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Rabobank: U.S. beef model must change

The U.S. beef production model, structurde for quality high-end cuts, is widening the price gap between beef and competing proteins and further eroding U.S. per capita beef consumption. The model could be changed to gain efficiencies and better meet consumers' high demand for ground beef by manging a portion of the cattle for that market instead of the high-end market.
Carol Ryan Dumas

Capital Press

Published on February 10, 2014 2:55PM

Beef cattle graze near Hollister, Idaho. A report issued by Rabobank says that while  the U.S. cattle industry is focused on producing high-end cuts destined for high-end restaurants, more than 60 percent of consumers want ground beef.

Carol Ryan Dumas/Capital Press

Beef cattle graze near Hollister, Idaho. A report issued by Rabobank says that while the U.S. cattle industry is focused on producing high-end cuts destined for high-end restaurants, more than 60 percent of consumers want ground beef.

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The U.S. beef production model is geared at quality beef, with most cattle managed to target the choice grading standards for high-end cuts destined for high-end restaurants. But more than 60 percent of U.S. consumers want ground beef.

The current structure makes ground beef and other select grade beef products much less competitive with other animal proteins, Rabobank states in its new report: Ground Beef Nation, released last week.

The report explores changing consumer preferences, the role price plays in the decline in U.S. beef consumption, and what the industry can do to better meet consumer demand.

The issue is twofold, Rabobank economist Don Close said in a telephone interview.

First, the cost structure is critical. The gap is widening between beef and other animal proteins, such as pork and chicken. Second, the industry is still in a model of producing a full array of muscle cuts, such as bottom round and chuck roast, that consumers don’t necessarily want, he said.

“We need to streamline to supply more of the items consumers want,” Close said.

Top of the list is ground beef, whose popularity has grown due to cost, convenience and consumers’ lack of cooking skills when it comes to certain cuts.

The majority of consumers have no idea what they’re going to have for dinner at 4:30 in the afternoon. They want something they can cook in a narrow window of time. Busy lifestyles also make a case for ground beef, he said.

Demand for high-end steaks is still there at a price, but only 20 percent of consumption is rib and loin. Around 9 percent of consumption is sirloin, brisket, flank and short ribs, with the remaining 9 percent in some form on non middle meat cuts, which often end up being sold as ground product, Rabobank reported.

Retailers offer such cuts as bottom round and chuck roast, but the majority are taken out of the meat case before the sell date, ground and sold at a discount, he said.

The production model requires most of these animals to be fed expensive ration that aims to perfect the quality of, at best, 30 percent of the carcass, Rabobank reported.

“Essentially, the industry is producing an extraordinarily high-grade product for consumers who wish to purchase a commodity,” the economists stated.

In the current model, beef is expensive to produce and is becoming increasingly uncompetitive in the meat case, Close said.

In order to be more efficient and competitive, the end use of cattle should be determined as early as possible and the animals managed for the end goal. Between one-third and half of U.S. cattle should be raised primarily for ground beef, he said.

The rib and loin will still be pulled from those animals to sell as popular cuts, but there would be more select-grade cuts at retail at somewhat lower quality, he said.

“They’re not going to be as good (as choice) but will eat well,” he said.

The industry would still produce high-end carcasses from high-end animals to meet the demand for high-end cuts, but it could be more efficient in raising more of the cattle for ground beef, he said.

The share of the calf crop not selected for choice or prime would be fed and managed differently, left on some type of natural forage for a longer period of time, reducing the cost of gain. It would result in a savings in time, efficiency and food resources previously used to make the animal better and fatter, he said.

As a result, the industry would not be pushing lower-grade cattle – incurring extra grain costs and energy days on feed – to make the animals grade higher than they would realistically or efficiently be able to accomplish, he said.

Changing the model would be a huge process and involve widespread application, but per capital consumption will continue to erode further without it. The cattle industry is in a time of stabilization and transition, making efforts to rebuild the herd, and now would be the time to begin a transition to a more efficient model, he said.

If everyone were on board today, breakneck speed for a new model would be three to five years out. A more likely, practical timeline would be five to 10 years, he said.


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