As the USDA spread between choice and select wholesale beef prices narrows, it’s natural to assume the spread is unnaturally narrow, but this is not the case. In fact, it is just now coming back in line with last year and the 2011-2015 average.
The Livestock Marketing Information Center has plotted USDA Agricultural Marketing System data on the weekly average choice/select spread. The data show that last week, the spread averaged $9.33, only $0.47, or 5.30%, above last year’s $8.86 and $4.35, or 87.3%, above the previous five-year average of $4.98.
The USDA/AMS data show that this year’s choice/select spread has followed seasonal norms so far. The moves have just been more exaggerated than in previous years.
If the spread keeps following its latest trend, it should narrow a bit more before turning higher for the fall. Demand for choice, or even prime, beef for the Thanksgiving, Christmas and New Year’s holidays will turn the spread wider until this demand drops off suddenly in December. At that time, further holiday purchases will not get to retail or restaurant coolers in time for holiday sales to consumers.
SPREAD WIDER DESPITE HIGHER CHOICE PRODUCTION
The surprising part about this year’s strength in the choice/select beef spread is that it has happened in spite of a higher percentage of choice production in relation to select.
USDA/AMS data show that the weekly percentage of beef production that graded choice versus select has been above last year all year. This is even more remarkable in light of the fact that the percentage of choice production last year was well above the 2011-2015 average.
The choice beef production percentage for the third week of July was 74.38%, the data said. This is the second highest of the year so far, eclipsed only by the 74.49% the second week of January.
The latest choice beef production percentage of 74.38% was above 72.18% the same week last year and the 64.90% for the previous five-year average.
If choice grading percentages hold true to form, they will begin to decline in the next two weeks and bottom the last week of October.
The late-summer/early fall decline in choice production percentages corresponds with the increase in the choice/select price spread. This natural cut in production adds fuel to the fire of season increases in demand for choice beef.
RETAIL CHOICE PRICES RISE, TOO
Retail prices for choice beef normally climb into November, although they didn’t last year as supplies became increasingly abundant. The peak in retail choice beef prices last year came in March with a challenge in June.
This year, retail beef prices have risen into June and seem bent to go even higher in spite of continually rising supplies on a monthly basis.
CATTLE, BEEF RECAP
Only one lot of 54 head with one- to nine-day delivery sold on the livestock exchange video auction Wednesday averaging $116.00 per cwt, down $1.68 from $117.68 last week.
Cash cattle trading was reported last week at $116 to $118 per cwt on a live basis, about steady. Dressed-basis trades were reported steady to $1 lower at $187 to $188.
The USDA’s choice cutout Tuesday was down $0.89 per cwt at $202.72, while select was off $0.31 at $197.00. The choice/select spread narrowed to $5.72 from $6.30 with 70 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday was $149.77 per cwt, down $2.22. This compares with Tuesday’s Aug settlement at $146.25, down $3.70.