Management Tips

Understanding Beef Carcass Characteristics and Pricing Grids

J. W. Savell and W. W. Morgan

To stay abreast of the cattle market, it is essential that cattle feeders be aware of all options available in marketing their cattle. An increasing number of fed cattle are being sold on a carcass price basis. Most of these cattle are priced using a pricing index, commonly referred to as a pricing grid or packer grid. Most packer grids are relatively simple pricing tools that can be understood if a little background information is studied. Generally, any pricing index is based on two broad areas: quality and yield. Quality characteristics are those that reflect the eating satisfaction of the beef. Marbling, maturity, USDA Quality Grade, and dark cutting are all indicators of beef quality. Yield traits are those that suggest the amount of retail product that can be derived from a beef carcass. Fat thickness, ribeye area, percent KPH (kidney, pelvic, and heart fat), carcass weight, and USDA Yield Grade are all predictors of the final yield of a beef carcass. The following text will give some background information on quality and yield factors. Following these topics, some examples of their application in sample packer grids will be reviewed.

Value Traits

Beef Quality

One contributor to the overall quality of beef is marbling. Marbling is the flecks of intramuscular fat found within a muscle area. It is evaluated in the exposed ribeye area between the 12th and 13th ribs. This is the anatomical point of separation between the forequarter and hindquarter. There are nine degrees of marbling: Abundant, Moderately Abundant, Slightly Abundant, Moderate, Modest, Small, Slight, Traces, and Practically Devoid.

Maturity groups range from A to E, youngest to oldest. Overall maturity is determined by combining skeletal and lean maturity. Skeletal maturity is based on the size, shape, color and ossification of the cartilage and bone visible in the vertebrae, ribs, and superior spinous processes. Lean maturity is evaluated on the basis of color and texture, with younger cattle having lighter red, finer textured lean, leaving older cattle with darker red, coarser textured lean.

The United States Department of Agriculture - Agriculture Marketing Service (USDA - AMS) provides the beef industry with a set of standards (USDA, 1997)⁴ for segmenting beef carcasses on the basis of expected palatability, or by quality grades. There are eight USDA Quality Grades — Prime, Choice, Select, Standard, Commercial, Utility, Cutter, and Canner. The quality grade designation is based on a combination of various attributes that have been determined to indicate eating satisfaction. The primary factors are marbling within the ribeye area and overall carcass maturity, while some consideration is also given to the carcass class and firmness of the lean. A quality grade is assigned by balancing the marbling and maturity.

Another quality parameter of beef that affects value is dark cutting. Dark cutting is a condition that occurs in beef where the lean color never reaches the bright cherry red color that is normally associated with beef. Physiologically, dark cutters are caused by a depletion of glycogen stores in an animal before slaughter. The carcass does not have adequate muscle sugar to carry on anaerobic glycolysis, as in normal muscle, after death. This prevents the production of lactic acid in the muscle and the lowering of the muscle pH. Many factors have been attributed to causing dark cutters, such as ambient temperature changes, fasting, mixing pens of cattle before slaughter, rough handling, and even animal temperament. Some research has even suggested that aggressive implant programs also may increase the incidence. It appears that dark cutting is often the result of several of these factors acting in concert.

Beef Yield

The second major value-determining trait for beef is yield and cutability. There are several factors that influence the yield of lean meat from a beef carcass, such as fat thickness, muscling, weight, and percent of internal fat. The most commonly used method for estimation of percentage boneless, closely trimmed, retail cuts (BCTRC) from the round, loin, rib, and chuck is the USDA Yield Grade. Yield grades range from 1 to 5 with a lower number representing a higher yield as seen in Table 1. Yield grades are often broken into 2A and 2B, or 3A and 3B to further segment carcasses on the basis of yield (A would have a higher percent yield than B).

Table 1. Relationship between yield grade and average percent boneless, closely trimmed, retail cuts (BCTRC).

USDA Yield Grade is estimated by using various carcass parameters that have been shown to correlate to total yield. The primary factor is the amount of external fat measured at the 12th-13th rib interface. This measure is sometimes adjusted if the fat in the area measured is not indicative of the fat over the entire carcass. This is called the adjusted fat measure and is used to determine the preliminary yield grade or PYG, which is the starting point for calculating the USDA Yield Grade. The PYG reflects the amount of fat on the exterior of the carcass; a greater amount of fat will receive a higher PYG.

The next step in the calculation is an adjustment for ribeye area at the 12th-13th rib interface. Carcasses with larger ribeye areas will call for a subtraction from the PYG, which indicates a higher yield. If a carcass has a small ribeye area, the PYG will be adjusted up, indicating less yield. Next, an adjustment for hot carcass weight is assigned. Lighter weight carcasses will have the PYG lowered, while heavier carcasses will have the PYG raised. As animals get heavier, their growth shifts from lean production to more fat production. The final adjustment to be made is for percent kidney, pelvic, and heart fat. Less fat results in a lowered PYG, and more fat raises the PYG. As with adjusted fat, the more fat within the internal portion of the carcass, the lower percent red meat yield.

While hot carcass weights of beef carcasses are accounted for in the yield grade equation, they also are used further in valuing beef carcasses. It is apparent that all beef carcasses will never be exactly the same size and weight, but severe discounts are applied to carcasses that do not fall within an acceptable range. Carcasses under 550 pounds are economically inefficient to fabricate because the cost of labor and packaging materials tend to be fixed per head rather than variable per pound. Carcasses that are too large yield retail cuts that are not satisfactory to the retailers and restaurateurs. They demand a consistent, desirable, portion-controlled cut for their customers. In most cases, packers will discount cattle for not remaining between 550 and 950 lbs. Ideal weights would be 650-850 pounds, with most of the carcasses falling in the 700-pound range.

Pricing Grids for Beef

Although there are many different pricing grids, most are similar in their function. The specific grid used should be agreed upon by the buyer and seller before any transaction is made. An example of how to form a pricing grid is shown below.

Step 1. Establish base price. The base price should be negotiated by the buyer and seller but needs to account for a carcass that will meet specific carcass parameters. For Sample Grid A, the base carcass price for a Choice, Yield Grade 3A, will be $105.00/cwt.

Step 2. Establish the premiums and discounts. Usually the premiums and discounts will be based on the current market. Most packers will have premiums and discounts calculated, leaving it up to the seller to either accept or find another marketing alternative. Table 2 is an example of premiums and discounts that would be typical.

Table 2. Beef carcass price adjustments for Sample Grid A*.

*Carcass premiums/discounts are additive. Base price is $105.00/cwt.

Step 3. Apply the premiums and discounts to the base price to form a pricing grid (Table 3). It is important to remember that Sample Grid A1 does not account for multiple discounts such as Standard, Dark Cutters, with 1000-pound carcasses. To form a grid to account for weight discounts, simply break the grids down on a quality grade basis and apply the appropriate premiums and discounts (Table 4). Sample Grid A2 shows the prices with value adjustments made for weight and yield grade within the Choice grade. Grids could be made for each quality grade to determine complete values for all carcasses sold by using the adjusted value for that quality grade as the base.

Table 3. Sample Grid A1 where base is $105.00/cwt for a Choice, Yield Grade 3A.

Table 4. Sample Grid A2 where base is $105.00/cwt for a Choice, Yield Grade 3A with carcass weights between 551 and 950 pounds.

Sample Grid B, shown in Table 5, is very similar to Sample Grid A. Sample Grid B is more explicit on how the base price, premiums, and discounts are derived (Table 6) and also reflects a premium for carcasses that qualify for the Certified Angus Beef (CAB) program.

Table 5. Sample Grid B for $110.00 market, $6.00 Choice/Select spread, 55% Choice base.

Table 6. Beef carcass price adjustments for Sample Grid B.

Summary

Although pricing beef carcasses often is perceived as a mysterious process that is only understood by those making the rules, it is actually fairly simple. It is primarily based on two traits, quality and yield. Quality characteristics are those that indicate the eating satisfaction that is expected to be delivered by the beef from that carcass. Yield characteristics are those that indicate the amount of boneless, closely trimmed retail cuts that will come from that carcass. Virtually every carcass pricing index will be derived from one or both of these traits. Most take into account the combination of these two traits with the application of discounts in the case of various defects that lower the value of the product or the efficiency of the process.

Beef producers often comment that they will not change the way they produce cattle until they are paid for it. In reality they are already being paid for it in the form of discounts and overall lowered value of base prices received. Base prices are formed by examining the average value of all cattle processed from week to week. If higher valued cattle are produced, then the base can begin to move up.

Footnotes/References

⁴USDA. 1997. Official United States Standards for Grades of Carcass Beef.
Agricultural Marketing Service, United States Department of Agriculture, Washington, D.C.