The USDA’s wholesale spread between the price of choice beef and select beef is at record-wide levels and appears to be widening – likely the result of strong beef demand, said Nevil Speer, industry consultant in Bowling Green, KY.
Beef production this year is up, and carcass grading was not hurt going through the harsh winter, yet product demand keeps pulling cattle through the packing plants, countering strong seasonal tendencies for the choice/select spread to narrow, Speer said.
STRONG COUNTER-SEASONAL PUSH
There is a very strong seasonal tendency for wholesale prices of choice and select beef to narrow in the summer. Livestock Marketing Information Center data, which was compiled from USDA information, shows the 2013-2017 weekly average choice/select price spread topping out annually in the first week of June at $18.00.
After that, the five-year average price spread narrows to a seasonal low of $5.85 in the first week of August.
However, this year, the choice/select wholesale price spread diverged from a rough approximation of the 2013-2017 average during the third week of June when the weekly average went to $19.38 and left the five-year average for that week of $14.46 behind.
And it has hardly looked back.
Last week, the weekly average choice/select boxed-beef price spread was $24.14, compared with the same week last year of $7.61 and the previous five-year average of $7.86.
WINTER DIDN’T HURT MUCH EXCEPT DEMAND
As much as the cattle industry likes to talk about it, the harsh winter didn’t seem to bother the cattle as much as was feared. At least it didn’t hurt beef production or quality as much as many thought.
The USDA has estimated beef production through last week at 14.560 billion pounds, up 0.3% from 14.524 billion through the same week last year.
Speer broke it out differently. He said, beef production was 516.6 million pounds a week in the second quarter, compared with 510.9 million in the same quarter last year. Last week’s production was estimated at 520 million pounds, compared with 509 million a year ago.
Plus, USDA data shows that the percent of beef that grades choice is only a little below last year yet remains above the 2013-2017 average. Last week, for instance, US beef graded 71.63% choice, compared with 72.67% in the same week last year and the previous five-year average of 69.02%.
PENT-UP DEMAND
Speer thinks that since beef production remains strong, and grading continues to be very good, the resulting push in choice beef prices against select prices must be demand based.
Cold storage supplies of beef also are not building up.
Speer thinks this unusual summer-time choice beef demand is pent-up demand from the spring when back yard grilling was hindered.
But a case also can be made that consumers are developing a taste for choice and prime beef that the (currently) strong economy is allowing them to consume. Monthly rime loin values have increased almost without a break since November.
CATTLE, BEEF RECAP
Cash cattle traded in the Plains last week at $111 to $114.50 per cwt on a live basis, steady to down $0.50 from the previous week. Dressed-basis trading was reported at a steady $182 to $185.
The USDA choice cutout Thursday was down $1.03 per cwt at $212.57, while select was off $0.24 at $189.18. The choice/select spread narrowed to $23.39 from $24.18 with 111 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $137.42 per cwt, up $0.71 from the previous day. This compares with Thursday’s Aug contract settlement of $142.80, down $0.02.