Quality Pays Double with Paul Dykstra

Quality pays. It’s been the Certified Angus Beef brand’s motto for some time, but many a producer has wondered over the years…does it really? Results of an ongoing survey say a resounding yes. CAB's Paul Dykstra shares with both Kasey and Miranda that CAB recently crunched the numbers and tallied the premiums to find not only does quality still pay, it is paying even more these days.

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Hello, and welcome to Angus at Work. I'm Kasey Brown. Quality pays. It's something we hear a lot, and it's been the Certified Angus Beef brand's motto for some time. But I'm sure many producers have wondered over the years: Does it really? Results of an ongoing survey say, yes. Paul Dykstra has been with the CAB team for two decades, and he shares that they recently crunched the numbers and tallied the premiums to find that not only does quality still pay, it's paying even more these days.

Kasey Brown:

Today, we have a surprise podcast episode, because we decided some good news just can't wait. And as a double bonus of sorts, we've got longtime CAB communicator turned Angus Media editor, Miranda Reiman, co-hosting with me for the first time. So let's dig in.

Kasey Brown:

Well, we are doing a special episode today. We get to talk with Paul Dykstra from Certified Angus Beef. He is the director of supply management and analysis. We've got some really good news about CAB, and he's going to tell us all about that. Paul, how are you doing this morning?

Paul Dykstra:

Doing well, Kasey. Thanks for having me.

Kasey Brown:

Good. Well let's just give everybody just a quick background. What's your background in the beef business?

Paul Dykstra:

Well, I have a lifetime in the beef business, starting with my youngest years on my dad's commercial cow-calf operation in western Colorado. But, bringing that up into adult years, I've been with Certified Angus Beef now for 20 years. Most of my working years have been right here at the Certified Angus Beef® (CAB®) brand. But prior to this, I spent about three years at the Meat Animal Research Center in Clay Center, Nebraska, managing the feedyard for that operation.

Kasey Brown:

Paul, we heard that CAB has some good news. Can you tell us about that?

Paul Dykstra:

Yeah, we have lots of good news all the time, it seems like. But, I think today what's most pertinent is the fact that we just conducted our biannual Packer Premium survey. That's a survey that's been conducted now for 24 years. The purpose of that is to simply survey our licensed Certified Angus Beef brand packers to find out how many dollars they have aggregated for premiums, paid back to feedyards or cattle suppliers, if you will, for carcasses that have met Certified Angus Beef brand specs. So it's all aggregated together. The data is simply meant to kind of test, to see if we're getting dollars back in premiums to where they belong — back to the producer sector. We just kind of concluded that survey recently and I’m really excited to report that total is up from two years ago. We reported $92 million in premiums for the year 2019. And in 2021, the number was $192 million. That was a bit of a surprise. But when we look back through some of the data, we kind of start to understand that. It’s certainly good news. I mean, that really is the driving force behind the brand, right? In terms of getting premiums back through the production chain. So it's a very positive thing to share.

Miranda Reiman:

One thing that I noted when I look at that chart is that we often think about premiums coming is maybe things get more scarce. Like there's fewer of them, they cost more. We think about used-car values right now, for example, and other things like that. But really that's not the case with CAB supply chart in tandem with this premium chart. Is it Paul?

Paul Dykstra:

That's true, but we have to look at that really in two separate ways. First of all, yes, we are producing supply collectively as a beef production chain — record volumes of carcasses weekly for the Certified Angus Beef brand. Especially if we look across that timeline for this survey period, this 24 years, growth in the brand supply has certainly been more or less exponential. It's grown tremendously in that period. And I would say, especially in the last 15 years, but nonetheless we've continued to see growth. It's not straightline growth, we're not always every year producing more, but indeed we are at record levels in the last couple years. But, at the same time, demand has grown really strong in the last few years as well, brand recognition has increased with consumers. And so we need more product to supply the chain as well.

Paul Dykstra:

Since we are talking about the last couple of years, we can't discuss this without discussing the backlog of fed cattle and restricted packer production speeds. So even though the totals for the years we're speaking of are large, the amount demanded by end users has also been large and supply has not been adequate to take care of that demand. So it's kind of on two separate ways that we look at the topic. In general, I'd say the premium values that we're seeing are reflective of more of a larger demand than we have supply.

Kasey Brown:

Paul, you talked about that backlog, and we've heard about that quite a lot. Can you explain how that actually helps with higher-quality products?

Paul Dykstra:

Well, the backlog had an unforeseen impact, I suppose, or at least an impact that we had not experienced in modern history with the way fed-cattle outcomes were determined. Because, the number of days on feed were certainly extended for a period of time throughout the backlog, beginning in March 2020, but really experienced wholeheartedly in the summer of that year and beyond out through early 2021. And one could say, we're even seeing some effects through today as well. But the bottom line is that we fed cattle as a feeding sector longer than anticipated, because we simply couldn't get the animals harvested on time. As a result, we saw the cattle with enhanced marbling, but of course, also a larger number of yield grade four and five carcasses. Of course, the latter item there is not positive. And we don't like to see that occur in terms of the amount of waste and the excess fat.

Paul Dykstra:

But again, it was a market force. It could not be changed, and it was no individual's fault that occurred. But what we've also seen following up through the tail end of the backlog, is that as we've had an abundance of finished market-ready cattle on the market, and a restricted ability to process animals through the packing plants, even in the fall of 2021. We saw packers show their preference for the kind of cattle that they wanted to harvest. And when there are multiple pens available on the show list, packers kind of weeded through the pens, and on certain weeks they chose the pens that showed the highest ability to achieve Certified Angus Beef standards. And of course the prime grade, et cetera, really just seeking out the marbling rich, high consumer demand kind of cattle. In doing so, they also, at times, left some of the cattle that appeared to be the poorer grading type cow, they left those cows standing in the pens at times. And that's something we've heard from several sources that observed in the trade last fall.

Miranda Reiman:

So in some ways it's kind of like, I don't know, risk management — untraditional risk management. If you have those high-quality cattle.

Paul Dykstra:

I think quality is always a hedge. It doesn't matter if we're talking about cattle or any other commodity or good, but yes, certainly that applies. If we have the kind of animals in this case that are most preferred by the end user, then when it comes time to offer those up to the market, why, obviously they're going to be the first ones chosen from the list. So I certainly agree. That's true.

Kasey Brown:

We've heard that prices have been changing quite a bit recently. What should cattleman think of ahead of time so that they can get those better prices?

Paul Dykstra:

Well, I think back at the cow-calf sector, I think it just stands to reason that we ought to be choosing genetics that fit our customers’ needs, right? And so as more cattle feeders merchandise fed steers and heifers on some kind of a value-based grid or a formula that rewards carcass quality, we'll see continued demand by feeders for groups of calves and feeder cattle that will hit the carcass targets. Of course, that carries through to the packer and then on down to the retail and food service sector, that demand is throughout the chain. So as cow-calf producers, first of all, we ought to be placing some selection emphasis on carcass traits. Not that it has to be the first item on our list. We have a number of needs in our genetic package of course at the ranch, but let's place some emphasis on marbling, some product yield, keep those levels above average and striving for excellence with everything else in mind. And that way we're kind of setting the stage with the calf crop that will result, that will be preferred by those on down the supply chain. And same thing for feedyards of course, procuring cattle that have some carcass merit background specific to this discussion about Certified Angus Beef and carcass outcomes. And I think it just makes good sense to procure animals that have a higher propensity to hit the targets.

Miranda Reiman:

That's probably a good point. Paul, I'm probably close enough to this topic that I assume folks all know exactly we're talking about when we say to hit these Certified Angus Beef specs, and we can put a link in our show notes, of course (https://cabcattle.com/about/faqs/). But, could you give us just the top four reasons that cattle might not make CAB or maybe the top areas for a producer to focus on?

Paul Dykstra:

Sure. Far and away, the most important of our 10 carcass specifications, is marbling. Now at the same time, all 10 of those specs are very important to product quality. But as we look at the animals that are eligible for the Certified Angus Beef brand, nine out of 10 times, the animals that are unsuccessful when that carcass goes across the grading stand, they're unsuccessful because they lack sufficient marbling. And that's that upper two thirds Choice up into Prime requirement. So you have to say, marbling is the trait of focus here, but the additive, maybe two or three other items that are under control of the production sector, and can be impacted through decision making. We look at carcass weight, of course, in the modern era, as we set all-time record-high carcass weights, that's very important. And we can't, for our brand, we can't exceed 1,050 pounds.

Paul Dykstra:

And we do see at times of the year, when carcass weights are at their heaviest, a number of animals exceeding that. So we need to watch that and get cattle marketed on time. And at the same time, recognize that there are economical reasons to feed cattle to heavy weights. But as well, back fat thickness exceeding one inch, I always say one inch is certainly not a target. It's the maximum allowed for the brand. So we see some animals fall out in the last couple years, specifically when we have had to overfeed cattle or feed them longer than we had anticipated. That's been a problem and ribeye size, and we've got that 10 to 16 square inch window of acceptability for the brand. We see in this timeframe again, carcasses that are exceeding that 16 inch high maximum more often than we'd like. So those three items beyond marbling are important, but marbling again, far and away, the most impactful to the success of any pen or load of cattle when it comes to making the brand.

Miranda Reiman:

So if producers have the kind of cattle that they think will be in demand by that feeding sector, the ones that are capturing these premiums, what are some of the ways that they can maybe act on capturing that?

Paul Dykstra:

I think it's one of the all-time challenges of the cow-calf sector: is to get what we believe we deserve for our calves, right? Most of us, if we have that opinion of our own scenario, we tend to think that we deserve more than the average. Hopefully that's the case for anyone. So to achieve that, you've got to get at least one, but preferably two, three, four, five bidders also believing in that story, that our calves are indeed above average and worth the extra premium that they might pay to purchase them. So that's first of all, a relationship business. I feel like we kind of beat this one over the head, but it's not going to go away. The more people that we can know as marketers of feeder cattle, the better off we'll be. It's a networking game, not just a game, but a sincere effort to build trust and relationships across the sectors of the production chain.

Paul Dykstra:

But after that, of course, kind of a résumé builder is very key. And we see examples of that a lot in the market today where cow-calf folks, or even stocker operators may get involved in a program such as AngusLinkSM, pretty good example from the Angus camp, right? Where we can verify certain claims of whether genetics to that Genetic Merit Scorecard® or whether it be some other production claims under the umbrella of the items offered under AngusLink. Just one example, I think one very good avenue for folks to pursue a résumé-building exercise for their calf crop. And a lot of these things too, can be done just on your own and describing genetics and describing management for the marketplace and doing an exemplary job of getting that information in the hands of those potential buyers. And that's very key, along with of course, the general marketing type information. So lots of good stuff there and ways that folks I think can push the marketing envelope a bit beyond just thinking of that on sale day itself.

Kasey Brown:

Excellent. Paul, you mentioned some really great tips of what we need to think about, but one other thing as we're marketing our calves to reach these premium, they have to be better than that plant average, is that correct?

Paul Dykstra:

That's true. Packers don't tend to want to pay a premium for a load or a group of cattle that are below average. So, they're always taking a look at what their weekly buy is or what their average in the plant might be for the week of across all of the carcass trades. So as carcass quality has improved over time, and again, I'd say dramatically in the last 15 years, the bar continues to be higher and higher each year. We've seen that happen. And we've talked about it many times previously through our communication that excellence is even more excellent each year. So we've got to continue to press on and look at percentages of say CAB qualified carcasses or Prime carcasses, whichever of the quality measures you want to look at. Those numbers need to be high and higher every year to continue to press the envelope from a premium perspective.

Kasey Brown:

So the quality target keeps moving up, but the premiums are there to reward people who do the extra work?

Paul Dykstra:

Yeah, the premiums are certainly there. Again, the bar is higher, so we need to achieve a little higher level. For instance, today about 38% of eligible carcasses reach the Certified Angus Beef standard. So depending on which packer we're speaking of, they certainly do not all have the same pricing structure. At some packers, you need to be able to exceed that number before you start to achieve premium. Now, once that 38% for instance, is surpassed why the premiums are quite healthy, but you sure have to beat average in that case. But we've been real fortunate. Again, let's be honest about the fed-cattle market the past couple years has been very tough, and the feedyard share of the wholesale carcass dollar has been lower than any of us would like to see. And I think we all kind of understand some of the dynamics behind that. But with the base price discovery aside, this premium discussion has been exciting.

Paul Dykstra:

Because we've seen in the last year, a record wide Choice-Select spread. Some of all time highest Certified Angus Beef premiums in any given week for the year, and the top end of that average premium range for CAB carcasses. Also, the widest we've seen and then includes prime as well. We can talk about prime and the records set on prime premiums. So, there is definitely some very positive outcome that we've seen in the last couple of years.

Kasey Brown:

That's really terrific information, Paul. And if folks want to stay updated on that on a regular basis, you author that CAB Insider. How can folks make sure that they get access to that or get that in their inbox?

Paul Dykstra:

Well, they can just jump on our website, CABCattle.com and follow the news link there toward the Insider, and just click in and give us your email. We'll send it direct to you every two weeks, and we won't sell your email address either. So you can get some good news from us, hopefully relevant to the cattle industry every couple weeks.

Speaker 3:

All right. Well Paul, I think that's a perfect way to wrap this up, but we all know that the cattle business is really the people business. So would you share something good that's happened, whether it's personal professional or both?

Paul Dykstra:

Oh gosh, I just feel pretty blessed. I guess from a personal perspective, it's just nice to live in a country where we are, I think relatively safe, right? With all the things going on in the world. And for those that have traveled internationally and seen other societies that maybe not as fortunate. For me personally, to have a warm, safe place to live and a family around me and some cows take care of outside of my day job, that's actually quite a wonderful place to work, here at Certified Angus Beef. I don't know what else more I could ask for.

Kasey Brown:

All right. That's great.

Kasey Brown:

You can find more information on CAB premiums in the Angus Beef Bulletin EXTRA, but the price primer is the theme of this summer's Feeder-Calf Marketing Guide. So get excited for this year-round resource that will hit mailboxes in June. Make sure you're subscribed to all of our Angus Beef Bulletin publications by visiting angusbeefbulletin.com/extra. That's E-X-T-R-A. If you're finding these podcasts helpful or interesting, we would love it if you would subscribe, leave a rating or simply share it with other profit-minded cattlemen. This has been a bonus episode of Angus at Work. Stay tuned April 13th for our next one, with Miranda Reiman and Ron Scott. Thanks for listening.