The price difference between choice- and select-grade beef is narrowing, but the spread remains historically large and could remain unusually large into January.
A look at weekly average choice/select price spreads from the USDA and compiled by the Livestock Marketing Information Center in Denver show that the spread topped out at $27.23 per cwt in the second week of October. It has declined unevenly since then but last week recorded a level of $22.55 per cwt, a drop of $4.68, or 17.2%.
In contrast with last week’s choice/select spread, the weekly spread in the same week last year was $15.31 per cwt, and the 2013-2017 average for that week was $14.46. This means last week’s spread was $7.24, or 47.3%, above last year and $8.09, or 55.9%, above the previous five-year average.
SEASONAL DOWNTREND COMING
The seasonal trend for the choice/select spread to narrow during the last three weeks of December is so strong that it almost is a foregone conclusion, an analyst said.
The narrowing trend begins there and goes until the las week of February before turning higher again. The seasonal is so strong that cattle feeders and beef packing plants can count on the scenario repeating year after year.
What made this year different is that the seasonal widening of the choice/select price spread did not top out in May or June, as it often does. Instead, the spread kept widening, even though there were plenty of cattle coming out of the feedlots.
CHOICE-GRADE CARCASSES DECLINE
However, no one should think the unusually wide choice/select spread was all demand induced. A look at the percentage of choice-to-select carcasses that came through the packing plants shows that the percentage of choice carcasses as a percent of beef that was graded declined in late March and early April and struggled thereafter.
The percent of choice-grade carcasses produced topped out at 73.88% the second week of February, compared with 73.08% the same week a year ago and the 2013-2017 average for that week of 69.59%.
The low for the year came in the second week of September at 67.97%, compared with 70.42% in the same week last year and the previous five-year average of 67.70%.
Over the last two weeks, the percent of choice-grade carcasses being produced has risen and is close to crossing above last year. Choice beef production as a percent of the total tends to rise in November only to dip again after the Thanksgiving Day holiday before a rapid ascent in mid-to late December.
However, the bloom comes off the rose in early January before a late-month push higher to what often is the annual high in early February. From there into early summer, the percentage of cattle that came into the feedlots as calves during the fall increases, and the percentage of choice carcasses that are possible declines.
The latest rise in choice beef production likely will see a dip before the December push.
CATTLE, BEEF RECAP
Cash cattle trading last week occurred at $117 to $120 per cwt on a live basis, up $2 to $3 from the previous week. Dressed-basis trade was reported at $187 per cwt, up $3 to $7.
The USDA choice cutout Wednesday was down $3.20 per cwt at $226.95, while select was off $2.00 at $210.31. The choice/select spread narrowed to $16.64 from $17.84 with 124 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Tuesday was $145.19 per cwt, up $0.16 from the previous day. This compares with Wednesday’s Jan contract settlement of $140.87, down $1.50.