It was somewhat surprising to some that the spread between USDA choice and select graded beef prices narrowed to less than $1 Tuesday, but the move is pretty normal for this time of year.
But the weekly average choice/select spread could narrow a little more before it starts to go up again.
Information from the USDA’s Agricultural Marketing Service that is compiled by the Livestock Marketing Information Center in Denver shows that, on average, the weekly average choice/select spread hits its annual low point about the third week of February.
However, the bottom of the five-year average curve is somewhat rounded, so an annual low could come a little “early” and still not be completely out of character.
SPREAD SOMEWHAT NARROWER THAN NORMAL
But the date of the low-point in the choice/select spread may be lost in the fact that the spread is running below the 2014-2018 average.
For instance, the average weekly choice/select price spread last week was $2.61, with choice being higher than select. In the same week last year, the spread was $4.96, for a difference of $2.35, or 47.4%. The previous five-year average weekly spread price was $4.62, for a difference of $2.01, or 43.5%.
MORE SELECT BEEF DEMAND?
It’s difficult to tell exactly why the choice/select spread is running narrower than last year or the five-year average, but there seems to be a trend toward an interest among consumers to eat more select or ground beef than choice beef, a market analyst said. This may be an unfair comparison in the middle of winter when roasts and ground beef are the most common ways of consuming beef.
While demand is hard to measure, there may be something to such theories, at least for part of the story, the analyst said. Beef cow slaughter has been up for a year, yet boxed cow-beef cutout values rose for most of last year and continue to move above the 2014-2018 average this month.
The seasonal trajectory for cow beef prices is up through the first seven months of the year since most of those that were culled routinely were culled in the fall. Culling rates fall off seasonally.
Yet the trend toward more cow culling along with more heifer slaughter last year points toward some herd drawdowns. And the fact that cow beef prices can maintain a higher level in spite of higher slaughter rates points to more demand.
CHOICE BEEF SUPPLIES AMPLE
Also playing a part in the narrow choice/select spread likely is the fact that there are ample supplies of the product.
Last week, 73.32% of all graded beef (and not all of it is graded) was graded choice, the AMS said. This compares with the same week last year when 73.22% graded choice and the 2014-2018 average for the week when 70.09% hit the choice grade mark.
The choice/select spread remains something to watch.
CATTLE, BEEF RECAP
Cash cattle trading was reported in the Plains Wednesday at $122 per cwt on a live basis, down $1 to $5 from last week. No dressed-basis trading was reported but took place last week at $198 to $199.50 per cwt, steady to up $0.50.
The USDA choice cutout Wednesday was up $0.67 per cwt at $213.52, while select was down $0.23 at $211.93. The choice/select spread widened to $0.69 from $0.69 with 97 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Tuesday was $143.59 per cwt, down $0.17. This compares with Wednesday’s Jan contract settlement of $142.10, up $0.05 and the Mar close of $134.97, down $0.42.