The US beef market, which never is crystal clear, seems murkier than ever right now, a market analyst said.
On one hand, wholesale beef prices for choice grade beef over select grade remain elevated compared with the 2016-2020 average when seasonal pressures should be taking them lower, the analyst said.
On the other hand, frozen beef stockpiles are up significantly from last year and the previous five-year average.
It’s hard to draw concrete conclusions, the analyst said.
WIDE CHOICE/SELECT SPREAD
It’s clear US consumers have discovered the difference between the eating quality of USDA choice and select beef. They are willing to pay more for choice-grading beef and receive greater eating pleasure from their meal than to pay less for select and get less satisfaction.
The wholesale price of choice beef is holding about $15 per cwt higher than the 2016-2020 average, which usually is in a seasonal slump about now, approaching the summer low. (Comparisons to last year are almost useless because it was a COVID year when beef production and consumption were skewed out of character.)
Last week’s average difference between USDA’s listings of choice and select beef, or the choice/select spread, was $26.15, up from the 2016-2020 average of $11.45, for a difference of $14.70, or 128.4%.
And, given the seasonal tendency of the weekly choice/select spread to slide to a bowl-shaped summer low, the strength of the current spread is remarkable, the analyst said.
COLD STORAGE SUPPLIES MOUNT
Monday, the USDA reported the US had 510.841 million pounds of frozen beef on hand at the end of July, down 5.965 million, or 1.15%, from 516.806 million in June but up 109.998 million, or 27.4%, from last year’s 400.843 million and up 54.749 million, or 12.0%, from the previous five-year average of 456.092 million.
So, if consumer and export beef demand is good enough to keep prices high, why is all this beef in cold storage? the analyst asked.
Cold storage stocks should have been declining from January into May or June and then climbing back up toward a year-end high, if the 2016-2020 average were followed. Last year’s slaughter pace was fouled up by COVID, exaggerating the mid-year seasonal low.
Slaughter rates could provide some clues. USDA data showed federally inspected steer and heifer slaughter for June was 2.347 million head, compared with the 2016-2020 average of 2.244.4 million.
That shows monthly slaughter rates are up from the 2016-2020 average. Weekly beef production is mixed, with USDA data showing beef production last week at 535.8 million pounds, down from last year’s 548.2 million but up from the previous five-year average of 524.56 million.
Confusing.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $142.00 to $148.37 per cwt, compared with last week’s range of $142.85 to $149.00. FOB dressed steers, and heifers went for $220.22 to $225.34 per cwt, versus $215.08 to $225.57.
The USDA choice cutout Thursday was up $0.71 per cwt at $263.54 while select was down $0.08 at $237.54. The choice/select spread widened to $26.00 from $25.21 with 98 loads of fabricated product and 26 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were steady at $2.40 to $2.50 a bushel over the Sep futures and for southwest Kansas were unchanged at $1.00 over Sep, which settled at $6.57 1/2, down $0.08 1/4.
No contracts were tendered for delivery against the Aug live cattle contract Thursday.
The CME Feeder Cattle Index for the seven days ended Wednesday was $181.00 per cwt up $0.50. This compares with Thursday’s Aug contract settlement of $181.87, up $0.65.