In the last five weeks the difference between USDA-listed average weekly prices of choice and select beef, called the choice/select spread, widened sharply.
In the first weeks of April and May, the choice/select spread were inverted, meaning the lower-eating-quality select beef was higher in price than the better-eating choice beef. But, in the last five weeks, the spread took on its seasonal widening in spades, surpassing last year and closing in on the 2020-2024 average seasonal high.
UNSEASONAL EARLY PRESSURE
The choice/select spread last week averaged $20.01 per cwt, up $2.64, or 15.2%, from $17.37 a week earlier, up $20.46, from a minus $0.45 the second week of May, up $7.56, or 60.7%, from $12.45 in the same week last year but $4.65, or 18.9%, less than the 2020-2024 average of $24.66.
The choice/select spread pressure during the first five months of the year was linked to cautious consumers stung by rapid meat-price inflation and concerns about more as the Iran conflict boosted energy prices.
In addition to demand-side theories about why the choice/select spread narrowed early this year was a decline in the percent of choice beef production to select beef production. Data from the USDA’s Agricultural Marketing Service that was compiled by the Livestock Marketing Information Center in Denver showed that choice beef production as a percentage of graded beef has been below last year and the previous five-year average in most weeks this year, only bouncing around last year’s percentages in the last six weeks.
Last week, the percentage of choice beef produced as a percentage of all beef graded by USDA inspectors was 71.7%, compared with 72.0% a week earlier and 71.9% a year earlier and 72.9% for the previous five-year average.
PROSPECTS
The latest widening of the choice/select spread can be counted as seasonal and/or a delayed seasonal response that is releasing the strain of being so far out of touch with the seasonal pattern in March, April and May.
The spread is just catching up with the 2020-2024 average, which usually happens last week. Once it reaches the seasonal peak it should lose most of its push until the last quarter of the year.
Last year, the choice/select spread was a problem child, widening more than it should have at times and narrowing when it shouldn’t have at others. So, when comparing, it’s probably best to compare with the five-year average since it weeds out some of the noise of single-year comparisons.
Choice beef production as a percentage of all graded beef should pick up in coming weeks as more fed cattle that were placed on feed as yearlings come to market in place of those that were placed as calves. Thie likely will result in capping the choice/select spread through the summer, a market analyst said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $256.28 per cwt to $260.00, compared with last week’s range of $256.19 to $257.34 per cwt. FOB dressed steers and heifers went for $401.64 per cwt to $401.66, compared with $401.57 to $405.30.
The USDA choice cutout Monday was up $1.69 per cwt at $396.06 while select was up $3.51 at $375.59. The choice/select spread narrowed to $20.47, from $22.29 with 61 loads of fabricated product and 19 loads of trimmings and grinds sold into the spot market.
The USDA-listed the weighted average wholesale price for fresh 90% lean beef as $456.94 per cwt, and 50% beef was $186.65.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.23 to $1.43 a bushel over the Jul corn contract, which settled at $4.11 1/2 a bushel, down $0.06.
No live cattle contracts were tendered for delivery Monday.
The CME Feeder Cattle Index for the seven days ended Friday was $370.56 per cwt, up $1.88. This compares with Monday’s Aug contract settlement of $370.42, up $3.82.