The last two weeks have seen the wholesale price spread between USDA-graded choice and select carcasses narrow, and while this is a seasonal move, there are some differences this year.
The choice/select price narrowing is seasonal because the percentage of choice and select carcasses tend to shift as carcass weights decline in summer’s heat. The big differences this year is the level at which the price narrowing began and supplies of fed cattle, coupled with consumers who continue to spend on almost everything, including beef.
WIDE CHOICE/SELECT PRICE SPREAD
The weekly USDA choice/select price spread has been wider than last year and the 2017-2021 average for most of the year, only dropping below the average for four weeks in late May and early June.
However, after bottoming in late May, the spread widened to this year’s top of $32.07 the last week of June, up $8.45, or 35.8%, from $23.62 the same week a year earlier and up $15.26, or 90.8%, from the 2017-2021 average of $16.81.
The USDA’s weekly choice/select spread tends to set its annual peak in mid- to late June, and this year appears to be no different.
From there, the choice/select spread has a long way to narrow before touching the five-year average, but it could cross last year’s spread within the next week or two. Last year, was very unusual in that the spread did not peak annually until mid-to late November.
CATTLE ON FEED IN DOWNWARD TREND
The number of cattle populating US feedlots continues to shrink in a somewhat seasonal move. Last year also showed this seasonal decline but at much higher numbers.
After June, feedlot populations drop sharply as placements drop in favor of grazing young cattle over feeding them expensive feedlot fare. As pastures give out prior to winter, more young cattle come to the feedlots for finishing.
The lower 2023 feedlot placements point to fewer slaughter-ready cattle being presented to packer buyers later in the year. Some cattle that could benefit from more time on feed may be sold to packers later this year, meaning less choice versus select beef may be produced during these times.
That would enhance the chances of the choice/select spread widening again and perhaps setting a new annual peak for 2023. Such a peak would be surprising to many and almost certainly push cash cattle prices higher, especially for well-finished cattle that are more likely to yield choice, or even prime, carcasses.
But cattle feeders know such demand for well-finished cattle is a distinct possibility this fall. Many may not give in to pressure to “pull cattle forward,” or sell before their scheduled exit date, just to make sure they have the finish necessary to command premium prices.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $178.00 per cwt to $188.83, compared with last week’s range of $178.00 to $186.59 per cwt. FOB dressed steers, and heifers went for $280.35 per cwt to $288.43, compared with $280.56 to $287.07.
The USDA choice cutout Tuesday was down $2.10 per cwt at $304.68 while select was up $0.87 at $276.61. The choice/select spread narrowed to $28.07 from $31.04 with 103 loads of fabricated product and 20 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.90 to $2.05 a bushel over the Sep corn contract, which settled at $5.28 3/4 a bushel, up $0.29 1/2.
The CME Feeder Cattle Index for the seven days ended Monday was $238.45 per cwt, up $0.72. This compares with Tuesday’s Aug contract settlement of $248.00 per cwt, down $1.25.