By Jerad Jaborek
JBS is one of the major beef packing companies in the U.S. and has a facility located in Plainwell, Mich., with the capacity to process approximately 1,800 to 2,100 cattle per day. The JBS Plainwell facility has been known to primarily process fed-Holstein cattle. However, the declining beef cattle population has caused a shortage of fed-cattle available for processing across the U.S., leading beef packing facilities searching for cattle to process. Beef packing facilities have had to pivot to purchase different types of cattle to fill rail space and keep up with consumer demand.
The composition of U.S. cattle continues to change due to economic pressures and the desire to meet consumer demands for a high-quality protein. As a result, we have seen USDA beef quality grades improve, shifting from fewer cattle grading USDA Select and more cattle grading USDA Prime and Choice (Figure 1). Carcass weights continue to increase (Figure 2), thereby increasing efficiency by creating more pounds of beef per animal. Additionally, genetics have changed, with the U.S. beef industry seeing an influx of beef × dairy crossbred cattle replacing the fed-cattle (i.e., primarily Holstein steers) being produced from the dairy herd (Figure 3).
Consequently, as the standard or average desired beef carcass composition changes, the premiums and discounts assigned to beef carcasses must also change. JBS has offered new contracts to cattle feeders to reflect these changes. In 2021, the High Energy Holstein - Holstein Cross contract was created due to the growing supply of beef × dairy crossbred cattle entering the beef supply chain. Fast forward, the selection of beef genetics being used to create beef × dairy crossbred cattle started to improve and JBS created two contracts for ABS InFocus and Select Sires ProfitSource fed-beef × dairy crossbred cattle. In 2024, JBS created two new contracts, an 80% Native contract and an 80% Holstein contract. The intent being for the 80% Holstein contract to replace the original High Energy Holstein contract beginning in 2026.
The JBS Holstein Contract Comparison Tool was created in 2021 in response to the High Energy Holstein - Holstein Cross contract being provided as another option for cattle feeders to market Holstein steers. Now, as a result of the other new contract options JBS has available, the JBS Contract Comparison Tool from MSU Extension has been updated to include all six contract options. The JBS Contract Comparison Tool allows users to input payout report data from a particular load of cattle or create hypothetical loads of cattle and see how the prices would compare for those cattle on the various contracts.
Once the data for a particular load of cattle is entered into the JBS Contract Comparison Tool, summary statistics will be calculated for the weight of the cattle, quality grade, and yield grade. Each contract displays a live and carcass contract price based on the CME futures price and the contract basis. It is important to note, depending on the month of the year, the 80% Native contract basis changes from $0/cwt to $2/cwt (June through September) to $4/cwt (May). Premiums and discounts are applied based on hot carcass weight, quality grade, yield grade, and other potential factors (i.e., animal age). Net revenue is a summation of the gross revenue for the carcass weight of the marketed cattle at the carcass contract price and cattle sold at the cash price, carcass weight discounts, load size adjustments to total contract weight, grid premiums and discounts for quality and yield grade, freight/trucking if applicable and a beef council fee. The net revenue received for cattle sold on each contract is compared to determine which contract optimizes the income received for a particular load of cattle.
Takeaways
The impact of the contract basis and dressing percentage affects whether the income received for a particular animal is greater on a live or carcass basis. If an animal has an actual dressing percentage greater than the contract’s dressing percentage, that animal is worth more on a dressed carcass basis than at the live animal price. However, if an animal has a lesser actual dressing percentage than the contract’s dressing percentage, that animal will be worth less on a dressed carcass basis than at the live animal price. Of the six JBS contracts, the ABS and Select Sires contracts offer the best deal regarding the relationship between contract dressing percentage and basis. For the year 2025, the High Energy Holstein contract will be a better value compared with the 80% Holstein contract due to 10% fewer cattle requiring USDA Prime or Choice quality grades before receiving a discount. The design of the 70 and 80% contracts helps protect against the large discounts received for USDA Select carcasses. The ABS and Select Sires contracts provide greater value compared with the High Energy Holstein – Holstein Cross contract due to a greater premium price for USDA Prime (greater than $10/cwt since 2020) and lesser discount for USDA Select (+$4/cwt). Seasonality of the Choice/Select spread price will affect the severity of discounts received for USDA Select Carcasses.
If you are interested in determining the value of your cattle on the new contract from previous receipts, try the JBS Contract Comparison Tool. The JBS Contract Comparison Tool includes an instructions tab with an example JBS payout receipt to help guide you through data entry. There is a Contract Comparison Tool tab where you will input your own data or numbers from past JBS payout receipts and a Sensitivity Analysis tab to create hypothetical scenarios to determine their effects on the income received. If you have any questions or need any assistance learning how to use the JBS Contract Comparison Tool, feel free to contact Jerad Jaborek, Michigan State University Extension Feedlot Systems Educator.
Source : msu.edu