Look at the numbers commonly used to gauge industry trends in carcass quality and it's easy to conclude that fewer cattle are grading Choice.
For instance, if you look at USDA's historical meat grading summary, 56.2% of cattle graded Choice last year compared to 60.4% a decade earlier, and 93.6% in 1986 (see ranges, Table 1). During the same time, 40.9% of the carcasses graded Select last year, compared to 37.1% in 1996 and 2.8% in 1986, when today's Select grade was known as Good. This was despite the fact that more genetic focus was aimed at increasing the percentage of Choice cattle.
But the conclusions drawn from these numbers are misleading, according to researchers at Texas A&M University (TAMU).
“There is little evidence that the increase in Select beef output has been the result of declining amounts of Choice beef produced,” explains Ryan Rhoades, a TAMU graduate research assistant in beef production. “Increases in the amount of Select beef produced result from the increase in the proportion of beef that is presented for grading.”
It's not that the previously reported figures are lying. Rather, it's that the most commonly presented ones represent something different than lots of folks realize.
Specifically, Jason Sawyer, TAMU beef specialist who also worked on the project, explains historical USDA data are most often expressed as a proportion of the product graded, rather than as a proportion of the total produced. That realization isn't new, but this is the first study to quantify the effect.
“Let's say half the cattle out there have the ability to grade Choice, and I'm choosing the ones I believe will grade Choice,” Sawyer says. “Of that population, suppose I only select about half to present for grading. Even if I'm wrong 10% of the time, 90% of the ones I present for grading are still going to grade Choice, although the population only produces 50% Choice carcasses.”
That's not far off the percentage of Choice-grading cattle — as a proportion of cattle presented for grading — that was routine through the 1980s, when quality grading and yield grading were still coupled, and before changing the name of Good quality to Select (in 1987) had much impact. As recently as 1988, only about 56% of the federally inspected beef slaughter was graded because there were no economic incentives to present cattle that might not grade Choice.
“During the late 1970s and early '80s, there wasn't much distinction between beef grades; it was either Choice or Prime, or it was just beef,” Sawyer says.
But today, Rhoades points out only about 15-20% of carcasses harvested go un-graded (no-roll). Mathematically, that means a lower percentage of the cattle graded are grading Choice, based on those same USDA statistics. However, that doesn't mean the overall proportion of Choice-grading cattle is dwindling.
Quality distribution is stable
When you express grading percentages as a proportion of all cattle harvested, rather than as a proportion of only the cattle graded, the percentage of cattle grading Choice has remained fairly stable during the past decade (Figure 1); the same goes for cattle grading Select (Figure 2).
Perhaps the most glaring example of how the picture changes based on how the grading percentages are calculated can be seen between 1986 and 1996. Looking at USDA figures — based on only the cattle graded — you'd say Choice beef production declined 35%. Base it on all cattle harvested though, and there's little change.
Lending support to this alternative way of expressing percentages is what TAMU researchers uncovered relative to the elasticity of beef demand associated with Choice and Select grades.
In the short term (52 weeks May '06 to May '07), demand for Choice product is inelastic, while the demand for Select product is relatively more elastic in nature, say the researchers. That means consumers tend to demand Choice beef at more constant levels, despite price, whereas the more elastic demand for Select has consumers demanding more when prices decline and visa versa.
“It basically says that we'll consume the amount of Choice beef we consume despite the price. If we produced a lot more though, it would probably take a lower price to move it. At least that's what a year's worth of boxed-beef transactions say,” explains Sawyer. “As supply tightens, the price of either category would be expected to increase. This price increase would have minimum impact on the amount of Choice product sold, but might have a large impact on the volume of Select product moved.
“It's important to note that when both Choice and Select supplies increase by an equal amount and price is reduced within both product segments, a slightly greater reduction in the price of Choice beef compared to Select might be expected,” Sawyer says.
He adds, “The demand inelasticity for Choice also supports the volatility we've seen with the Choice-Select spread during the past 18 months when it has ranged between $3.50 and $30. A fairly small change in supply might result in a fairly large swing in price.”
Demand defines quality mix
“What surprised us the most was just how stable the distribution of quality grades has been, relative to the population of cattle harvested during the past 10 years. It appears the industry has achieved an optimum threshold mix of Choice and Select carcasses for the market,” Rhoades says.
According to the researchers, the significant discrepancy in elasticity between Choice and Select also suggests they aren't necessarily strong substitutes. As supply tightens, the same amount of Choice is demanded, albeit at a higher price. However, as prices increase, the quantity of Select product demanded diminishes, suggesting that consumers substitute with non-beef products.
None of that belies the opportunity for individual producers to benefit by increasing the percentage of Choice cattle they produce.
“Individually, if producers think they can increase the percentage Choice at a cost lower than the premium paid for it, there is opportunity,” Sawyer says. “The two demand lines suggest Choice and Select really represent two different commodities, though. As we ‘decommoditize’ portions of the market, we start to reduce the commodity characteristics of the market as a whole.”
In other words, as brands have taken center stage, and as Prime, Choice and Select have emerged as de facto brands unto themselves, they're governed less by the pure commodity principles that drove them in the past.
Moreover, the data suggests the apparent sluggishness of the industry to grow more Choice-grading carcasses may be influenced as much by market demand as any genetic or management constraint.
Rhoades emphasizes, “The large increase in Select production during the late 1980s and 1990s doesn't appear to be offset by reductions in Choice production during the same time span. This suggests the increase in Select-graded product was a result of grading more cattle, not a result of declining overall marbling in the population.”
In fact, Sawyer explains, “As an industry, we have a tendency to talk about the good old days, but what good old days are we talking about? In 1956, about 28% of the carcasses produced in the U.S. were graded Choice. Last year, over 50% were. So it looks to me like we've made tremendous progress.”
Bottom line, Rhoades says, “It's difficult to support the hypothesis that beef quality is declining, or that the slaughter mix is decidedly non-optimal.”
|Years||Choice (%)||Select (%)|
|*Percentages are a proportion of cattle presented for grading |
Source: Historical Beef Grading Volumes, USDA-AMS