If seasonal norms are followed, the difference between the wholesale prices of choice and select beef prices at the carcass level should begin widening soon.
Usually, choice-graded beef commands a higher wholesale price than select, even though the US produces much more choice beef than select, because consumers are willing to pay more for the better eating characteristics of choice beef.
A look at weekly differences, called the choice/select spread, calculated and published by the USDA’s National Agricultural Statistics Service, shows a distinct trend toward a widening of the spread beginning with the first week of March. Last year, however, the spread widening did not begin until the last week of March.
SPREAD NARROWING BEGINS EARLY
The choice/select spread usually begins to narrow in November as production of choice beef relative to select goes up. At that time of year, though, many in the cattle and beef industries still perceive consumer demand to be seasonally elevated and don’t perceive the narrowing of the wholesale choice/select spread.
End-of-year demand for choice beef is seasonally strong, a market analyst said, but the USDA numbers are wholesale prices, and wholesale market transactions take place before the retail. Thus, the slide in the choice/select wholesale price spread takes place before retail demand begins to slacken after the year-end holidays.
But the narrowing of the choice/select spread into the coming seasonal widening also takes place because of seasonal consumer preferences and production differences, the analyst said.
EARLY YEAR NARROWING COMPLICATED
Production of choice beef relative to select continues into the new year at some of the higher levels of the year. This begins to turn in mid-February, fueling a slow turn in the choice/select price spread from narrowing to widening.
At the same time, more orders from retail grocers begin to come in to beef packing plants as they try to round out their expected needs for the start of the spring/summer grilling season. While most of their needs have been booked for months, there always is some fill-in buying that needs to be booked since grocers don’t want to over-buy their needs.
LOOKING AHEAD
Looking ahead, the choice/select beef spread should begin to widen soon. The spread already is narrowing at a slower pace than it was in January, indicating the trend toward widening already is beginning.
The spread should widen into an annual high in June or July. It then should dip toward a mid-summer low before strengthening again into the fall where it will begin the late-year descent.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $179.42 per cwt to $182.19, compared with last week’s range of $175.69 to $183.00 per cwt. FOB dressed steers, and heifers went for $283.88 per cwt to $288.11, compared with $280.06 to $290.07.
The USDA choice cutout Wednesday was up $0.43 per cwt at $297.80 while select was down $3.36 at $284.46. The choice/select spread widened to $13.34 from $9.55 with 74 loads of fabricated product and 31 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 $1.35 to $1.45 a bushel over the Mar corn contract, which settled at $4.11 a bushel, down $0.07 3/4.
No steer or heifer contracts were tendered Wednesday for delivery against the Feb live cattle contract.
The CME Feeder Cattle Index for the seven days ended Tuesday was $242.66 per cwt, up $0.01. This compares with Wednesday’s Mar contract settlement of $251.35, down $0.02.