The difference between reported wholesale choice and select beef prices, called the choice/select spread, is widening and is even approaching last year’s COVID-related high, according to data from the USDA’s Agricultural Marketing Service and compiled by the Livestock Marketing Information Center.
Strong demand for beef, especially choice product, along with controlled output from the beef packing plants has forced the spread to widen, despite the fact that US production is about 80% choice, a market analyst said. The bearish effects of high unemployment linked to COVID-related layoffs and business contractions seem to be mitigated by government stimulus payments and unemployment benefits.
CHOICE/SELECT SPREAD VERY WIDE
The choice/select spread last week was listed by the LMIC at an average of $23.23 per cwt. This was up $4.45, or 23.7%, from $18.78 a week earlier, up $3.72, or 19.1%, from $19.51 a year earlier and up $5,43, or 30.5%, from the 2015-2019 average of $17.80.
Last year, the widest point in the choice/select spread didn’t occur for another two weeks at $25.44 per cwt, after the Memorial Day holiday weekend. The market was out of breath just about the time retailers and restaurants backed off their meat buying.
The market then was shifting pipeline supplies and demand away from restaurants, which were closing or being restricted severely by COVID regulations, and toward grocers. Then-president Trump proclaimed packing plants as essential businesses, and product prices began to drop.
At any rate, this year’s peak in the choice/select spread is coming earlier than last year but is nearly as wide already. There has been talk in the markets that analysts think the spread has just about topped out, since last year’s spread was fueled mostly by plant closures and supply shortages.
SWIFT POST-TOP NARROWING SEEN
However, a new, even wider spread could be seen this year before the market decides to turn, the analyst said. Since the current challenge to last year’s high is two weeks early, and the previous five-year average tops out three weeks hence, there may be time for a new high before giving up.
But once the spread turns south, the narrowing could be swift like it was last year, but few expect the post-high trough to be as low as last year’s $7.09, which came the first week of July. The average seasonal summer low in the choice/select spread comes the second week of September at around $$9.56 per cwt.
By then, beef production was sorting itself out, although feedlots continued to deal with the aftermath of the earlier plant closures and all the market uncertainty. There still are lingering effects, but at least most issues relate to more normal fundamental factors like weather.
CATTLE, BEEF RECAP
Fed cattle traded this week at $118 to $120 per cwt on a live bases, steady to $1 lower than last week. Dressed-basis trading was at $188 to $191, steady to down $1.
The USDA choice cutout Tuesday was up $2.09 per cwt at $329.92, while select was up $0.87 at $304.26. The choice/select spread widened to $25.66 from $24.44 with 62 loads of fabricated product and 31 loads of trimmings and grinds sold into the spot market.
The USDA reported Tuesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.05 to $1.17 a bushel over the Jul futures, which settled at $6.20 1/4 a bushel, down $0.37.
The CME Feeder Cattle Index for the seven days ended Monday was $136.31 per cwt up $0.65. This compares with Tuesday’s May contract settlement of $136.62 per cwt, up $0.35 and Aug’s $156.67, up $2.55.