Choice/Select Spread Near Decision Point

The spread between USDA-reported weekly choice and select beef carcass prices has fallen on uncharacteristic hard times and appears to be at a decision point.

After opening the year significantly higher than last year or the 2015-2019 average and even going against a seasonal downturn for a time, the choice/select beef price spread fell sharply last week.  Last week’s average was just above last year and the previous five-year average.

 

CHOICE/SELECT SPREAD NARROWINB FAST

 

The weekly average USDA price spread for choice- and select-graded beef last week was $6.57 per cwt, down $3.70, or 36.0%, from $10.27 a week earlier.  However, it was up $1.43, or 27.8%, from $5.14 per cwt in the same week last year and up $0.23, or 3.63%, from $6.34 in the 2015-2019 average.

The spread peaked this year at $13.06 per cwt in the second week of February and has been declining ever since, capped by last week’s sharp drop.  This goes against the five-year average trend when the spread hits a seasonal low in the third week of February at $3.76 per cwt and climbs from there.

The spread could make a sharp upturn this week and follow the five-year average higher into the annual high around the second week of June.  The counter-seasonal widening in January and February says there is good product demand out there.

However, the early bump could have stolen some buying interest from the late-winter early spring market, a market analyst said.  So, the spread could overshoot the average to the downside before turning higher.

 

STRONG SEASONAL INFLUENCE

 

In normal years, seasonal demand could be counted on to take the spread wider into early summer, accompanied by the aroma of grilled beef emanating from backyards and patios across the US.  But this year is different.  We have a pandemic in play with lockdowns and gathering restrictions in place.

Businesses are suffering, and unemployment is up.  Government stimulus checks will help, and they have gotten the economy through 2020, but can it keep going? the analyst asked.

The seasonalities are strong, but weekly averages for ribeyes and loins have turned south.  Both remain above last year and the 2015-2019 average but were down the last two weeks.

Both declines could be just an early dip related to the early Easter holiday, allowing more consumers to get out and grill some meals, but it also could be a sign of caution on the part of retail grocers and restaurants amid rising employment concerns, the analyst said.

Even beef trimmings prices are mixed to ho-hum.  Fifty-percent lean trimmings continue to run below last year and the previous five-year average, but 90% lean trimmings recently crossed above both lines but faded a bit last week.

Murky, the future is.

 

CATTLE, BEEF RECAP

 

Fed cattle trading last week was at $113 to $114 per cwt on a live basis, steady with the previous week.  Dressed-basis trading was at $180, also steady.

The USDA choice cutout Tuesday was up $2.16 per cwt at $226.93, while select was up $0.72 at $218.77.  The choice/select spread widened to $8.16 from $6.72 with 92 loads of fabricated product and 40 loads of trimmings and grinds sold into the spot market.

The USDA reported Tuesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.15 to $1.20 a bushel over the May CBOT futures contract, which settled at $5.54 1/4 a bushel, up $0.04 3/4.

The CME Feeder Cattle Index for the seven days ended Monday was $133.86 per cwt, down $0.07.  This compares with Tuesday’s Mar contract settlement of $136.57 per cwt, down $0.45.