The weekly boxed beef cutout value of choice 600- to 900-pound carcasses is not behaving normally, although the weekly difference between USDA choice- and select-graded beef is moving along with seasonal norms.
Blame it on nervousness over the economy brought on by jitters about the upcoming election, early fears of a stock-market setback after a record bull run, intuition about long profit taking after the bull run, or just plain ample numbers of fed cattle to slaughter. Whatever. The choice beef market this year never really took off on its late-winter rally this year.
Then, as the bottom falls out of equities and commodity markets over the Covid-19 Coronavirus, major events are cancelled and borders are closed, the fears of a major recession kick in, and people start worrying about job and business security, the air goes out of somewhat optional items like choice beef markets.
CHOICE BEEF FAILS
According to data from the USDA’s Agricultural Marketing Service that is compiled by the Livestock Marketing Information Center in Denver, wholesale prices for choice beef carcasses usually hit a seasonal low in the third week of February. For the five years of 2014-2018, this low averaged $211.91 per cwt.
From there, choice beef carcasses rally sharply to a seasonal peak the third week of March. At that point, most grocers are stocked up for the early run at the spring grilling season. Generally, their buying interest backs off as they wait to see how well they have gauged consumers’ desires.
That backing-away also coincides with an increase in cattle availability and weights as weather conditions moderate.
Last year, the USDA’s boxed-beef cutout value through April closely approximated the five-year average into May where it dropped below average through July and then shot above the average into the last week of December.
This year, the choice beef price started out below average and remained there. A graph of weekly prices showed that the price continued to follow the trend albeit at a lower level.
However, the fourth week of February, when prices should have turned higher, they didn’t. Instead, they continued to drop for another week before last week’s limp attempt at a seasonal rally.
A one-week delay in a seasonal bottom would not be unusual, but the sharpness of the seasonal upturn and last week’s languid move made the difference striking. Couple this with the economic havoc this week, and it’s not hard to imagine a very unseasonal seasonal rally.
CHOICE/SELECT SPREAD NEAR NORMAL
Yet the choice/select price spread, the difference between choice- and select-grade beef, remains near normal.
This means that a graph of select-grade beef prices would show the same anomalies as the graph of choice beef prices.
However, if consumers begin to switch choice beef purchases for select-grade beef, the price spread could narrow unnaturally in coming weeks, or even months, depending on the severity of any economic downturn.
CATTLE, BEEF RECAP
Cash cattle traded in the Plains this week at $108 to $110 per cwt on a live basis, down $3 to $4 from last week, and at $175 to $176 dressed, down $5 to $6.
The USDA choice cutout Thursday was down $1.16 per cwt at $206.01, while select was up $1.39 at $197.88. The choice/select spread narrowed to $8.13 from $10.68 with 114 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $131.04 per cwt, down $2.01 from the previous day. This compares with Thursday’s Mar contract settlement of $118.82, down $4.50.