(Jamie) Welcome back to Farm Factor. Let’s see how the beef value system works.
(Bob) Fed cattle premiums don’t just drop out of thin air. They’re earned at every point in beef production. (Schroeder) The premium and the prosperity for the industry starts at the consumer level, so that consumer is going to drive what happens down the rest of the chain. (Bob) Selling beef by quality grades and brands allows consumers to choose and value them individually. It also creates more work and cost to get the beef to them. (Schroeder) In producing, processing, marketing, positioning and putting that product in the consumers’ hands, all of those activities take investment, take scrutiny to make sure that there is integrity throughout that value chain. Everyone involved in that has an additional cost incurred. If you are the retailer, you have different shelf space that you have to allocate to this product. If you are the processor, you have a sorting mechanism that you have to incur in order to ensure that you have product flowing into that right retail channel. (Bob) Producing high-quality beef doesn’t just happen on the ranching side of the equation either. It takes focus, Schroeder says. (Schroeder) Likewise if you are a producer, you have production activity and those kinds of things and genetic selection that is happening, all the way down to cow calf. There are costs at every segment. Ultimately we have to have price signaling going, or someone would not have the incentive to invest, but the transmissions will always be occurred, or will always reflect some of the costs involved in that additional activity at each level. (Bob) That’s why the wholesale premiums for higher quality do not match the Choice-Select spread, for example. (Schroeder) So you will never have the consumers premium equal to the producers premium, but you would sure expect a percentage of that consumer premium to be reflected down at the producer level and that is indeed what we see is that as the consumer premium increases, so does the producer premium and again those aren’t going to be 100% transmissions, but they are going to be a very high correlation and causation with each other. (Bob) That’s good news for everybody who includes quality beef in their plans. I’m Bob Cervera.
(Jamie) Thanks for joining us. I’m your host Jamie Bloom and I hope you enjoyed today’s show. See you next week on Farm Factor – we’re here every Tuesday on AGam in Kansas.
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