With the narrowing of the average weekly spread between choice and select beef wholesale carcass values in October, it would be tempting to think the spread is unusually narrow, but such is not the case.
The weekly average spread between choice and select beef carcass cutout values has narrowed since its latest peak the first week of September, but it remains wider than either last year or the 2015-2019 average. The weekly average also appears to have turned the corner to a seasonal widening into December.
EXTRAORDINARY PEAKS
Actually, the choice/select spread has been wider than last year or the previous five-year average since the last week of April.
Plus, the spread made two extraordinary jumps this year, making downturns seem unusually bad for packers and cattle feeders. One of these peaks came in the second week of June when the weekly average was $37.22, choice over select. The second was the first week of September when it was $34.99, choice over select.
The first of those peaks was totally seasonal as the US grilling season kicked off. It was the width of the spread that was unusual. That week in 2020, the spread was only $11.62, choice over select, and the 2015-2019 average was $19.19. Both of these were the annual peak.
This year’s late-summer wide spot in the choice/select spread came at a time of year when it normally is fairly narrow. It generally isn’t the narrowest point of the year, which comes in February, but there is a significant summer lull in buying interest for choice beef in the hottest part of the summer.
It was foreshadowed by last year’s midsummer rally, which got the attention of most in the beef and cattle markets. But the 2020 midsummer rally was small potatoes compared with this summer’s runup.
On a line graph from the Livestock Marketing Information Center, this year’s midsummer choice/select spread widening stands out for its unusual strength for choice beef. And the rise and fall were as dramatic as the spring rally.
SEASONAL RISE COMING
Going forward, another seasonal peak should be in the offing, if the market follows seasonal norms.
On average, a secondary widening of the choice/select spread takes place in the fall. Generally, this is the second highest peak in the spread for the year.
But if the spread is to widen to its second widest point yet this year, it had better get moving, an analyst said. The fall rally is only about two weeks old, leaving only two to four weeks to spike.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers last week ranged from $129.52 to $132.00 per cwt, compared with the previous week’s range of $125.93 to $127.88. FOB dressed steers and heifers went for $197.79 to $203.85 per cwt, versus $195.39 to $198.32.
The USDA choice cutout Friday was down $0.84 per cwt at $284.30, while select was up $2.24 at $269.53. The choice/select spread narrowed to $14.77 from $17.85 with 94 loads of fabricated product and 23 loads of trimmings and grinds sold into the spot market.
The USDA reported Friday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.30 to $1.40 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.77 1/4 a bushel, up $0.07 3/4.
The CME Feeder Cattle Index for the seven days ended Thursday was $155.06 per cwt down $0.41. This compares with Friday’s Nov contract settlement of $156.25 per cwt, down $1.07.