Final Report

Industry Implications and Economics of Implementation of Lamb Instrument Grading

Submitted to the American Lamb Board, Denver, CO

March 2014

T.W. Hoffman1 D. R. Woerner1 K. E. Belk1

1Center for Meat Safety and Quality, Department of Animal Sciences, Colorado State University, Fort Collins, CO 80523-1171; Phone: (970) 491-5826

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TABLE OF CONTENTS

USDA LAMB GRADING HISTORY 2

USDA LAMB GRADING APPLICATION 3

LAMB INSTRUMENT GRADING IMPLEMENTATION 6

VIDEO IMAGE ANALYSIS INSTRUMENTATION 7

LAMB INDUSTRY GRADING EFFECTIVENESS/BENEFITS 9

OPTIMIZING COOLER MANAGEMENT 10

OPTIMIZING FABRICATION SCHEDULING 12

LAMB PRODUCT CONSISTENCY AND PRODUCT SPECIFICATIONS 14

LEAN MEAT YIELD 16

LAMB VALUE BASED MARKETING 20

USDA GRADING COSTS 23

PLANT PERSONNEL COSTS 25

INDUSTRY ECONOMICS 26

INDUSTRY IMPLICATIONS 30

REFERENCES 33

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Industry Implications and Economics of Implementation of Lamb Instrument Grading

USDA LAMB GRADING HISTORY

Official United States standards for grading of lamb, yearling mutton, and mutton carcasses were developed and made effective on February 16, 1931. The initial grading classifications were the precursor to what are now USDA Quality Grades, and included streaking of fat in and over the flank, fat inside the rib cage (rib feathering) and firmness of lean and fat. Revisions and/or amendments to the standard were completed in 1951, 1957, 1960, 1969, 1980, 1982, and 1992. Industry organizations requested grading of lamb and mutton carcasses to be suspended prior to the 1960 changes that reduced the conformation and quality requirements of USDA Prime and Choice grades; however, this did not come to fruition. Research on the cutability differences of lamb carcasses led to incorporation of yield grade standards that were used to predict yield of boneless, closely-trimmed retail cuts from the leg, loin, rack and shoulder, and became effective March 1969. An update of criterion of conformation and the addition of muscling in quality grade classification was completed in 1982. The most recent update, effective in 1992, modified yield grade factors to the single measurement of adjusted fat thickness over the ribeye at the 12th-13th rib interface, and also coupled Yield and Quality grades such that the two grades must be administered jointly to carcasses (USDA, 1992). The USDA Quality Grade designation includes evaluation of conformation and “palatability-indicating characteristics.” USDA Yield Grade classification is based on a measure of adjusted fat thickness to predict boneless, closely-trimmed lean yield from the leg, loin, rack, and shoulder (USDA, 1992). Grading of lamb carcasses is voluntary; it is requested and paid for by individual lamb processing plants. The ability of the USDA-Agricultural Marketing Service (AMS) to assign grades to lamb carcasses provides a system to ensure credibility of lamb and lamb product marketing classifications for purchasers and consumers. However, it can be argued that neither Quality nor Yield grade are effectively utilized by the industry to differentiate carcass merit or value of either sheep that enter the supply chain, or lamb product that is merchandised from the harvest facility.

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Weight is the current market driver of lamb carcasses. Lamb carcasses may be merchandised within ranges from USDA Yield Grade 1 through 4 at similar or the same value. Despite cutout value difference, pricing is not currently representative of carcass yield. Lamb carcass purchasers often request carcasses that do not exceed a specified percent of USDA Yield Grade 4 and/or 5 carcasses in their purchase agreements. There are only a few foodservice high end purveyors that request USDA Prime lamb cuts, and predominantly only from the rack and loin. Since USDA Quality Grade designation of young lamb of either USDA Prime and Choice can be considered inconsequential to determination of lamb flavor, juiciness, and tenderness, future classification of lamb carcasses on saleable meat yield determined by lamb instrument grading may be the most suitable basis for value differentiation to ensure the lamb trade and consumer a more consistent product size and leanness. Information exchange is critical to sending market signals both back to sheep producers and forward to the retail, foodservice, and export trade. The current system has been ineffective in identifying value differences based on lean meat yields. Future implementation of lamb instrument grading to augment USDA Yield Grade classification would assist by driving the industry to reward the production system for producing a uniform, consistent product and truly meeting the expectations of the trade and consumers; thus, adding benefits to the sheep/lamb supply chain. Research from 70 years ago stated “standardization and acceptance of lamb carcass grades on the basis of value and the use of such standard in the daily purchase of live animals seems desirable. An investigation should also be made of the relationship between profit and grade in lambs as it applies to the breeder, feeder, and packer” (Johnson, 1944).

USDA LAMB GRADING APPLICATION

Federal lamb grading is voluntary in the U.S. and is paid for by lamb packing establishments via assessment of “user-fees” by USDA. The Agricultural Marketing Service (AMS) provides grading services for an hourly fee to packing plants based upon level of commitment and amount of grading requested. As of December 27, 2013, 2,087,000 head of lambs were slaughtered in 2013 in federally inspected slaughter facilities. Lambs are required to be stamped simultaneously with both USDA Quality and Yield Grade designations. However, lamb packing facilities can choose to not offer the lamb for grading or specify that graders assign only classification to USDA Prime and Choice lambs. When graders are presented carcasses that do not meet preferred specifications such as USDA Good, these carcasses are often not graded and termed no-roll by the industry. Examples of carcasses that do not meet the USDA Prime or Choice grade include carcasses with characteristics such as spool joints indicative of advanced maturity, lambs that are too lean, too poor of conformation, or lambs that exhibit “bucky” conformation. The majority of foodservice and retail outlets require USDA grading, and the 4 to 7% no-roll carcasses are merchandised through other outlets.

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Seasonality and availability of the supply of lambs over recent years has played a role specifically in weight (as demonstrated by the back-up of lambs on feed in 2012) and USDA Yield Grade of graded lamb carcasses, whereas the U.S. proportion for USDA Quality Grade has remained relatively unchanged. Since 2000, a decreasing number of lambs slaughtered at federally inspected plants have been assigned USDA Yield and Quality Grades. It should be noted that lambs harvested at the three largest U.S. processing facilities make up a majority of lambs that are harvested at federally inspected lamb plants, of which nearly all are USDA Graded. Thus, lending the question to what extent small to mid-size plants are currently utilizing federal grading. Lambs harvested in 2013 were comprised of more Yield Grade 1 and 2 carcasses and fewer Yield Grade 3, 4, and 5 carcasses compared to lambs harvested in 2012, suggesting that the market supply of sheep is now more current (Table 1). In addition, the decline in the percentage of lambs graded supports the change from traditional marketing to more lambs being marketed in non-traditional channels. More and more sheep producers are either marketing their product directly or selling “hot-house” lambs that are younger and lighter live lamb weights. Historical USDA Yield and Quality Grade data of sheep classifying as lamb at federally inspected lamb processing facilities show grade comparisons from 2011 to 2013 in Figures 1 and 2.

Table 1. USDA Quality and Yield consist from 2000 to 2012.

USDA Quality Grade % of Federal Slaughter Lamb

USDA Yield Grade

Year Prime % Choice % YG 1% YG 2% YG 3% YG 4% YG 5%

2000 6.1% 93.9% 86.6% 7.0% 43.3% 40.5% 7.9% 1.3% 2001 6.0% 94.0% 88.4% 4.3% 35.9% 42.9% 12.9% 4.0% 2002 5.5% 94.5% 85.3% 6.2% 42.4% 40.1% 9.0% 2.2% 2003 6.4% 93.6% 85.0% 5.0% 37.7% 43.8% 11.2% 2.2% 2004 5.8% 94.2% 84.0% 4.5% 35.1% 46.1% 11.9% 2.4% 2005 7.3% 92.7% 81.5% 5.1% 32.5% 46.8% 12.5% 3.1% 2006 8.1% 91.9% 79.7% 4.2% 32.1% 47.2% 13.3% 3.3% 2007 7.8% 92.2% 79.2% 4.2% 32.5% 48.1% 12.2% 3.0% 2008 9.0% 91.0% 77.4% 4.6% 31.5% 47.1% 13.6% 3.1% 2009 9.2% 90.8% 74.3% 4.0% 33.6% 45.0% 13.6% 3.7% 2010 7.0% 93.0% 73.9% 4.6% 37.8% 42.6% 12.5% 2.5% 2011 7.2% 92.8% 74.2% 5.7% 32.7% 42.7% 15.7% 3.3% 2012 8.4% 91.6% 70.9% 5.1% 28.7% 36.2% 17.4% 12.6% 2013 8.7% 91.3% 68.2% 7.2% 36.4% 35.3% 13.6% 7.5%

Source: (USDA-AMS, 2013; USDA-AMS, 2014).

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Figure 1. USDA Lamb Yield Grade Consist Comparison for 2011 to 2013. (Source: USDA-AMS, 2014).

Figure 2. USDA Lamb Quality Grade Consist Comparison for 2011 to 2013. (Source: USDA-AMS, 2014). Previous changes in official USDA lamb grading standards have elicited debate regarding implementation and optimizing the usefulness and application of the service. “The primary purpose for grading is to group product into homogeneous value characteristics” (Wellborn, 1961). USDA meat grading serves to not only separate an existing quality and yield consist, but also serves as product specifications that should be used to shape production management decisions.

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The variability of breed, age, growth rate, and production method lead to substantial differences in the weight, muscularity, and leanness of lambs harvested in U.S. lamb processing plants. “Grading of any commodity is justified whenever it is sufficiently heterogeneous that dividing it into more homogeneous lots will better serve the needs of the users. The entire industry would agree that some sorting or grading is necessary; the conflict revolves around who should do the grading and what qualities should be put in what grade” (Feinup, 1961). Naude et al. (1990) reiterated the functional reason for lamb grading and differing carcass specifications stating that “grading has to group carcasses in order of excellence in accordance with the needs of the day.” The target for “ideal” lamb carcasses will continue to evolve and change based on consumer requests and preferences, but the responsibility of assigning carcass classification is an integral element in promoting consistency and striving for a more preferred lamb product.

LAMB INSTRUMENT GRADING IMPLEMENTATION

A real-time evaluation of lamb carcass attributes pre-chilling provide side and rear view images of lamb carcasses as well as simultaneously a predicted USDA Yield and Quality Grade, projected lamb primal cut yield, and a calculated ovine carcass cutability percent. Data collected with the E + V VSS 2000 system can enhance information that result from consumer decisions further meeting consumer demand targets for product characteristics, and can lead to a matrix for incentives and disincentives that translate into differentiation of lamb carcass value. Currently, there is very little, if any, price difference of lamb carcasses USDA Yield Grade 1 through 4, unless purchasers designate a particular specification or live lambs are purchased on a value-based grid that differentiates yield grades. The pricing mechanism of lamb carcasses and cuts is dependent on each company’s product specifications. An example of purchase specifications for a buyer would be lamb carcasses that are primarily USDA Yield Grade 2 and 3, and not to exceed 15% Yield Grade 4 and 5% Yield Grade 5 of the total. Additionally, only a select group of customers request USDA Prime, whereas the majority of lamb is classified as USDA Choice. Consequently, lamb carcasses may be merchandised as USDA Choice or higher. The U.S. sheep and lamb industry has taken initial steps to provide lamb instrument grading as an application of USDA grading standards to lamb carcasses produced in American processing facilities. Steps to implement lamb carcass instrument grading in U.S. lamb plants are ongoing. A joint collaboration between the American Lamb Board, National Sheep Industry Improvement Center, and the American Sheep Industry Association has been underway since October 2013 to compare instrument assessment of USDA Yield and Quality Grades to the established grade standards. A study was conducted by USDA-AMS to approve the implementation of instrument grading at the JBS-Greeley lamb plant in conjunction with JBS Lamb Division and Mountain States Rosen during October and November 2013. “The use of instrument grading provides for the opportunity to reduce variability in the subjective application of yield grades to lamb carcasses, improving the predictability of the saleable cuts and the ability to establish value-based returns on quality lambs” (ASI, 2013).

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A report by the National Academy of Sciences (2008) identified a shortcoming of lack of a system to quantify and assign value in the U.S. lamb industry and stated, "Developing a system that accurately assesses value on which packers and producers/feeders can agree and trust will be a major challenge. Whatever system is developed will likely be automated and have the capability to uniformly assess carcass value from processor to processor and from day to day within a processing plant. Such an automated system will have to fit into current plant designs and must be in keeping with current processing plant line speeds" (Williams et al., 2008). Additional insight from Williams and colleagues’ conclusions noted that “In addition to pricing issues driven by the market structure, the current pricing system rewards producers for weight rather than value of the lamb meat, which leads to a persistent problem of excess fat on lamb carcasses. Numerous modern tools exist to improve the assessment of the value of lamb carcasses, but they require an investment by the industry” (Williams et al., 2008). The first of four industry high level goals highlighted by the American Lamb Industry Roadmap Project is “Product Characteristics.” In order to reach the goal of improving product characteristics, The Hale Group identified the objective to “Install Electronic Grading at Packing Plants.” Implementation of lamb instrument grading can provide more detailed information with more accurate predictions of cutability much like what is currently done in the beef and pork industries (The Hale Group, 2013). These data can then be used to communicate value throughout the supply chain and be an instrument for price discovery.

VIDEO IMAGE ANALYSIS INSTRUMENTATION

Although video imaging technology is and has been available, unfortunately the U.S. sheep and

lamb industry has been slow in its implementation. It should be incumbent on all segments of the industry to embrace this technology that has the potential to more accurately identify carcasses that have value attributes consistent with premium demand criteria. Dr. C.J. Lupton (2008) stated that “Several technologies developed by meat researchers are expected to influence the industry in the near future. Methods for predicting lamb carcass fabrication yields (e.g. Cunha et al., 2004) and proportion of red meat (Brady et al., 2003) of warm carcasses have been evaluated by using video image analysis in real time. This technology appears to have the potential to predict carcass value accurately, a prerequisite to a value-based lamb marketing system” (Lupton, 2008). Research on video image analysis technology has suggested that the technology can objectively measure carcass dimensions and predict carcass composition (Wood et al., 1991; Jones et al., 1995; Stanford et al., 1998; Belk et al., 1998; Cannell et al., 1999; Cannell et al., 2002). Colorado State University researchers (2003) evaluated the Lamb Vision System (LVS; Research Management Systems USA, Fort Collins, CO) and determined that the LVS, combined with hot carcass weight (HCW), was a more accurate predictor of boneless red meat yield than on-line whole number, expert whole number, or expert nearest-tenth USDA yield grades (Brady et al., 2003). “The ability of LVS + HCW to predict

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yields of wholesale cuts suggests that LVS could be used as an objective means for pricing carcasses in a value-based marketing system” (Brady et al., 2003). Measurements included carcass length, groin to leg length, carcass area and width measurements, leg area and width measurements, and groin angle measurements. These measurements of size and shape of carcass are utilized to determine “degree of muscularity, and relative proportions of fat and lean trim” (Brady et al., 2003). Regression models were developed that account for 77, 65, 70, and 87% of the variation in weights of shoulders, racks, loins, and legs, respectively (Brady et al., 2003). Even though inclusion of ribeye area measurement to the model improved bone-in saleable meat yield prediction another 7.7%, this is time-restrictive and not feasible in the commercial setting. Further research of Cunha et al. (2004) compared USDA Yield Grade data collected from both whole carcass and 12th rib interface images. USDA graders assigned on-line Yield Grade and predicted 59 and 58% of saleable meat yield, and subprimal meat yield, respectively. Hot carcass images measured the dimensions and angles of a lamb carcass (Figure 3). Incorporation of the LVS hot carcass camera accounted for 68 and 62% of the variation of saleable meat, and subprimal meat yield, respectively. The combination of the hot carcass camera and cold carcass camera equations explained the greatest amount of variability of 72% of saleable meat yield and 66% of saleable meat yield and subprimal meat yield (Cunha et al., 2004). This research suggested that accuracy of grade placement, and their prediction of carcass yields, is improved via use of instruments grading compared to grades that are applied by USDA graders.

Figure 3. Carcass outline with leg widths, groin angles, and maximum/minimum referenced widths. Taken directly from (Cunha et al., 2004). Current USDA research is evaluating effectiveness and implementation of the E + V VSS 2000 system. The E + V VSS 2000 system is a technology developed in Germany that has the capability to automatically grade and classify sheep and lamb hot carcasses. The instrument is comprised of two camera systems that automatically acquires carcass side and rear view, is integrated into the slaughter line, and can perform at line speeds up to 800 carcasses per hour; much faster than current industry practices. Image data are evaluated using special image processing software (Figure 4). Information can be produced by the VSS 2000 system includes: conformation and fat class, weight and yield of the most valuable cuts, and derivation of sort criteria (Neto, 2011).

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Figure 4. Screen image of a single lamb carcass with rear and side view taken by E + V VSS 2000 System.

LAMB INSTRUMENT GRADING EFFECTIVENESS / BENEFITS

Upon approval for use of the E + V instrument grading system technology by USDA-AMS, and

with a greater understanding of how accuracy and precision can be enhanced, using lamb instrument grading to assess lamb carcasses may be a reality in the near future. Objective measurements have been shown to be a tool in assessing USDA Yield and Quality Grades to provide reliable information throughout all segments of the marketing chain. This technology has the potential to communicate more accurate and in depth information to sheep producers and to provide packing plants and fabrication

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companies with more predictable yield analysis, and inevitably, provide the missing link to assigning value to lamb carcasses in an industry that historically has been weight driven. Furthermore, accurate projected cut yields for individual lamb carcasses would allow processors enhanced inventory control, the ability to determine the ‘correct’ fabrication style for each carcass to optimize merchandizing value, and improve product consistency and customer satisfaction. Overall, the E + V VSS 2000 system will collect carcass attribute factors that can be conveyed back to sheep producers to provide a benchmark of current lamb yield and quality. Instrument grading would provide valuable information of carcass merit; if, and to what extent, this data can improve the lamb supply chain profitability is next up for debate. A New Zealand company has installed a lamb instrument grading system that they use for in-plant sorting and carcass classification (Burtt, 2014). Additionally, Meat and Livestock Australia teamed with Australian companies to promote instrument grading in lamb processing plants, but with no known current usage. The E + V system has been officially certified by regulatory agencies in Ireland, but financial crises and low sheep prices have limited further implementation. Recent cooperation between the Canadian Lamb Producers Cooperative, Agriculture and Agri-Food Canada, and Viewtrak Technologies, Inc. are collaborating to develop a new Canadian lamb meat grading system. Their tentative plans include implementation of electronic grading systems in two lamb plants, one in Ontario and one in Alberta in the fall of 2014 (Blair, 2014).

OPTIMIZING COOLER MANAGEMENT

A primary reason for implementing lamb instrument grading is processing plant internal efficiency. Plants in the U.S. have not capitalized on the opportunity to sort the right lamb carcasses to fabrication styles that improve consistency of product, flow and timing of fabrication, and maximizing cutout values for lamb. The beef industry has adopted sorting carcass to improve channel specific marketing, product differentiation, and establishing value attributes that can reward producers and capture improved marketing margins. Lamb processing plants purchase a number of lambs and fabricate as necessary to meet current specifications requested by lamb purchasers and market channels.

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Lamb carcass assessment instruments are capable of assigning USDA Yield Grades to lamb carcasses at line speed of processing plants, as well as predicting yields of individual cuts from each carcass. Currently lamb carcasses are sorted by a combination of harvest lots, carcass weight, and/or USDA Yield Grade in the sales cooler. Dependent on company sorts of either just harvest lot or a more specific sort including USDA Yield Grade and weight will determine the expected variations in muscle to fat and muscle to bone ratios that creates inconsistency in the resulting boxed products. Additionally, a sort is required to differentiate carcasses by USDA Quality Grade. Also, USDA Yield Grade 5 carcasses are commonly sorted to a specified rail. Sorting of all lamb carcasses as they enter the cooler by both hot carcass weight and USDA Yield Grade and/or other identified attributes would allow more efficient use of resources, a more consistent end product, and would allow plants to determine how each carcass should individually be fabricated to maximize aggregate carcass cutout values. In order to maximize efficiency and cooler management, an employee should be positioned to sort carcasses as they enter the cooler from the harvesting floor to reflect more homogenous value (both quality and yield). The beef industry utilizes automated sorting that assigns carcasses to a specific rail based on USDA Quality and Yield Grades and other specifications. Previous research evaluated expert USDA graders’ capability of determining yield and quality grade factors of hot lamb carcasses shortly after processing and before entry into chilling areas. Peel et al. (2000) concluded that USDA Yield Grades assigned to carcasses by USDA graders on hot carcasses were accurate 59.5% of the time when compared to the same Yield Grades that were assigned by USDA graders to chilled carcasses; currently the industry norm. Yield Grades assigned by USDA graders before entry into a chilling cooler could provide the opportunity to sort carcasses before chilling. However, results of USDA graders’ classification of hot carcass factors including maturity factors, flank streaking, and quality grade were unsuccessful to accurately predict USDA assigned quality grade of chilled carcasses (Peel et al., 2000). There are currently industry practices of a company employee that sorts carcasses entering the cooler into expected USDA Yield Grade that has been noted to be much more accurate than the ~60% prediction and closer to a 90% correlation of assigned USDA Yield Grade classification. With regard to early carcass sorting in lamb plants, Canadian researchers stated that “The next step would be use of…video image analysis, with added advantages of use on-line in warm carcasses, facilitating the early channeling of carcasses to their most profitable and/or consumer desired endpoints” (Stanford et al., 1998). “Hot carcass sorting has the potential to change the standard operating procedure of lamb facilities across the United States” (Peel et al., 2000). Sorting of carcasses as they enter a chilling cooler would allow processors to maintain a running inventory of lamb carcasses by each USDA grade or other specification, and the ability to merchandise an accurate count of carcasses to customers with specific requests and specifications. Improvements in the efficiency of using plant personnel could be realized

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with no requirement to re-sort carcasses following chilling and before fabrication. Additionally, lamb carcasses could be stored for reduced amounts of time in the cooler as processors could ship whole-carcasses to fabricators after USDA grade is assigned entering the cooler (Peel et al., 2000). As a case example, some companies already sort carcasses to meet a customer that is requesting lambs of a certain specification, i.e. USDA YG 2 & 3, Choice. The processer would then be able to have a running count of inventory and be able to evaluate sales, production schedule, and plan the logistics for shipping lamb products to the customer accordingly. The efficiencies of sorting, improvements in product consistency, and improved logistics of timely merchandising and shipment would allow processing plants to ship whole carcass loads to better satisfy customer requests for specified carcass classification. Not all sheep slaughtered at U.S. plants are of young age. Currently, groups of aged ewes are slaughtered at lamb processing plants, but not offered for USDA grading. Ewes produce carcasses with variable muscle composition and fat cover. In fact, carcass that display spool joints based on maturity could be evaluated by the camera vision system on trimness and conformation, and sorted as needed, by the camera vision system as these may not be presented to the USDA grader. A future focus of lamb instrument grading might be to classify mutton carcasses as they enter the cooler and sort them for customer specification without USDA grading designations.

OPTIMIZING FABRICATION SCHEDULING

In the absence of carcass sorting procedures into chilling coolers following harvest, lamb

carcasses are more commonly fabricated via carcass lots and/or carcass weight groups, and only occasionally sorted with respect to expected lean meat yield. Fabricating lamb carcasses into different cutting styles to meet customer requests result in varying time required and daily schedules of personnel, work load, and cost structure. Australian research evaluated lamb carcass characteristics to determine effect on butchering time. As expected, times for two butchers to each fabricate a lamb carcass were significantly different, but more importantly, increasing carcass weight and fat score proved to require greater time for fabrication (Hopkins, 1989; Hopkins, et. al., 1995). Lorenzen et. al. (1997) concluded an increased fabrication time and labor cost to produce boneless and semi-boneless lamb products for retail merchandising. Further in-plant evaluations with larger sample sizes are needed based on the time to fabricate carcasses of USDA Yield Grade and weight classes to fully determine fiscal advantages. Currently, lamb carcasses are sorted primarily by harvest lot and/or carcass weight in the cooler. Addition of fat score, i.e., USDA Yield Grade, in the sorting process would provide a more accurate predictor of time necessary to fabricate a daily number of carcasses. Fabrication styles and consumer preferences would also play a major role in time requirement predictions. Also, a realization of product fabrication scheduling, fabrication methodology, and customer preferences would be independent based on company and therefore, a generalization is challenging (Hopkins, 1989). Neto et al. (2011) summarized cut yield data from 577 fabricated lamb carcasses based on whole-number (i.e. 1, 2, 3, 4, and 5) USDA Yield Grade assigned by expert graders in Table 2.

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Table 2. Wholesale Cut Yields by USDA Yield Grade.

Least square means for wholesale cut yieldsa and trimmed fat from wholesale cuts by expert whole-number USDA Yield Grade

YG 1 YG 2 YG 3 YG 4 YG 5 Rack 5.442b 5.513b 5.415b 5.179c 5.056c Rack fat 1.082b 1.754c 2.278d 2.687e 3.326f Shoulder 13.842b 13.353c 12.928d 12.411e 11.576f Shoulder fat 3.811b 5.076c 5.956d 6.427e 6.912f Denver ribs 2.983b 2.941b 2.931b 2.889b 3.066b Breast fat 2.600b 3.471c 4.083d 4.514e 4.956f Loin 6.658b 6.240c 6.005d 5.658e 5.328f Loin fat 1.350b 1.848c 2.183d 2.636e 2.764f Leg 18.393b 17.390c 17.010c 16.229d 15.160e Leg fat 3.149b 3.955c 4.531d 4.836e 5.598f Flank 1.605b 1.834c 1.896c 1.908c 1.790c Flank fat 1.869b 2.770c 3.670d 3.912d 5.039e Total trimmed fatg 13.864b 18.876c 22.703d 25.014e 28.597f a expressed as percentage of cold carcass weight. b,c,d,e,f Means in the same row with different superscripts letters are different (P < 0.05). g Total percentage of all trimmed fat.

Source: Neto, 2011.

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LAMB PRODUCT CONSISTENCY AND CUSTOMER SPECIFICATIONS

The U.S. sheep and lamb industry has an evident disconnect of information across the supply chain. A lack of transparency and shared information among the supply chain has held the industry back from future progress. Decisions made by seedstock producers, commercial sheepmen and women, and lamb feedlot operators are neither rewarded nor discounted at the production interface of lamb slaughter. In order to make progress toward an ideal goal, a benchmark and product data is imperative. The ability for information to be disseminated up and down from producer to consumer and vice versa has been a recurring limiting factor. Implementation of lamb instrument grading will provide ovine carcass cutability percent, a predicted USDA Yield and Quality Grade, and expected primal cutouts. Instrument collected data that objectively estimates lamb value based on a predetermined set of specified criteria can then serve as a tool for sheep and lamb value differentiation. “It’s all economics; without the information there is no trust across segments” (Sheats, 2014).

American lamb producers have often agonized over the increased quantity of imported product from Australia and New Zealand. With regard to the present challenge of Australian and New Zealand lamb in the U.S. marketplace, consistency is key. Michael Sheats, USDA director of the agricultural analytics division of AMS stated that “consistency created clientele” (Sheats, 2014). Australian and New Zealand production systems are different and often generate lambs that have lighter carcass and cut weights; but, one thing rings true: they generate consistency in product. With the difference in composition of the American lamb industry, cutting specifications and matching lambs of similar composition would provide a more consistent end product that is shipped to purchasers. A Yield Grade 1 and Yield Grade 5 carcass were harvested within the same lot of slaughter lambs (Figure 5). These two carcasses will produce an expected difference of nearly 15 lbs. of fat trim according to previous research (Neto, 2011).

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Figure 5. The E + V VSS 2000 system is correlated to silhouettes (left); USDA Yield Grade variation of two carcasses (middle); and a ribbed carcass directly prior to fabrication (right).

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The effect of lamb product consistency, or lack thereof, in American lamb is a contributing factor to the ongoing challenge of lamb import competition. As shown in Table 3, the quantities of imported lamb disappearance have surpassed American lamb disappearance, but a slight increase in per capita consumption was detected in 2013 and the USDA projects an increase in price in 2014 over 2013 levels. Early 2014 prices indicate that producers are capturing dollars above the $121.50/cwt expectation; in fact, this value was closer to $150/cwt in the spring of 2014. Importantly, USDA Grading is a brand in the marketplace that represents distinguishing characteristics of American lamb. Table 3. U.S. and Import Lamb and Mutton Production and Consumption Data and Forecast.

Lamb Data and Forecast 2011 2012 2013 2014

(predicted)

Production 149 156 157 153 (million pounds)

Consumption 0.8 0.8 0.9 0.9 (retail pounds/ person/year)

Imports 162 153 171 164 (million pounds)

Live Lamb $160.60 $112.89 $109.5 $121.50 ($/cwt, San Angelo) Source: USDA-WASDE, 2013. Implementation of lamb instrument grading and subsequent sorting of carcasses will provide processing and fabrication facilities the option for creating different cutting styles for different lambs. For example, lamb racks are merchandised either with “cap-on” or “cap-removed”. It would be logical to fabricate lambs of lesser external fat with the cap-on due to less external trim to 1/8” and to remove the accessory muscles on heavier conditioned carcasses based on increased labor of trimming and the negative perception of the added seam fat in the anterior end of a lamb rack. Fabricators could decide what racks would be of greater value to be merchandised as a Frenched rack instead of 4” x 4” commodity racks. “Consumer preferences for lamb cuts are affected by size, shape, and fatness of cuts” (Kvame et al., 2004). Innovative fabrication of lamb cuts may be important to reduce both external and seam fat in retail cuts from heavy, fat lambs. “Composition of carcasses destined for innovative styles of fabrication should be considered to enhance cutting yields due to close trim specifications and short tail lengths” (Garrett et al., 1992). Two screen-shot images of the rear and side view of two carcasses from the E+V system identified in this pilot project are shown to demonstrate differences in leanness (Figure 6). Visually, variation in the appearance of lean and fat color over the exterior of the two carcasses is obvious. The difference in external fat deposition is most apparent over the loin, sirloin, and leg. Furthermore, the body shape and angles calculated by the video imaging technology would assign USDA Yield Grade, with the carcass on the left having a lower numerical Yield Grade.

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Figure 6. E + V VSS 2000 images of a lean (left) and fat (right) lamb carcass.

LEAN MEAT YIELD

Carcass lean meat yield is a key driver to supply-chain profitability within red meat production systems. “The ultimate value of the carcass to the retailer or to the consumer can be determined by two major factors: 1) the quantitative yield of retail cuts or perhaps more accurately the yield of edible meat, and 2) the quality factors that will assure a highly desirable eating satisfaction” (Carpenter, 1966). Lamb product leanness contributes to an improvement of on-farm efficiency as well as greater yield in deboning and cutting rooms, and finally increased saleable product at retail (Hopkins et al., 1995). Field et al. (1963) noted the need for “an accurate assessment of body and/or carcass composition” to ensure true evaluation of carcass composition. “If a method could be developed estimating quickly and accurately the composition of the carcass it would be useful in production, in accurately evaluating the nutritive value of each carcass, and in giving the retailer and consumer a more precise method for purchasing the desired amount of fat in whole carcasses and in individual cuts” (Field et al., 1963). Current prediction of USDA Yield Grade is based on a single measurement of external backfat thickness at the 12th rib that can be adjusted slightly based on whole carcass fat deposition. “The conclusion is the time is right for a new wave of research into both delivering leaner slaughter livestock, but also into cost effective industry measures of lean meat yield to facilitate clearer price signals back to farmers” (Pethick et al., 2011). Australian lamb processors understand and are willing to implement the application of lean meat yield prediction technology within their business as long as it is cost effective and easy to use (Goers and Craig, 2008). Still, application is yet to be implemented.

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To this end, Colorado State University researchers evaluated predicted (via instrumentation) versus actual primal cutout yields (Table 4). Eighty two head of lamb carcasses were fabricated into bone-in shoulder, rack, loin, and leg primals to compare E + V camera prediction to an aggregate cutout weight of lamb cuts. It should be noted that such a cutout reflects a worst-case scenario relative to predictive ability as all bone, and much of the trimmable fat, remain integrated with the cut when fabricated to this style. Selected lambs were from one slaughter lot; average predicted yield grade was 3.07, and hot carcass weight averaged 71.3 lbs., and ranged from 66.4 to 76.9 lbs. Table 4. Lamb Primal Weight Comparison of E + V Camera Prediction and Actual Cutout.

Shoulder Rack Loin Leg

Predicted Primal Wt. (lbs.) 1326.0 648.0 491.1 1939.2

Predicted % of HCW 22.6% 11.0% 8.4% 33.0%

Actual Primal Wt. (lbs.) 1402.5 677.0 629.0 1874.5

Actual % of HCW 23.9% 11.5% 10.7% 31.9%

The preliminary data suggested that the E + V camera and prediction equation was overestimating the primal yield of shoulder and leg while underestimating the primal yield of rack and loin cuts. Data reported in Table 4 reflects an improved, modified prediction equation of the E + V VSS 2000 and the comparison of predicted vs. actual primal weights from a total 82 lamb carcasses. On November 14, 2013, Colorado State University researchers collected individual cutout data to determine accuracy of predicted equations of six carcasses with an average hot carcass weight of 77.33 lbs, and a range of 61.9 to 93.8 lbs (Table 5). Conclusions from this study were that the rack/breast separation was more ventral in the Greeley plant than the previous research of 577 fabricated lamb carcasses (Neto et al., 2011) from which equations used by the E + V system were developed, leading to greater rack weight and lesser breast weight. Likewise, predicted shoulder primal was much heavier than actual fabricated weight, the leg was approximately 1 lb. heavier than the prediction (partially due to increased gambrel width), and the loin prediction was close but slightly heavier due to 1”x 1” fabrication instead of 0”x 0” cut specifications conducted by Neto et al (2011).

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Table 5. Lamb Primal Cutout Yield Comparison.

Results of a study aimed at determining projected primal and retail cut yield differences among lamb carcasses varying in E + V predicted USDA Yield Grade are presented in Table 6. Carcasses were selected from one harvest lot of known origin that were reared using similar genetics and management (i.e., contemporaries). Lamb carcasses were segregated by Yield Grade in the cooler after USDA grading and before fabrication. Carcasses were fabricated within their respective Yield Grade into shoulder, rack, loin, and leg primal cuts. Each was weighed and then fabricated into retail ready cuts and boxed. Weights for all fabricated cuts within each Yield Grade designation were recorded including: Frenched lamb rack, lamb breast, lamb neck, lamb flank, lamb foreshank, lamb block ready 1” x 1” loins, boneless lamb leg, lamb meat for stew, and lamb trimmings.

Table 6. Average Primal Yields of Lamb Cuts by USDA Yield Grade.

USDA YG n

Ave. HCW(lbs.)

Ave. E +V

Pred. YG Shoulder

(lbs.) Rack (lbs.)

Frenched Rack (lbs.)

% Rack Yield

Loin 1” x 1” (lbs.)

Leg

(lbs.)

Boneless Leg

(lbs.) % Leg Yield

Yield Grade 2 52 71.2 2.5 16.89 10.39 5.06 48.7% 7.71 23.50 15.05 64.0%

Yield Grade 3 46 73.7 3.3 17.48 10.74 4.93 45.9% 7.82 24.13 15.33 63.5%

Yield Grade 4 19 78.8 4.2 18.34 11.39 4.70 41.3% 8.61 25.34 15.15 59.8%

Hot carcass weight increased as USDA Yield Grade increased, resulting in heavier weights of shoulder, rack, loin, and leg primals within Yield Grade designation. However, decreased percentage yield of Frenched rack from rack primal and of boneless leg from whole leg primal were observed as Yield Grade increased. This data was supported by previous research conducted at CSU (Figure 6; Neto, 2009) that showed a decreasing percent yield of subprimal cuts as USDA Yield Grade increased.

HCW Breast Rack Shoulder Leg Loin Neck

Predicted (lbs.) 77.33 9.09 7.21 22.53 27.37 6.09 1.91

Actual (lbs.) 77.33 7.51 8.33 18.54 26.43 6.88 1.83 Neto research averages (lbs.) 77.99 9.28 7.9 18.45 25.08 6.55 2.11

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Without a doubt the instrument grading prediction equations can and should be adjusted and standardized by USDA based on the individual facility uniqueness.

Figure 6. Subprimal Yield of Selected Cuts Expressed as % of Cold Carcass Weight (Neto, 2009). Colorado State University researchers also collected individual cut weights for shoulder, rack, loin, leg, neck, breast, foreshank, flank, and trotters from 40 lamb carcasses to be used to enhance current E + V system prediction equations. Lamb carcasses were selected with 10 head within each of 4 hot carcass weight categories of: < 63 lbs., 63.1 to 75, 75.1 to 88, or > 88 lbs. These weight ranges were determined by quartiles of lamb carcasses collected during the initial three weeks of camera grading collection and over 22,000 head of lamb carcasses. Selected lamb carcass weight range was from 51.8 to 116.4 lbs., and E + V predicted yield grades from 1.2 to 6.4. Variation among the 40 carcasses provided a broad spectrum of biological types for analysis, yet the lambs were chosen from only two different slaughter lots. It is important to recognize that variation cannot be completely controlled in a biological setting, and further validation to ensure the most accurate prediction equations will need to be completed with greater sample size. Quality Grade is a combination of maturity, conformation, and flank streaking. Over the course of this study, The E + V vision image analysis prediction assigned a greater proportion of USDA Prime carcasses than the USDA grader. This is partially due to the width of the gambrel and leg width of carcasses presented in comparison to the prediction equation developed initially at Superior Farms packing plant in Denver, Colorado. The leg width and gambrel presentation in Figure 7 indicates the visual difference, and the camera mistakes this width as an improvement in conformation. It should be

02468

101214161820

YG 1 YG 2 YG 3 YG 4 YG 5

Frenched Rack

Square CutShoulderBonelessBlock ReadyLoin

Boneless Leg

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noted that the camera system does not have the capability to assess lamb flank streaking, a component of USDA Quality Grade designation. The USDA-AMS portion of this study will quantify the difference in quality grade, but there were noticeable increases in the percent of lamb carcasses grading USDA Prime as predicted by the E + V camera. This was further evidence that the prediction equation may specifically need to be developed for each respective processing facility for the best results. Plant to plant variation can be adjusted through prediction equations that account for lamb carcass variables and ensure more accurate yield grade predictions than the existing subjective application currently administered.

Figure 7. Rear View Evaluation of Lamb Carcasses at JBS-Greeley and Superior Farms-Denver.

LAMB VALUE-BASED MARKETING

The Hale Group recently concluded and presented the American Lamb Industry Roadmap

Project, of which objective 1 of the product improvement goal was to adopt consumer-driven, value based pricing for slaughter lambs. Without domestic adoption of technology, global competitors may lead product differentiation by incorporating lamb value-based pricing in their respective sheep industries. As emphasized in the roadmap project, the United States should: “1) set a clear target for a highly desirable slaughter lamb, 2) provide economic incentive to producers and feeders to supply that target animal, and 3) provide disincentives to those who deliver poor quality lambs” (The Hale Group, 2013). The industry advisory group reiterated the paramount importance of future implementation concluding “Value-based pricing is the key to creating other critical changes in the American lamb industry. The lamb packers must take the lead in this initiative and producers and feeders must respond appropriately. If the packers do not execute this effort, the other recommendations in this Roadmap will have minimal effect” (The Hale Group, 2013).

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In regard to available technologies to assess lamb carcass composition Berg et al. (1997) stated “the implications of usefulness of these technologies will depend on the commitment of the U.S. sheep industry in development of a lamb price discovery system based on carcass composition” (Berg et al., 1997). As a supply chain, it is a challenge to not only produce but also to market a commodity that is very heterogeneous or differing in composition. That said, there is no one specific target or ideal that fits all channels. For example, hotels may request the largest racks produced for preferred plate appearance and the retail consumer may request extra lean ground lamb for a family dinner. In fact, lamb merchandisers and purveyors should be commended for facilitating sales of lamb through a wide range of venues and product specifications considering the existing variation among the lamb supply. The advantage of a value-based price discovery system is that it identifies the outliers and/or undesirables and through production system management and process control these lesser desirables can be reduced or eliminated from the supply chain.

Increased carcass weights over previous years can be attributed to genetics and feedlot efficiency, but with this trend it does create a portion of lambs that are harvested past their preferred harvest end point. Attributing to over-fed and fat lambs, our current marketing system that rewards body weight in comparison to value of a quality product and lean meat yield sends the market signal of pounds equals dollars. Packing plants are able to capitalize on greater amount of lamb produced per animal with the increased carcass weights, but at the consequence of greater fat trim during fabrication, an increase in yielded meat price that must be passed on to the trade, and a more inconsistent product. A current large-scale marketing agreement is in place with the Mountain States Lamb Cooperative and their producer-driven approach to reward producers that harvest lambs that fit their grid-based marketing system. Providing incentives and disincentives is not new, as an opinion from Darrell Feinup, University of Minnesota stated in 1961, “The difference in type of lambs produced in different area presents problems in grading. One of the basic objectives of grading is to separate out quality and saleable meat differences to aid the market in transmitting these differences back to producers through price. Price equity among growers cannot be achieved without dissatisfaction from those who produce lower quality” (Feinup, 1961). A 2007 study that surveyed 302 lamb producers quantified the percentage of lambs sold through various valuation methods at slaughter. Lambs were marketed by per head (23.9%), live weight (74.7%), carcass weight, not dependent on grid value (14.3%), and carcass weight, dependent on grid value (7.5%). Producers could market by more than one method, thus a percentage totaling over 100%. Large operations with annual revenue greater than $200,000 tended to merchandise lambs by grid value and

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carcass weight with 53.3% of responding operations (Viator et al., 2007). In order for USDA lamb grading to reach benefits of rewarding lambs of superior quality and cutability (and discounting lower quality and cutability), lambs should be valued on the relationship of weight and a measure of saleable meat yield corresponding to the assigned yield grade. With respect to price scheduling and value, current lamb cut prices are known and a processor can calculate a live price for live lambs at the processing plant with knowledge of predicted yield and a specified profit margin (Hopkins, 1989). The wholesale lamb cut prices for 2012 and 2013 are shown in Table 7 as well as the frequency and average price of most prominent lamb cuts merchandised from a survey of 20,800 supermarkets across the country (Table 8). Table 7. Wholesale Fresh Lamb Cuts – Annual Weighted Averages.

Lamb Cut 2013 2012 Breast $1.19 $1.34 Flank $0.50 $0.70 Hindshank $3.94 $4.47 Ground Lamb $5.26 $5.77 Stew Meat – Lamb $5.89 $6.61 Leg, boneless tied $4.75 $5.56 Leg, trotter-off $3.26 $3.94 Loin, boneless tied $14.13 $13.98 Loins $3.92 $4.32 Loins, trimmed 0” x 0” $7.28 $8.56 Loins, trimmed 1” x 1” $6.27 $7.44 Loins, trimmed 2” x 2” $5.62 $6.90 Loins, trimmed 4” x 4” $4.58 $5.24 Rack, 8 rib, heavy $5.24 $6.58 Rack, 8 rib, medium $5.48 $6.43 Rack, 8 rib, light $5.49 $6.63 Rack, roast ready, frenched $11.03 $12.86 Ribs, breast bone off $4.56 $4.71 Shoulders, square cut $2.40 $2.46 Shoulders, square cut, boneless $4.55 $4.10 Sirloin, boneless $6.79 $7.57 Trimmings, lean $4.28 $4.98

Source: Sheats, 2014.

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Table 8. 2013 Ranking of Lamb Cuts by Frequency of Supermarket Advertised Salesa. Lamb Cut Average Feature Price Average Annual National

Feature Frequency Loin Chops $9.03 24.32% Shoulder Blade Chops $4.96 21.82% Boneless Leg $7.04 9.72% Bone-in Leg $6.05 8.87% Racks $12.23 6.31% Semi-Boneless leg $6.38 5.40% Shoulder Round-Bone Chop $5.55 3.51% Shanks $5.11 3.02% Ground Lamb $6.05 2.91% Bone-in Leg, Shank or Butt Portion $5.51 2.61% Butterflied, Boneless Leg $6.87 2.51% Stew Meat – Mutton $3.23 1.82% Rib Chops $12.97 1.74% Breast $2.39 1.49% Stew Meat – Lamb $5.04 1.34% Shoulder Roasts $4.36 1.12% Leg Steaks $8.76 0.75% Ribs $6.54 0.35% Whole Loin $7.77 0.28% Top Round Steaks $7.81 0.06% Top Round Roast $9.99 0.06%

a Based on weekly survey of 20,800 supermarkets across the 50 United States. Source: USDA-AMS, 2014b.

USDA GRADING COSTS

As previously stated, USDA grading is voluntary, and paid for by each respective processing plant that requests the service. Large lamb processing plants will request from USDA “one commitment.” A commitment means that a USDA grader will be on-site for 40 hours per week. The commitment cost of the grader is $61.00 per hour. This equates to approximately $120,000 to $130,000 annually. Furthermore, there is a limit of 2,000 lamb carcasses to be graded within each day. If a plant

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wishes to apply USDA grades to a greater number of carcasses, they may also request an additional grader for the day to grade the additional carcasses and merchandise more carcasses on that given day or week. Premium, or overtime, hours are before 6 AM or after 6 PM on weekdays as well as any Saturday or Sunday hours of labor and are charged at $78.00 per hour (USDA-AMS, 2012). If a plant does not request a full commitment, but instead asks for a USDA grader to be present to assign grades, that cost is $71.00 per hour plus travel expenses of mileage at $0.565 per mile. This allows flexibility for plants that may not harvest as many lambs daily, even though it is a greater charge per hour, they may only pay for the grader to work only time that is needed, i.e. only 4 hours. Federal holidays are observed on 10 days throughout the year. However, it is common for lamb industry plants to only take 6 holiday days off of production, such as working on President’s Day and Martin Luther King, Jr. Day. If the plant wishes to grade carcasses on Federal holidays, it is at the cost of $122.00 per hour (USDA-AMS, 2012). Additional to assigning USDA Yield and Quality Grades, USDA-AMS personnel have also been trained to verify specifications of lamb product for U.S. government purchases. During this pilot project, boneless legs of lamb and other cuts were evaluated for pre-determined specifications necessary to meet the government lamb purchase criterion. One additional USDA personnel was requested to verify product specifications on production days during October and November 2013. If time permitted during business hours, the USDA grader could have accomplished this task as well as assign USDA grades. Debate remains as to how the future implementation of lamb instrument grading will be meshed with the current grading system. Darrell Dowd reiterated that USDA personnel must be present when USDA grades are applied in packing facilities (Dowd, 2014). However, a 2012 pilot project focused on an audit-based grading system in Toppenish, Washington. At the beef packing plant “a USDA meat grader from AMS monitors and randomly audits the final carcass grades throughout the day to help ensure that the standards are continuously met. This approach to audit-based grading could lead to significantly reduce costs for traditional, fee-for-service grading” (USDA-AMS, 2013b). Through implementation of the audit-based system, this processing facility was able to reduce their grading costs by 50 percent. Future collaboration with USDA-AMS could provide an opportunity for USDA Grading to become an auditable system. Much like already incorporated in American beef plants, a USDA grader can confirm that the machine is working properly on a daily basis, but manual grading of each carcass will no longer be necessary. The lamb industry will most likely not “substitute” man power for the technology as a USDA grader may still evaluate maturity of break vs. spool joint, bucky carcasses, and lambs with inadequate fat cover designated USDA Good or no roll as well as confirm that images of lamb carcasses are correctly collected (Figure 8).

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Figure 8. Lamb carcasses require external factors other than just video image analysis for grading such as spool joints, inadequate fat cover, or an incorrectly presented camera image. The E + V Technology and Vision For You, LLC has quoted a VSS 2000 system for lamb instrument grading at the price of $157,500 per plant, if two systems are ordered. An initial investment from the sheep and lamb industry on this trial project would result in a compensation of a $70,000 reduction to the price of the first camera grading system that is currently installed in the JBS-Greeley plant. Service requirements for the camera vision system are recommended quarterly with a cost of $1,500 per service visit if the location is within driving distance of Colorado, Texas, or South Dakota (Eger, 2014). The cost of the camera grading system is consequently more cost effective in larger lamb plants as there is no fee for service based on carcass number. “As the VIA equipment required for evaluation of lamb carcasses is approximately equal in value to the yearly wages of a livestock grader, VIA shows potential as an objective, accurate, yet cost-effective method of evaluation of lamb carcass composition” (Stanford et al., 1998). Future USDA-AMS approach regarding how camera grading systems can augment current USDA grading protocol will determine if there can and will be financial advantages for the application of instrumentation to assign USDA grades to lamb carcasses in processing facilities.

PLANT PERSONNEL COSTS

Potential improvements in efficiency of plant personnel may be in either the cooler and/or

fabrication areas of a processing plant. Optimizing cooler management has already been addressed, and making the sort of lamb carcasses as they enter the cooler could potentially eliminate one employee dependent on each individual plant. In this study, fabrication of lamb carcasses was conducted by Mountain States Rosen. Fabrication completed on November 12, 2014 employed 73 people on the production line. Also, management personnel and quality assurance for the plant were necessary for daily operations. The U.S. Bureau of Labor Statistics calculated the hourly mean wage of butchers and meat cutters at $14.29/hour ($29,710 annually), and meat, poultry, and fish cutters and trimmers at $10.65/hour ($22,160 annually). These wage values differ regionally and are dependent on skill level and expertise in the packing plant (USDL-BLS, 2012). Quantity of lamb carcass and time to complete fabrication are

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widely varied based on the cut specifications for a given day to meet customer orders of product. Mountain States Rosen averaged 1133 carcasses slaughtered per day over the October and November trial, with a range from 938 to 1602. Previous sorting of carcasses would assist the company to not only sort on carcass weight, but also USDA Yield Grade to tighter define product specifications. In-plant determination of how lambs of different composition and weight affect fabrication time would also need to be coupled with the varying cutout styles to realize fabrication efficiency improvements. Elimination of even one person with fabrication stream lining would save at least $20,000 to $30,000 annually.

INDUSTRY ECONOMICS

Future implementation of lamb instrument grading is dependent on if the lamb supply chain can

return value from the available technology. In the foreseeable future, USDA grading can continue to differentiate lamb carcasses based on Yield and Quality Grade, but instrument grading will most likely augment rather than substitute the USDA Grading personnel. Additional to predicting USDA Yield Grade and Quality Grade, the E + V VSS 2000 system assigned an ovine carcass cutability (OCC) yield of lamb carcasses. Ovine carcass cutability is calculated with yields of rack, roast ready, frenched 3” x 1”; boneless, square cut, shoulder; breast; foreshank; neck; loin, trimmed 0” x 0”; flank; leg, hindshank; and boneless leg, shank-off. Lamb cutout data is limited in research; however, for this analysis project data compiled by Neto et al. (2011) was used to determine return on investment from lamb fabrication. Wholesale lamb prices reported from the average of 2013 calendar year as well as USDA lamb market summary from January 17, 2014 were used to evaluate lamb cut prices (Table 9). As historically expected, lamb value per pound descends in order from rack, loin, leg, and shoulder cuts. Lamb market prices are continuously changing to reflect both supply and demand of lamb product. Retail cutout simulations only capture price differential at a static period, and thus, updating price changes and spreads would be imperative for an accurate analysis of current sheep and lamb industry dynamics. Table 9. Wholesale lamb price of selected lamb cuts.

Lamb Cut Wholesale Price/lb.

2013 Average January 17, 2014 Shoulder, Square Cut $2.40 $2.93 Shoulder, Boneless $4.55 $5.28

Rack $5.48 $8.00 Frenched Rack $11.03 $14.96

Loin $3.93 $3.97 Loin, 0” x 0” $7.28 $8.14

Leg $3.15 $3.59 Leg, Boneless $4.75 $5.04

Hindshank $3.94 $4.04 Lean Trimmings $3.84 $4.17

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Data collected from Neto et al. (2011) of 574 lamb carcasses were analyzed to determine value of lamb cuts fabricated from each lamb carcass. The price of square cut shoulder, rack, loin, and leg primals was compared to boneless shoulder, frenched rack (3” x 1”), closely trimmed loin (0” x 0”), boneless leg, and resulting trim to quantify fabrication value improvements. Profit potential from lamb fabrication to closely trimmed retail cuts by primal cut showed varying return on the fabrication floor (Table 10). Increased profit of fabricated cuts with 2013 prices resulted in 61.6, 86.6, 96.3, and 23.7% from shoulder, rack, loin, and leg, respectively. Profit from fabrication of lamb cuts with January 17, 2014 weekly prices resulted in 35.0 59.9, 97.4, and 0.5% from shoulder, rack, loin, and leg, respectively. Notably, the value differentiation of rack and loin offset the decreased return of both shoulder and leg fabrication. Table 10. Profit of selected primal cuts due to carcass optimization at fabrication.

$ Profit from fabrication

Lamb Primal Cut 2013 Prices January 17, 2014 Prices

Shoulder Rack Loin Leg Shoulder Rack Loin Leg > $20.00 2.4%

$15 to $19.99 2.4% 18.1%

$10 to 14.99 0.2% 5.7% 30.4% 0.2% 0.2% 1.7% 56.9%

$5 to $9.99 5.2% 40.9% 54.3% 0.5% 0.9% 21.8% 16.7% 0.2%

$0 to $4.99 56.2% 40.0% 9.2% 23.0% 33.9% 36.4% 5.7% 0.3%

-$5 to -$0.01 34.4% 12.1% 3.7% 51.5% 46.0% 24.3% 0.2% 17.0%

-$10 to -$5.01 3.8% 1.2% 18.7% 15.8% 12.0% 43.2%

-$15 to -$10.01 0.2% 4.9% 3.1% 2.6% 26.3%

-$20 to -$15.01 1.2% 1.2% 4.0%

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If a lamb processing plant was able to only select the more preferred carcasses for fabrication, they could realize profits from the four main primal cuts as shown in Table 11. Increased value of trimmed loin from $11/lb. to nearly $15/lb. in early 2014 garnered a greater return whereas a decrease in the spread from whole leg to boneless leg resulted in large negative returns for boneless lamb leg fabrication with 2014 prices. Furthermore, lamb carcasses that yield low amounts of lean meat result in negative returns on the fabrication floor. Lamb carcass profitably is extremely variable with the most recent and comprehensive lamb carcass cutout fabrication data. Table 11. Fabrication profit (loss) of primal cuts to closely trimmed, semi-boneless cuts (n=574).

Fabrication

Profit $

Lamb Primal Cut 2013 Prices January 17, 2014 Prices

Shoulder Rack Loin Leg Shoulder Rack Loin Leg Sum of positive returns

$928.44 $2677.44 $4920.41 $249.71 $397.43 $1511.63 $7056.99 $9.22

Sum of negative returns

($524.50) ($165.70) ($27.46) ($1898.49) ($1470.72) ($1084.39) ($0.14) ($5418.76)

The variability of fabrication value among lambs harvested was indicated in Table 10, and Table 11 showed dollar value profit/loss for respective primal cuts. However, feedback from U.S. lamb industry representatives agreed that an analysis would more applicable if corresponding cutouts mirrored current industry standards. In order to most closely match current industry practices, some assumptions must be made. This analysis assumed that a lamb processing facility was fabricating 1,000 head of lamb carcasses per day. Data was gathered to determine the most accurate percentage of lamb primals that are fabricated into further processed or closely trimmed, retail ready products. On an average, 10% of shoulders, 40% of racks, 40% of loins, and 50% of legs from lambs harvested are additionally fabricated to meet customer requests (USDA-AMS, 2012b). The remaining primals would be fabricated to a lesser extent and merchandised, for example a square cut shoulder, 4” x 4” rack, 4” x 4” loin, and trotter-off bone-in leg to fulfill the day’s customer orders and specifications. The E + V VSS 2000 system predicts OCC and can be used as a potential carcass sorting data point. Fabrication data was analyzed from carcass cutout of 574 carcasses. The U.S. lamb industry currently has USDA Yield Grade as a potential sorting criterion, but the VSS 2000 prediction equations could augment current industry practices. A carcass sort of fabricating carcasses that had a predicted ovine carcass cutability of greater than 67.5% (average OCC = 69.0%) were compared to simply fabricating carcasses of the whole consist (average OCC = 67.3%). This comparison represents choosing lamb carcasses to fabricate that would produce a greater percent of lean meat yield and a sort in the cooler prior to fabrication versus no sorting of lamb carcasses (Table 12). This scenario only evaluates the most prominent primals of shoulder, rack, loin, and leg, and has not taken into consideration value realized from the neck, breast, foreshank, ribs, or shanks that would have fewer differences with the aforementioned cutability classification.

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Table 12. Revenue comparison of 1000 fabricated carcasses selected with ovine carcass cutability (OCC) greater than 67.5% vs. average ovine carcass cutability of carcasses (n= 574) using 2013 average prices. Profit/(loss) per

primal fabricated Cutout profit (loss)

Lamb Primal OCC > 67.5%

OCC = Average

Primals Fabricated/day

Total Revenue OCC > 67.5%

Total Revenue OCC =

Average

Net Return

Shoulder $2.51 $0.70 100 $251 $70 $181 Rack $6.77 $4.33 400 $2708 $1732 $976 Loin $10.23 $8.48 400 $4092 $3392 $700 Leg ($0.42) ($2.88) 500 ($210) ($1440) $1230 TOTAL $6841 $3754 $3087 Differences in cutout are dependent on the wholesale and retail ready prices of lamb cuts. The overall range of OCC values for this data set was 61.1% to 76.8% (Neto, 2011). Additionally, the range of profitability/loss for fabricated carcasses was from generating $50.39 revenue to losing $27.72 during fabrication. The average return per head through fabrication to retail ready cuts was $19.09 and $10.63 for the high yielding OCC and average OCC, respectively. Furthermore, it should be noted that USDA-AMS estimates a carcass fabrication cost without packaging at $33.75/cwt to fabricate lambs into primals. Lamb processors predict a cost total of $35/head to fabricate lambs with the added fabrication and packaging costs into retail ready cuts for customer requests. Selection of higher yielding carcasses as shown above would generate $3087 of additional value to merchandised lamb cuts compared to fabrication of the average carcass consist. This said, the company would have unfabricated carcasses that are of lesser fabrication value to merchandise to customers. Inevitably, someone post-slaughter will lose value on these carcasses. They may need to value carcasses with decreased cutability lower accordingly. The true value of fabrication of higher yielding carcasses could futuristically result in the implementation of a value-based pricing mechanism that rewards preferred carcasses and discounts lower yielding carcasses. The E + V VSS 2000 system costs a total of $157,500 and requires quarterly servicing costing an additional $6,000. This system requires approximately ten minutes of start-up and calibration is required from plant personnel for the equipment each morning. This cost is considered downtime and should be accounted for in the economics. Given summary lamb prices from calendar year 2013 and assuming in-plant calculation of ovine carcass cutability from the instrument grading system are collected, cooler carcass sorting of preferred lamb carcasses, and fabrication optimization of lamb cuts, the E + V VSS 2000 System could improve return by $3087 per day. The future of lamb instrument grading, and the industry extent of adoption will be driven by the potential ability to capture unrealized value and disseminate information throughout the sheep/lamb supply chain.

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INDUSTRY IMPLICATIONS

The implementation of instrument grading technology within U.S. lamb processing facilities has

the potential to augment and improve upon the current USDA grading system. Overall, implications will be dependent on the level of commitment and acceptance from industry stakeholders. Future application of vision image analysis systems to collect information provides the framework for knowledge and communication of product yield and value that can be disseminated to both sheep producers regarding their product and retailers that will merchandise lamb. Darrell Dowd, USDA-AMS Meat Grading stated that open communication about lamb between producer, processor, and retailer is key. In regard to future application of the available technology, Mr. Dowd declared “It’s a great tool for the future of USDA lamb grading” (Dowd, 2014). The three most critical lamb quality areas that drive whole supply chain profit and consumer acceptance are lean meat yield, eating quality and human nutritive value (Pethick et al., 2011). United States Department of Agriculture grading is the accepted methodology of determination of both lean meat yield (USDA Yield Grade) and eating quality (USDA Quality Grade). In order to maintain and build on current market share and be a competitive red meat protein, there is a needed emphasis on “continuous improvement” of lamb product yield, quality, and meeting the value proposition of lamb as a premium product. The Lamb Industry Roadmap’s conclusions were adamant about both installation of electronic grading and providing a value based pricing scheme for merchandised lambs. “Value-based pricing is the key to creating other critical changes in the American lamb industry. The lamb packers must take the lead in this initiative and producers and feeders must respond appropriately. If the packers do not execute this effort, the other recommendations in this Roadmap will have minimal effect” (The Hale Group, 2013). Australian research suggested that a combination of genetics, industry production, and meat science should be combined for continuous improvement of the sheep and lamb industry (Pethick et al., 2011). As a diverse sheep industry, breed composition and growth rate, American production systems, and lean muscle and body composition differ in U.S. produced lambs. Over 30 years ago, Parker and Pope (1983) noted even though carcass improvement and lean lamb technologies were available, application was limited due to an emphasis on body weight at marketing and the lack of a value-based marketing

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system (Parker and Pope, 1983). The United States sheep industry, in general terms, has long been a commodity driven product with most sales and value determination based on pounds of product merchandised. Even though lamb is sold at a premium to competitive proteins, an evident missing link is value based pricing of lamb that has been incorporated into both the beef and pork sectors of the red meat supply chain. Future implementation of lamb instrument grading would provide accurate, objective measurements of USDA Yield Grade and lamb carcass conformation. Recorded carcass information plus carcass images can then be advantageously provided back to sheep producers. “The lamb producer that markets superior carcasses, with greater consumer appeal, expects to realize financial rewards from doing so. The expectation of greater income received from marketing superior lambs is motivation for producers to develop a strategy to improve carcass value through selection of genetically superior breeding stock” (Waldron, 2002). In order for instrument grading and value-based marketing to lead to more consistent and preferred lamb, value differentiation will be necessary with premiums for ideal carcass specifications and disincentives for lamb that falls short on lean meat yield and predicted eating quality. Phase one of this lamb instrument grading study entailed the USDA-AMS standardization of the E + V Technology VSS 2000 system to assess the assignment of USDA grades to lamb carcasses. Future application could be implemented in-plant to augment lamb carcass grading on a real time basis at plant processing speed. This technology would enable the conveyance of information back to sheep producers as well as provide packing plants and fabrication companies more predictable yield analysis, and inevitably, provide the missing link to assigning value to lamb carcasses in an industry that historically has been weight driven. Furthermore, additional information of projected cut yields would allow processors enhanced inventory control and the ability to provide more consistent customer orders. A 1964 article entitled “What is the Potential of Changing Merchandising in Lamb?” described the past state of the American lamb industry, and emphasized the focus on the consumer’s point of view and their role as our true end customer. Story (1964) stated that “It is the consumer and not the retailer who makes the decisions. It is a pretty well established fact that consumers do not understand, know or care about government grading. They do know, however, that they want a prescribed amount of lean in a piece of meat, whether it be lamb, beef or pork; it must have good eating quality (flavor) with a sufficient amount of tenderness.” The question becomes, “How does the American lamb industry ensure that the consumer consistently purchases lean lamb that is tender and flavorful?” This paper addressed optimizing cooler management, optimizing fabrication scheduling, lamb product consistency and customer specifications, lean meat yield, lamb value-based pricing, USDA grading costs, plant personnel costs, and return on investment of the implementation of lamb instrument grading in U.S. processing plants. The challenge with direct quantification of plant impacts is dependent on level of application and decisions from plant management in how, and what manner, to manage data and information provided through augmented USDA grading capabilities.

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Sheep producers throughout the United States may in the near future have the ability to receive carcass merit data on lambs produced within their operation, and in fact potentially be paid on true carcass value of lamb. U.S. sheep feedlots may also be given market signals on meeting a preferred lamb carcass if instrument grading is coupled with in-plant value-based marketing schemes. The availability of information back in the supply chain to sheep producers will be revolutionized IF carcass merit and value data is conveyed to producers that send lambs to commercial processing facilities. Lamb processing facilities will be provided individual and group data of lambs only moments after hot carcass weight is recorded, and a predicted USDA Yield and Quality Grade is assigned that may be used to sort lamb carcasses as they enter the cooler. The future of how USDA-AMS wishes to incorporate the lamb vision system technology for assignment of grading designations is yet undetermined, but a USDA grader will most likely continue to be required in the plant to monitor the instrument and grading process. With added information and cooler sorting, plant personnel may choose to fabricate lamb carcasses differently dependent on USDA Yield Grade, Quality Grade, and hot carcass weight. A lamb fabrication floor cuts carcasses into a wide variety of customer specifications on a daily basis. Information on cutout yield data was presented in this paper, and predicted equations were further refined by E + V Technology that could provide value by fabricating cuts to the most profitable endpoints. Along with capitalizing on in-plant production efficiencies, improved meeting of customer specifications and product uniformity may assist one of U.S. lamb’s current challenges compared to imported product, consistency. Over 2 million head of lambs were slaughtered in 2013 at federally inspected processing plants of which approximately 1.4 million head were USDA graded. The first step for the U.S. sheep industry would be implementation of lamb instrument grading at the largest processing facilities. This will cost approximately $150,000 per processing plant along with certain installation costs, and servicing costs. In addition, USDA grading charges will still apply at a certain level. Next, with collaboration from USDA, the augmented grading system has the potential to be audit-based in the future. Additionally, the ability to accurately assign USDA Yield Grades may lead to a matrix to reward the most preferred and profitable lamb carcasses, and disincentives for yield and quality outliers within the lamb industry. Most importantly, unprecedented information about lamb carcass composition and value will be collected and available. True production management decisions can be made by U.S. sheep producers with conveyance of product attributes of harvested lambs. The value of the technology is the information and dissemination up and down the market channels. Furthermore, the lamb supply chain can better incentivize high yielding, quality lambs, and inevitably, meet customer specifications and consumer acceptance of American lamb. Potential of added information available to sheep producers of their lambs, processors of the lean meat yield, and retailers of lamb products that meets consistent specifications may all add benefits to the sheep/lamb supply chain. Overall, increased reliable information of lamb carcasses through implementation of lamb instrument grading to assess lamb carcasses should prove beneficial to U.S. lamb industry stakeholders.

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