It's not the final volley signaling an irrevocable value-based revolution, but USDA's recent approval of instrument-augmentation for official yield grades is a market-splitting shot that will likely change the pricing landscape forever.
“This will more accurately measure the value of a carcass, and when you have 40 different buckets of value to place carcasses in rather than four you can pay more accurately for it,” says Tim Schiefelbein, ConAgra (Monfort) manager of value-based procurement. He's referring to new technology that will allow USDA graders to assign yield grades to the nearest tenth of a grade rather than to the nearest whole grade and be more accurate besides.
For perspective, most fed cattle carcasses currently fit into value buckets of Yield Grade 1-4 (out of Yield Grade 1-5). With instrument augmentation, carcasses could be classified as Yield Grade 1.1, 1.2 and so on. So instead of four prices based on yield, there could be 10 times that many.
However, if packers embrace this new technology—ConAgra is currently testing several systems; Excel has already installed instrument systems in each of its plants—Schiefelbein cautions some cattle will likely command substantially higher prices than the average packer purchase price, while others will command substantially less than the average.
Reading Muscle Accurately
“Right now we yield grade carcasses 1 to 5. With this technology we should be able to get to tenths of a yield grade. Anything we can do to get more accurate information back to the producer will help move toward value-based marketing,” says Barry Carpenter, Deputy Administrator of the USDA Agricultural Marketing Service Livestock and Seed Program.
Basically, three of the four components of yield grade—an estimate of carcass cutability or how much marketable meat is in the carcass—are easy to measure. Hot carcass weights are as objective as a scale and both fat thickness and percentage of kidney, pelvic and heart fat (KPH) are measured with amazing accuracy by the trained eyes of graders. But, estimating ribeye size—the other yield grade component—is tough to do consistently with an eyeball and little time.
“You look at graders now, they have 8-12 seconds per carcass to call preliminary yield grade, adjusted preliminary yield grade, KPH, estimated ribeye and fat, as well as look at the maturity and quality of the carcass,” explains James O. “Bo” Reagan, Executive Director of the National Cattlemen's Beef Association (NCBA) Center for Research and Technology Services.
That's where these instruments based upon Video Image Analysis (VIA) come in. “This technology doesn't change the yield grade formula, it just gives us better tools to evaluate the factors,” explains Carpenter. “This technology should give us a very accurate reading on ribeye size and remove a significant amount of error.”
Skinning and Old Cat with Technology
In fact, Keith Belk, Associate Professor of Meat Science at Colorado State University says VIA instruments are proving to be at least 9o percent accurate for measuring ribeye size, compared to actual measures. That's based on several studies CSU conducted for USDA and NCBA
Basically, these VIA systems measure the ribeye then use that measurement along with the hot carcass weight and grader-assessed fat thickness and grader-adjusted KPH to calculate the yield grade.
All told, in various studies, Belk explains graders working at chain-speeds to estimate each yield grade component then calculate yield grade were accurate 68 percent of the time, compared to a gold standard of carcass evaluators who could take as much time as they wanted with each carcass. Yield grade computed by using graders' chain-speed estimates of the yield grade components, but calculated away from the rail was accurate 81 percent of the time. Now, give those same graders an instrument-derived ribeye measurement, let them estimate fat and adjust for KPH and the accuracy level climbs to 93 percent.
In fact, CSU has discovered similar gains in accuracy by using both of the most widely tested VIA instruments so far—the Australian VIAscan™ system and the Canadian CVS™ system.
“With this system in place, graders will be able to more accurately estimate yield grade to the nearest tenth than they can currently to the nearest whole grade,” emphasizes Reagan.
Incentives for Precision
“In truth, this is what the industry has been asking for over at least the past 10-15 years—an equitable determination of value,” says Belk. “This is an equitable system that should encourage trust. The packer doesn't gain more than the producer and the producer doesn't gain more than the packer.”
Actually, a pile of lost dollars says packers will take a hard look at implementing an augmented system and that producers will have an opportunity to gain.
“You will be able to pay more correctly for value and send those signals back to the producer, but initially the bigger incentive for a packer is how it could help us sort carcasses and manage fabrication,” explains Schiefelbein. “You will be able to see exactly what the trimmable waste is in the carcass and be able to sort carcasses more accurately into various programs.”
For perspective, based on some preliminary economic analysis at CSU, Belk says, “If packers slaughtering 1,500-5,000 head per day were to use instruments to assign yield grades to the nearest tenth, without doing anything else, we estimate they could recover $4-$5 per head immediately just because of accuracy and sorting capability. The kicker is with a little more sorting, such as for hindquarter and forequarter fabrication we estimate there is an aggregate of $30-$40 per head laying on the table.”
Moreover, the per-head cost should remain the same, at least where USDA is concerned.
Currently, USDA—which grades about 95 percent of all the fed cattle in this country—charges a twentieth of a cent per pound, or about 38 cents per head. “We don't envision that using this system will require any more manpower or any less. It's probably cost-neutral from our standpoint.”
Conversely, Reagan says packers are concerned about the lack of VIA competition. At this stage of the game only two systems are in the running for USDA approval and no one knows what the ultimate cost per head will be for installing the instruments and using the necessary software.
As for producer incentives, Belk says, “This will be good for the producers who produce the better cattle because they won't be subsidizing the poorer cattle anymore, while those producers with the poorer quality cattle will be penalized.”
Given that, Schiefelbein points out, “When you add variation to the prices of cattle from high to low it becomes more important to know which ones are on the high side and which ones are on the low side.”
In other words, incentive grows to know more specifically how cattle perform beyond the pasture. So, it's not a stretch to think the advent of instrument augmentation may also accelerate the pace of individual cattle identification. “I think this information is most valuable when it can be traced back to origin and used to make management decisions,” says Carpenter. “The more traceable the information is, the more benefit there is to it.”
Changing Values Fast?
Keep in mind, this is an augmented system where instruments are added to the equation, rather than taking people away. Reagan says, “People hear we are making a move toward instruments and they think we are doing away with graders. We're talking about instrument augmentation that provides information to enhance the grader's decision-making ability.” And, vice versa.
As accurate as these instruments are, Carpenter explains they don't yet account for carcass variation due to things like mangled ribeyes, which graders must account for in arriving at an accurate grade.
“Everything USDA is discussing will infinitely improve the accuracy and repeatability of the current yield grading system,” emphasizes Belk.
With that in mind, Carpenter says USDA is working aggressively to make the system available. “It's not unrealistic, from out perspective, that this system would be ready to implement by the spring of 2001.”
As well, Reagan believes this is part of the value-based journey rather than a destination. He explains, “Even though we are making strides with yield grade, we see this opening the door to go on and look at systems that could estimate marbling, quality grade, tenderness or systems that could even segment carcasses into specific brands.”
Carpenter agrees, explaining, “The key is that this is not the end-all. It's the first step in a major move toward value-based marketing. It will be as beneficial to the industry as the industry will allow it to be by getting the information back to producers.”
With that said, if packers do embrace the new system, Schiefelbein believes the yield grading transition will occur over time rather than suddenly. At least in Monfort's case, he says producers will be given time to adjust.
Plus, Schiefelbein explains, “It's important for producers to keep in mind that the same kind of cattle doing well in the current system will still do well in this new system. This won't alter the trend of what is desirable and has value.”
(Reprinted with permission from Beef December 2000)