When beef cutout values are plotted on a graph, it becomes clear that the real money for packers is in the upper end of USDA quality grades.
Beef packers have to deal with select and lower grades of beef, but when it comes to banking a profit, they get more out of prime, choice and branded beef.
Packers might not get so much bang for their cattle-buying buck if they could see inside the hide and tell if individual cattle would yield carcasses that would be graded prime, choice, select or lower, a market analyst said. If they could, they probably would differentiate the prices they pay for the live animals.
As it is, most cattle are purchased from the feedlot as a unit, meaning packers pay as much for cattle that yield a lower-grading carcass as they do for those that yield a higher-grading carcass, the analyst said.
HOW MUCH DIFFERENCE?
The Livestock Marketing Information Center has graphed monthly beef cutout value comparisons from the USDA’s Agricultural Marketing Service going back to May of 2003. It compares the carcass cutout values of branded versus choice beef, prime versus choice and choice versus select.
Those comparisons show a dramatic long-term difference in the value of prime beef over all comers. Even though the value of prime has declined in comparison over the last couple of years, the money is still with prime.
As of Aug. 1, when the data was last updated, the USDA prime cutout was $19.83 per cwt more than choice, the LMIC said. And from May 1, 2003, when the LMIC began keeping such comparisons, to Aug. 1, the prime beef cutout has averaged $27.40 per cwt more than choice.
But what about branded beef versus choice? The cutout value for branded beef was only $5.14 per cwt more than choice on Aug. 1, the LMIC said, and the average value of branded over choice since 2003 was $5.45.
And, the most-watched choice/select monthly spread was $6.87 per cwt on Aug. 1, compared with the average of $9.01.
VALUE CENTERED ON CERTAIN CUTS
One of the problems with utilizing the data showing the value of prime beef over choice or branded product, is that the real value for the packer is locked into a few premium cuts.
Over the year ended Aug. 1, the monthly value of the rib or loin primals has shown considerable preference for USDA prime over branded, choice, select and ungraded beef.
Contrast that with the monthly value of the chuck or round primals where there is very little difference in the cutout value of each USDA grade.
CATTLE, BEEF RECAP
Fed cattle trading this week was seen at $104 to $106 per cwt on a live basis, down $3 from last week. Dressed-basis trading was reported last week at $169 per cwt, up $2 to down $1.
The USDA choice cutout Tuesday was up $0.86 per cwt at $210.60, while select was off $0.17 at $191.67. The choice/select spread widened to $18.93 from $17.90 with 158 loads of fabricated product and 32 loads of trimmings and grinds sold into the spot market.
CME Group data combined with USDA information, compiled by the Livestock Marketing Information Center yields a weekly corn basis for the Texas Triangle last Thursday of $0.36 over the Dec futures contract.
There were no delivery notices against the Oct live cattle futures market Tuesday.
The CME Feeder Cattle Index for the seven days ended Monday was $138.66 per cwt, down $1.60. This compares with Tuesday’s Oct contract settlement of $134.50 per cwt, down $0.10.