The sudden narrowing of the difference between wholesale choice and select beef prices last week caught many traders and analysts off guard. But what seems more startling is that the weekly average difference, or spread, last week dropped to less than the 2018-2022 average.
USDA data compiled and published by the Livestock Marketing Information Center in Denver showed that the weekly choice/select spread has been narrower than the same week a year ago in all but one week this year and dropped below the previous five-year average last week.
A CONTRARY MOVE
Last week’s narrowing of the choice/select spread to take it below the 2018-2022 average was contrary to the general trend as lined out by the five-year average. The average weekly spread hits its narrowest point around the last week of February to the first week of March and rises from there. At this time of year, the spread should be widening as grocers order more choice product for customers to throw on the backyard grill.
Last year, though, the spread hit its narrowest yearly point the third week of March, rising unevenly from there.
It’s possible that last week’s low choice/select spread number from the USDA will be the low point of the year, a market analyst said, but if it isn’t, the beef market could become a drag on the fed cattle market.
CUTOUT REMAINS HIGH
Despite last week’s decline in the weekly beef cutout price, the market remains elevated, when compared with last year and the previous five-year average.’
Last week, the USDA composite price for choice beef carcasses was $309.13 per cwt, down $3.76, or 1.20%, from this year’s high so far of $312.89 set just a week earlier. However, this was up $28.62, or 10.2%, from $280.51 per cwt set in the same week last year and up $65.52, or 26.9%, from the 2018-2022 average of $243.61.
The choice boxed beef price usually peaks in late May or early June in a definite seasonal peak. After the high is set, the cutout price drops away abruptly to a summer low in mid-July. Another, smaller peak comes in late August or early September.
Last year, though, the choice beef wholesale price peaked in mid-June at $339.93 per cwt. It fell away after that but to a lesser degree than is normal and remained elevated from the average for the rest of the year.
A quick look at the graph would hint that the cutout will remain higher than last year and the average, but given the narrowing of the choice/select spread last week, the market may lack the strength, the analyst said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $186.26 per cwt to $190.27, compared with last week’s range of $188.79 to $194.99 per cwt. FOB dressed steers, and heifers went for $293.80 per cwt to $299.46, compared with $294.13 to $302.18.
The USDA choice cutout Wednesday was down $2.86 per cwt at $301.30 while select was off $2.07 at $296.92. The choice/select spread narrowed to $4.38 from $5.17 with 110 loads of fabricated product and 41 loads of trimmings and grinds sold into the spot market.
The daily weighted average USDA listed wholesale price for fresh 90% lean beef was $342.89 per cwt, and 50% beef was $97.13.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.40 to $1.55 a bushel over the May corn contract, which settled at $4.31 3/4 a bushel, up $0.05 1/4.
The CME Feeder Cattle Index for the seven days ended Tuesday was $247.73 per cwt, down $0.54. This compares with Wednesday’s Apr contract settlement of $240.95, down $2.55.