The spread between wholesale choice and select beef prices is widening as beef demand expands. It’s even doing so at a time when the spread normally is making its annual low.
Last week’s choice/select spread widened to $10.16 from $8.78 the previous week, and the spread widened $6.00 in just three weeks. This may have been because of a combination of increased seasonal demand and a limited supply of choice-graded carcasses.
As of last week, the spread was well on its way to establishing the seasonal high, which last year occurred the third week of May at $13.30. The 2010-2014 average spring peak takes place the first week of June at $11.25.
The latest weekly choice/select spread was $8.59, or 547%, higher than last year’s $1.57, and was $8.16, or 408%, higher than the five-year average of $2.00.
MILD SPRING WEATHER
Unlike many years, the transition from winter to spring has been relatively tame. And, after a winter of being cooped up, many consumers are more than ready to fire up some charcoal.
Additionally, consumers have more to spend in the wake of lower gasoline prices. The extra cash often isn’t enough for something big, like saving for retirement, but it is enough for better-eating cuts of beef to throw on the grill. Experience has taught many analysts that lower gasoline prices usually result in greater beef demand.
Grocers are not unaware of the opportunity to sell grilling cuts to a public anxious to get outdoors. The result is an early rise in the choice/select spread.
Many consumers also are getting the message that choice beef gives them a better eating experience than select, so if they have the money, they’ll lean toward choice-graded products.
CORN PRICES COULD LOWER SPREAD’S PEAK
However, lower corn prices, adequate pasture lands and tightening or negative margins for cattle producers could work together to cap the choice/select spread’s peak.
Corn futures dropped sharply Thursday after the USDA’s Prospective Plantings report showed farmer plans to grow more corn than was expected. However, feedlots continue to lose money, and the cost of gain is less than the selling price, making it worthwhile to feed to heavy weights.
Pasture availability also isn’t an issue for many cow/calf producers, so the tendency is to maximize gain before sale to get more per head at sale.
With more choice-grading carcasses produced, the early seasonal choice/select spread could peak early.
CASH CATTLE MARKETS TRADE STEADY
Cash cattle markets Thursday continued to trade at a steady $133 per cwt on a live basis and $214 on a dressed basis. Both were about $3 below last week’s markets.
The USDA’s choice cutout price Thursday was down $0.88 per cwt at $220.99, and select was off $2.20 at $210.48. The choice/select spread widened to $10.51 from $9.19 as 124 loads of fabricated product were sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $158.26 per cwt, down $0.03. This compares with the Apr CME settlement Thursday of $157.07, up $4.50.