Assessing the Cost of Beef Quality Revisited

Beef producers manage their resources and cattle characteristics in the context of market incentives to maximize their economic returns. This task becomes more difficult as market signals often change faster than cattle producers can adjust genetics and production systems. In the commodity era of beef production when there was little differentiation on quality grade economic incentives were to focus on pounds. During the late 1990s consumer demand for an improved eating experience and higher quality grade beef brought about value-based marketing programs that paid larger premiums for Choice relative to Select grade (Figure 1) and increased bids for premium Choice and Prime carcasses. Forristall, et al., (2002) found that marbling score had a greater economic payoff than carcass weight at Choice-Select spreads of $8/cwt or higher. Producers shifted their focus from pounds to marbling in pursuit of premiums. The economics of beef production has changed since Forristall, et al., analyzed data from 1996-1999. Value-based marketing is commonplace, the national beef cowherd has shifted toward more Angus influence, and carcass weights have increased. Most notably, however, is that cattle and grain prices have increased. Iowa-fed cattle and corn prices for 1996-99 averaged $64.13 and $2.49, respectively, compared to $88.87 and $3.04 for 2005-2008. Because of increased demand from biofuel production, the expectation is that grain prices will remain higher than historic levels. How do the economic signals change with higher grain and beef prices?