in terms of the evaluation process.”
Research indicates carbonyl compounds located in intramuscular fat, or marbling, are a contributing factor to taste, he says. Thus, as USDA Quality Grade, which is determined by amount of marbling, increases from Standard to Prime, the likelihood of an acceptable eating experience increases. In fact, research shows the odds of an “unacceptable” eating experience (Figure 6) with a Select product is 1 in 4, while Low Choice is 1 in 6, Premium Choice (CAB level) is 1 in 20 and Prime is 1 in 33.
Yet, he says, the NCBA Beef Quality Audit (Figure 7) set an ideal consist as being 7% Prime, 29% Upper Choice, 33% Lower Choice, 31% Select and 0% Standard. The actual consist, however, is 1.5% Prime, 18% Upper Choice, 35% Low Choice, 37% Select and 6% Standard. The shortfall, the audit estimated, amounts to $26.81/head in lost opportunity due to substandard USDA Quality Grade.
“That's our challenge as an industry in terms of trying to correct that,” Corah says. While there's been a positive “genetic impact” over the past decade in addressing those concerns, an offsetting factor is that cattle are being managed “in a fashion that compromises their ability to grade,” he says.
Among these, he lists:
Health. Sick cattle don't hit the premium-quality levels.
Marbling. It's a lifetime event that encompasses handling, management and health throughout the animal's life.
Inappropriate implant strategies.
Lack of sorting of cattle based on compositional end point, which leads to under-finished or overly fat cattle.
Looking down the road, Corah sees four challenges that will affect the industry's competitiveness.
Can we compete globally? Can the U.S. maintain its position as the home of premium beef? Today, competitiveness is constrained by mainly political issues, Corah says. “While the domestic consumer is critical to this industry, our ability to compete in the global climate is a must.”
The opportunities, and potential challenges inherent in the coming of instrument grading.
The potential of Level II beta agonists — partitioning agents that add lean at the expense of marbling — to negatively impact quality grade and tenderness.
“So many of our cattle sit right on the line, and it looks like the Level II's will move marbling between 20 and 30 units. That is going to move a lot of the Premium Choice cattle down into Low Choice, and a lot of the Prime into Premium Choice. We think 20-25% of our supply could be threatened with widespread adoption of the Level II beta agonists.”
The economics of feed costs, particularly as affected by high grain costs.
“If you put cattle through a growing program of daily gains under 1.75 or 2 lbs., quality grade will start to suffer. That's kind of a magical figure, and you'll start losing quality grade no matter the growing program — silage, hay, grass, wheat pasture, etc. It will have an impact,” Corah says.
Angelo Fili, Executive VP of Greater Omaha Packing Company. Greater Omaha Packing Company is one of the largest privately owned beef processing plants in the country. Founded in 1920, the firm processes 15,000 head of cattle/week and books $960 million in annual sales. It employs 720 people and ranks fifth nationally in beef slaughter and processing.
A 30-year veteran of the beef industry, Fili has served in roles from butcher to executive management. His tenure includes stints with seven different packing concerns. He jokes, “If you drive by a beef plant, I probably worked there.”
Greater Omaha Packing Company is a Certified Hereford Beef and CAB supplier. Among its quality tenets are a “test and hold” policy for E. coli O157:H7 on all carcasses and grind material, all meat is traceable to farm of origin, and the facility does not produce bone-in product from cattle older than 30 months of age.
Fili says Greater Omaha Packing prides itself on long-term relationships, with some cattle-supplier relationships stretching back more than eight decades. Its products are marketed worldwide, but the company primarily services the lucrative specialty markets of the East and West Coast. It's among a handful of U.S. operations that provides non-hormone treated beef to Europe.
While quality is often defined as a tasty steak, Fili says quality beef “sells in many ways,” pointing to a list of 40 chains that includes everything from McDonald's to Applebee's.
“A lot of people do a lot of different things with product. They don't just make a beef steak for the middle of the plate. Papa John's, Chick-fil-A, Dairy Queen — these are large growing companies that really don't ask us whether the product is Choice, Select or no-roll,” he says.
While beef grading is based on sight — visible marbling — Fili says, “Many sales are also based on sound. It's the story behind the product, like organic, natural or kosher, but all repeat customers are based on taste. They have to like what they've eaten.
“And dishes like stroganoff, fajitas, pot roast — even literally entire cuisines such as Mexican — don't ask a question about marbling or tenderness,” he adds. “That's because a fajita uses a 3½-in.-long piece of beef that is ¼-in.-wide. Fat is seen as a defect in a product such as that.”
He says each packer serves a certain end user, who generally has his own purposes for that product. Consistency is the key.
“As long as the beef herd produces similar animals in size and conformation, that marble and grade moderately well — meaning 60+% Choice — then we know where to market the different products.”
Outlying cattle, particularly those over 1,000 lbs., create massive problems.
“From my observation and standpoint as a harvester of your product, I think the product that we make in the U.S. is actually very repeatable, especially in the Midwest. We're fortunate to have plants only on the I-80 corridor, which has a tendency to be a 55-70% Choice range. The I-70 corridor registers about 10-15% less, while the I-40 grid that runs through Texas might be might be 8 or 10% less than that.”
He suggests to producers that they learn about their packers' needs and the markets they supply. And he points to the tremendous potential for U.S. beef in foreign markets.
“There are more Rolex watches sold in China than in Switzerland today. The minute a country like China decides it wants hamburgers, the minute they figure out this situation of taste and decide they're going to eat even a little bit more beef, we couldn't supply all those numbers. I see customers for every bit of beef we produce,” he says.
Mike Connelly, Southwest regional vice president of operations for Ruth's Chris Steak House, says his employer carries its product desires on its logo — “U.S. Prime.”
“From everything that we do, we talk about the Prime beef. The first thing I want to say is ‘thanks’ to all of you who make it possible for us to have a brand and a restaurant chain that's the largest fine-dining chain in the world,” he says.
From its humble beginnings in 1965 in New Orleans when Ruth Fertel, a single mother of two, mortgaged her house for $22,000 to buy Chris Steak House, the chain today numbers 121 restaurants worldwide.
“Without Prime and Premium Choice, we aren't what we are. The only product we sell that isn't Prime is our tenderloin, which is a Premium Choice product. And the only reason it is a Premium Choice product is that there just isn't enough supply of Prime tenderloins,” Connelly says.
While Fertel, who passed away in 2002, had no restaurant experience, she understood quality and hospitality, Connelly says. “She had a good sense of what people wanted and decided she would only use Prime beef, only cut it herself and make sure anything her guests wanted, she would provide. Her only answer to customers was ‘yes, and what's the question?’ If it was legal, moral and ethical, she would do it.”
Her secret, Connelly says, was that there are only three things you need to do to a great piece of meat.
“You need to put a little salt on it, a little pepper and then you cook it at high heat. So all our steaks are cooked in 1,800° ovens and served on 500° plates. A teaspoon of butter that's placed on the finished steak as it heads out to the diner provides the trademark sizzle of a Ruth's Chris steak. It's a flavor, sight and sound experience,” Connelly says.
Connelly says the typical diner in a Ruth's Chris location will pay $75/visit. At that price, two things must happen — the food must be perfect and the service top-notch.
“Because 50% of our guests only come to see us once per year, we rely on the product itself to bring a lot of integrity to the dining occasion,” he says.
“Do we have enough quality beef in America today?' I think the answer is just enough. And I think it's going to be a challenge going forward,” he says.
In 2006, he says Ruth's Chris, on the corporate side, used 3.8 million lbs. of beef, almost evenly split between 1.9 million lbs. of tenderloin Choice and up, and 1.9 million lbs. of Prime. In 2007, the firm added six corporate restaurants and eight franchises, about a 10% increase system-wide. Plans in 2008 call for similar growth.
“That means a huge demand for Prime beef and, quite frankly, it's not always there,” he says.
To mitigate that demand shortfall and increasing beef prices, new items have been added to the menu. Seafood is now almost 10% of Ruth's Chris sales today, he says. Also added have been Wagyu beef from Australia and venison chops.
Still, he says, Ruth's Chris is getting pushback on price, a pressure he says he expects to only increase with ethanol-production mandates.
“But the bigger issue from us is the quality challenge. It's a declining amount of Prime beef. That's a huge concern to us because the pressure for this class is huge,” he says.
Growth additives are also a concern, in particular beta II agonists. Connelly believes beef production's widespread adoption of such products will exact a price, both literally and figuratively, on fine-dining restaurants and their consumers.
Connelly says this is an era of “luxury brands” — BMW, fine wines, iPods, electronics, Ruth's Chris Steakhouse. So the demand for Prime beef will only keep growing.
“How we and you supply that is going to be the key as we go forward. At the end of the day, if you can satisfy the consumer on both the taste and hospitality side, you're going to be okay. But we can't ever start selling the lower-quality beef. U.S. Prime will only mean something until it doesn't; until something better comes along and says: ‘This is better than U.S. Prime.’
“I guarantee you that someone out there is trying to figure out something better than U.S. Prime, and then you as a Prime industry become irrelevant,” he says.