C.A.B. premiums reach almost $300 million
March 2, 2010
by Meat&Poultry staff
WOOSTER, OHIO – By the end of 2009, cumulative grid premium rewards for hitting the Certified Angus Beef (C.A.B.) brand target was almost $300 million, and they keep growing at an annual rate of about $25 million paid to producers, according to a January 2010 survey, which is the five-year average. The second-highest total for that span was 2008, with $25.5 million in premiums reported, according to Certified Angus Beef LLC (C.A.B. LLC).
“The average payout of $98,000 per working day for the last three years shows the continuing relevance of this brand as a producer target,” said Brent Eichar, senior vice president, C.A.B. LLC.
C.A.B. product sales by approximately 15,000 licensees throughout the world have increased by more than 110 million lbs. over the last two years, said Larry Corah, C.A.B. vice president for supply development, representing18.8% growth.
Leading C.A.B.-licensed packers shared figures on condition that no individual company numbers would be reported in the biennial survey. Tyson, Cargill, JBS-USA and National Beef checked actual C.A.B. premiums paid in 2007 and reported totals for the next two calendar years.
The figures do not include the related premiums for yield grades, U.S.D.A. Choice over Select, Prime over Choice, source- and age-verified, nor the cash live bonuses often paid for expected C.A.B. acceptance. licensed packers through the years have been the source of funding for the branded beef program based on fees that average two cents per pound of C.A.B. product sold. That’s a cumulative $167 million in commissions on 8.3 billion lbs.
In the mid-1990s, widespread grid premiums for C.A.B.-accepted cattle appeared. By 1998, all major packers featured C.A.B. premiums in their grid or formula pricing.
The combination U.S.D.A. calls “formula plus negotiated grid sales” has been steadily increasing since a dip in 2003-04, said Ted Schroeder, agricultural economist, Kansas State University. Details of most formula agreements are not known.
Another economist, Clem Ward, professor emeritus at Oklahoma State University, who has long followed the mechanics of grid pricing, said the fact that cattle keep earning premiums says the industry’s herds continue to improve.
During the past several years, Urner Barry’s Yellow Sheet shows a C.A.B./Choice boxed-beef spread that is often more robust and more stable than the Choice/Select spread, Mr. Corah said. “Research shows the demand for C.A.B. product held up much better than that for Choice, especially in last year’s challenging economy,” he added.
The narrower spread has led many retailers to step up to higher-quality beef, and that is certainly true in the case of C.A.B. and C.A.B. brand Prime, observers said. “Higher-quality beef is winning in the contest of price versus value,” Mr. Corah said.
Although some grids maintain a steady C.A.B. premium in the area of $5 per hundredweight (cwt.), the average per head through all grid and formula selling has declined a bit. That’s logical in the face of 30.1% more cattle accepted for the brand since 2007, Mr. Eichar said. “We should see the average premium per head for C.A.B.-accepted cattle grow back to those 2007 levels,” he added.