Choice beef demand is rising.
This week’s upward turn in the spread between choice and select beef prices, compared with the rising percentage of choice versus select beef production shows that buyers are willing to pay more for choice product in spite of a rising supply.
CHOICE/SELECT SPREAD TURNING UP
The USDA’s choice/select spread on its National Daily Boxed Beef Cutout and Boxed Beef Cuts report Thursday listed the daily spread at $3.09, with choice listed at $191.75 per cwt and select at $188.66. This was up $1.66, or 116.1%, from $1.43 a week earlier.
The average spread for the last five weekdays was $2.25, the same as last week’s preliminary average. It’s unclear whether the daily spread will continue to rise through Friday, but considering that it has risen the last two days and the strong seasonal push, it’s likely safe to say the bottom in the weekly spread was set this week.
The average seasonal bottom for the choice/select spread occurs the first week of August. The 2011-2015 average has a bottom of $4.93 per cwt that week, followed immediately by an upturn to $6.24.
Last year, though, the bottom in the spread took place the first week of September at $5.72 per cwt.
Therefore, the average low of $2.25 per cwt over the last five days coming right between the five-year average and last year would qualify as a substantive low, should it hold there.
CHOICE BEEF PRODUCTION RISING
It could be argued that the choice/select beef spread is widening because of a decline in the percent of choice beef produced. But this is not the case – at least not when compared with last year and the previous five-year average.
On a weekly basis, the production of choice beef versus all beef produced is declining seasonally, and this may be the catalyst that is turning the spread higher now.
And while it’s true that the production of choice beef as a percent of all beef graded declines from July into October, but the weekly percentage of choice beef produced has held above last year all year, and last year was substantially higher than the previous five-year average.
For the second week of August, the percentage of choice beef of all that was federally inspected was 73.84%, down from the previous week’s 74.16% and the seasonal high of 74.38% established in the third week of July. The latest rate was above he 70.71% in the same week a year earlier and also was above the 74.04% for the 2011-2015 average.
So, if meat buyers are willing to pay more for choice beef even though production is rising on an annual basis, it can be said that demand for choice product is rising.
CATTLE, BEEF RECAP
There were no sales Wednesday on the livestock exchange video auction for the second straight week.
Cash cattle trading in the Central Plains was reported Wednesday at $107 per cwt on a live basis, down $3 from the bulk of last week’s action. Dressed-basis markets traded at $172 to $173, compared with last week at $175 to $177.
The USDA’s choice cutout Thursday was down $0.58 per cwt at $191.75, while select was off $0.81 at $188.66. The choice/select spread widened to $3.09 from $2.86 with 106 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $143.42 per cwt, up $0.04. This compares with Thursday’s Aug settlement at $141.60, down $0.02.