Solid grid premiums add to interest in delivering cattle

USPB Producers Deliver Cattle Against 100% of Delivery Rights

By Stan Linville, CEO

Once again, U.S. Premium Beef producers delivered cattle against 100 percent of our unitholder-owned delivery rights during our just completed 2014 delivery year. Thank you to all USPB producers who made it a goal to deliver high quality cattle during the year. You did so in spite of higher than normal feed costs, and widely variable cattle feeding profitability—from mostly negative early in the year to very positive at the end of the year.

Our grid rewarded you for delivering cattle. USPB paid more than $39.6 million in grid premiums for cattle delivered to NBP’s Kansas plants, or $50.30 per head, during delivery year 2014. For more detail on delivery year 2014 Kansas cattle results, see DY 2014 Kansas Cattle Performance Summary article in this issue.

USPB paid more than $39.6 million in grid premiums for cattle delivered to NBP’s Kansas plants, or $50.30 per head, during delivery year 2014.

As you know, our unitholders have a right, and an obligation to deliver cattle against a minimum of 90% of their delivery rights, which is a threshold set by our board. USPB continues to offer unitholders options to help them meet their delivery obligation each year. If a unitholder does not have cattle to deliver in a given delivery year, they can lease their delivery rights privately to other USPB producers who want to market cattle through our company. In that case, they set the lease price they want to receive. We ask that our unitholders let us know if they intend to lease their delivery rights privately.

Unitholders also have the option of working with USPB to facilitate the leasing of their unused delivery rights to other producers. The lease rate for

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USPB producers delivered record high Quality grade cattle

DY 2014 Kansas Cattle Performance Summary

By Brian Bertelsen, Vice President, Field Operations

August 30, 2014 concluded U.S. Premium Beef’s seventeenth delivery year. The delivery year (DY) is the time period in which USPB unitholders can utilize their delivery rights by either delivering cattle themselves or leasing delivery rights to other cattle feeders. See USPB Delivery Year Performance-KS Plants table on page two.

USPB carcasses set new records for quality grading during DY 2014. The percentage grading Choice and Prime was record high, up over four percentage points from the previous year. The percentage of Certified Angus Beef^® (CAB) and Black Canyon^® Premium Reserve (BCPR) were also record high. This was influenced by a higher percentage of black-hided cattle and also a record high certification rate for each brand of those that were black-hided.

Even the Ungraded percentage was record low. Essentially, Ungraded applies to carcasses that are not graded Select or higher and is comprised, in part, of those with the lowest levels of marbling. As a result, Quality grade premium was once again the largest component of overall premium and was the second highest in company history.

Industry wide, quality grading was also record high during company history. USPB cattle, in delivery year 2014, had over seven percentage points more of Choice and Prime carcasses than the overall industry average as reported by the USDA.

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Company Files Second Quarter Results

U.S. Premium Beef has closed its second quarter of fiscal year 2014 and has filed the results with the Securities and Exchange Commission. For the quarter, which ended June 28, 2014, USPB recognized net income of $0.1 million compared to $3.1 million for the same period a year ago.

For the six months ended June 28, 2014, USPB recognized a net loss of $5.0 million compared to $1.1 million for the same period a year ago. In both periods, USPB’s financial results were less than the prior year due to USPB’s share of National Beef’s financial results, which decreased as a result of lower gross margins and severance costs related to the Brawley, CA, facility closure. Partially offsetting the lower results from National Beef were lower expenses at USPB.

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USPB Producers Deliver Cattle Against...

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While every year brings different challenges and opportunities for each of our unitholders and cattle deliverers, USPB’s benefits are consistent. When you market cattle through USPB, you receive guaranteed market access, value-based pricing on an industry competitive grid, individual carcass data at no cost, a transportation credit to defray some of the trucking expense. Marketing cattle through USPB also enables you to schedule your cattle with us when you want to market them, as provided for in the Uniform Cattle Delivery and Marketing Agreement. That is the case when you deliver cattle through USPB every week of the year.

As we begin delivery year 2015, we look to build upon the success we had in 2014 by attracting more quality cattle. Our four-week rolling average Choice/Select spread appears to be making a seasonal increase. Cattle continue to both grade and yield well with discounts at manageable levels. As noted before, our company’s success, as well as National Beef’s branded product markets, are greatly influenced by the number and quality of cattle USPB producers deliver. We look forward to working with you as you make plans to market your cattle in delivery year 2015.♦

company facilitated delivery rights is $7 for delivery year 2015. This service again worked well for both parties in delivery year 2014. The facilitated lease program enabled our company to attract a greater number of high quality cattle that we may not have otherwise received. Producers who leased delivery rights through the USPB facilitated program in delivery year 2014 received average grid premiums of $52.03 per head and those cattle averaged more than 75% Choice and Prime. We ask that unitholders let us know as soon as possible if they want USPB to facilitate the leasing of their delivery rights.

If you are a unitholder or an associate who delivers cattle to USPB, you have the option of locking in your delivery right needs privately with a unitholder, in which case you can negotiate the lease rate. Or, you can contact our office and we will work with you to get delivery rights on a weekly as needed basis or, for larger quantities, leased to meet your delivery year needs.

With today’s higher breakevens out of the feedlot, grid premiums can make a significant difference in terms of profit/ loss on the right quality of cattle. Our producers continue to adjust their management to deliver cattle that hit the targets set on our quality-based grids to maximize the premiums they receive.