Choice/Select Spread May Decide Feeding Time

Deciding to feed cattle to heavier weights and produce more choice beef this summer may be tied directly to the difference between choice and select beef prices, said Brenda Boetel, agricultural economist at the University of Wisconsin-River Falls, in a letter to Extension agents from the Livestock Marketing Information Center called In The Cattle Markets.

Cattle feeders have been placing more calves into feedlots at lighter weights, which generally means lighter-weight slaughter cattle and less choice beef in relation to select, Boetel said.  But as the industry adjusts to high corn prices, this could change.




The choice/select spread typically is narrowest in the first quarter as the demand for choice middle meats is at its lowest and the supply of choice cattle typically is at its highest, she said.  In contrast, going into summer, the demand for choice middle meats grows with the grilling season, but the supply of choice-grading cattle declines as the calf-fed cattle are harvested.




The last few weeks have seen the choice/select spread narrow to $3.97, compared with a 2019-2021 average of $5.78 for the same week, she said.  Considering 2022 began with a spread almost $4.50 wider than the average, the narrow spread illustrates the back-up in cattle processing in January.

Currently, the average weekly year-to-date dressed steer weight is up nine pounds from 2021 and 24.8 pounds more than the 2019-2021 seasonal average, Boetel said.  The increase in dressed weights is partially because of the backed-up cattle supply linked to COVID labor issues in the packing sector.

As cattle finish at higher weights, the percentage of choice graded cattle tends to increase, she said.  Year to date, the percentage of cattle grading choice is up 1.25% over the 2019-2021 average.

Seasonally, the choice/select spread will widen until late June/early July because of supply/demand considerations for choice and select beef, Boetel said.

However, given the higher percentage of lightweight cattle placed on feed since November, as compared with the 2019-2021 average, the choice/select spread likely will widen more than average, she said.  How wide depends on corn prices when cattle were placed, the percentage of cattle grading choice, total amount of beef production, as well as beef demand, Boetel said.

All other things being constant, the effect of a 1% change in choice-grading cattle, can effect almost a 9% change in the spread.

That means that since the average 2016-2020 spread was as wide as $22.45 in June, a decrease of 1% in choice graded beef could widen the spread by another $2, providing some incentives to feed cattle longer and to heavier weights.




The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $140.00 to $142.49 per cwt, compared with last week’s range of $140.92 to $145.00.  FOB dressed steers and heifers went for $219.87 to $224.78 per cwt, versus $221.90 to $225.95.

The USDA choice cutout Thursday was up $1.24 per cwt at $253.94, while select was up $2.58 at $247.37.  The choice/select spread narrowed to $6.57 from $7.91 with 69 loads of fabricated product and 37 loads of trimmings and grinds sold into the spot market.

The USDA reported that basis bids for corn from feeders in the Southern Plains were unchanged at $1.25 to $1.35 a bushel over the May futures and for southwest Kansas were steady at $0.15 over May, which settled at $7.55 3/4, up $0.22 3/4.

The CME Feeder Cattle Index for the seven days ended Wednesday was $153.06 per cwt down $0.83.  This compares with Thursday’s Mar contract settlement of $151.65 per cwt, down $2.40.