Choice/Select Spread Due For Seasonal Widening

The difference, or spread, between wholesale choice and select beef prices continues to narrow but is due for a seasonal upturn.

USDA Agricultural Marketing Service data compiled by the Livestock Marketing Information Center through last week shows the choice/select spread has dropped sharply since its unusual peak the first week of June at $23.81.  Since resuming a more reasonable difference between this year and last year, the spread has followed the trend of the 2010-2014 average.

If the spread continues to follow the seasonal pattern, it should turn higher this week.  However, the USDA reported the spread at $6.73 on Thursday, down $1.10, or 14.0%, from last Friday.  But the seasonal tendency to turn higher at this time of year seems strong since even last year’s choice/select spread was widening at this time a year ago.

If the market follows the seasonals once it turns and begins to widen, it will peak the second week of December as buying interest falls off after end-of-the-year purchases are made.

 

SELECT VALUE DECLINES

 

But overall, the widening of the choice/select spread isn’t so much that buying interest for choice products rises as it is that select product demand declines.  This goes against standard thinking that demand for choice products rises for holiday meals.

There is some extra demand for choice ribs, but they make up a small percentage of the carcass.  The widening choice/select spread seems outsized if holiday demand for good-eating product is all that’s behind it.

USDA, AMS data show the declining weekly value of 600- to 900-pound choice boxed beef compared with last year and the previous five-year average.

The average shows a small tendency to rise into early December although prices appear to be following last year more than the average as supplies rise with rising slaughter rates and heavier weights.

Wholesale beef prices tried to rally this week, but in the end, they gave in to the mounting pressure of rising production and an overall bear market.  The USDA’s Market News reported Thursday afternoon that choice boxed beef prices were down $0.72 per cwt, or 0.36%, for the week at $200.86 from $201.58 a week earlier.  In the interim, prices traded in a very narrow range from $201.84 to as low as $201.19.

There is documentation that demand for some choice products rises in August as retailers and restaurants gear up for the Labor Day holiday and then follow through with demand for the holidays.  Individual products do show some strong seasonal tendencies to move sharply higher, but the demand drag for other products may weigh on the complex.

 

CASH CATTLE MARKETS STEADY

 

Cash cattle markets Thursday were steady with Wednesday at $118 per cwt on a live basis and at $185 to $187 dressed.

Cattle last week traded steady to lower at $118 per cwt to mostly $119 live and at 187 dressed, down $1 to $3.

The USDA’s choice cutout Thursday was $0.89 per cwt lower at $200.86, while select was up $1.00 at $194.13.  The choice/select spread narrowed to $6.73 from $8.62 with 85 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $148.32 per cwt, down $0.45.  This compares with the Aug settlement Thursday of $145.02, down $1.70.