The difference between wholesale prices for USDA choice- and select-grade beef, known as the choice/select spread, is widening counter-seasonally, USDA data show.
Data from the USDA’s Agricultural Marketing Service and compiled by the Livestock Marketing Information Center in Denver showed that the choice/select spread last week averaged $11.42 per cwt. This was up $1.17 per cwt, or 11.4%, from $10.25 per cwt in the previous week and up $8.35, or 272.0%, from $3.07 in the same week a year ago and up $4.99, or 77.6%, from the 2015-2019 average of $6.43.
TASTE DEMAND SURPASSING LEAN DEMAND
US consumers, it seems, have discovered what their ancestors knew a long time ago – fat tastes good, as long as it isn’t overdone, a market analyst said.
In fact, there was a time when a specialty, family-owned meat market in Kansas City (a city where people like good meat) did not stock prime-graded beef, which has more marbling, or interlaced fat than choice beef, which has more than select. The owner told a reporter that the reason it wasn’t stocked was because he “couldn’t sell it.”
Fast-forward 25 years, and Sam’s Club, a store not noted for catering to the hoity-toity of society, not only is offering mostly choice beef but has a counter dedicated to prime beef, which is more expensive than choice.
In addition, demand is supporting choice beef prices. Last year, the weekly average of all graded beef carcasses in the US was 72.6%. This means US beef production averaged 72.6% choice, yet prices for choice beef remain higher than for select.
AT HOME USE CHANGING
Nevil Speer, private industry consultant in Bowling Green, KY, said in an emailed response to questions, that consumers’ willingness to spend more for choice, or even prime, beef is “somewhat counter-intuitive, given the structure of unemployment in this downturn being heavily biased toward low-wage workers.”
Those shoppers likely were price shoppers to begin with and likely weren’t heavy beef users at the retail case even prior to COVID and/or job downturn, Speer said.
The counter-seasonal strength of choice beef at the expense of select beef is an “indicator that beef demand remains strong, and the at-home purchasing patterns we’ve seen in the beef segment remain in place,” he said. “Consumers like high-quality beef and are willing to spend money on it.”
TRENDS
The choice/select spread usually declines to its low point about the third week of February, although last year, it occurred in the first week of February. From the low, the spread widens to its annual peak, which occurs about the second week of June. A second peak forms about mid-November.
CATTLE, BEEF RECAP
Fed cattle trading was reported in the Plains this week at mostly $110 to $111 per cwt on a live basis, steady to up $2 from last week. Dressed-basis trading last week was seen at $172 to $174 per cwt, down $2 to $3.
The USDA choice cutout Wednesday was up $1.42 per cwt at $218.91, while select was up $0.84 at $207.28. The choice/select spread widened to $11.63 from $11.05 with 101 loads of fabricated product and 36 loads of trimmings and grinds sold into the spot market.
The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.21 to $1.27 a bushel over the Mar CBOT futures contract, which settled at $5.22 a bushel, down $0.04.
The CME Feeder Cattle Index for the seven days ended Tuesday was $132.81 per cwt, down $0.09. This compares with Wednesday’s Jan contract settlement of $135.30 per cwt, up $0.90.