The price spread between choice and select beef at the wholesale level has taken an unprecedented turn lower over the last three weeks, dropping to $4.28, choice premium, last week, but the reasons aren’t exactly clear.
What is clear is that consumers are being drawn away from the more expensive choice beef products and toward less expensive select. It’s also possible that some choice beef is being swapped out for cheaper pork or chicken.
There also may be a seasonal factor involved with consumers recovering from the expense of sending children back to school. However, back-to-school budgets suffer every year, and the spread almost always seems to widen.
The spread last year seemed to be more volatile and respond to demand factors like the grilling season, and until early September, this year’s spread changes followed last year’s closely. Peaks and valleys in a Livestock Marketing Information Center graph were more pronounced than the 2009-2013 average and tended to come earlier in the year than the average, but correlations were evident.
Similarly, this year’s moves could be correlated with either last year or the average until this latest drop.
SPREAD CHANGE NOT A SUPPLY ISSUE
Whatever the cause, the unseasonal choice/select spread narrowing does not appear to be the result of more choice beef production. USDA data shows that the percentage of graded beef production that made choice declined seasonally over the last three weeks and maintains its seasonal moves, although at a much higher level.
The LMIC graph of USDA data shows the percent of beef graded choice as a percent of all graded beef at 68.58% last week, down 0.59 percentage points from the previous week and down 1.98 percentage points from the most recent peak of 70.56% four weeks prior.
During the same week last year, the percentage of choice-graded beef was 65.65%, up slightly from 64.5% the previous week but down from the cycle high or 66.94% the second week of July.
DEMAND ISSUES THE LIKELY CULPRIT
Absent any supply issues, the narrowing of the choice select spread must then be an issue of lower demand. And this is just what the data show, although a graph cannot distinctly show a reason for a demand shift.
In looking at USDA cutout levels for choice beef and comparing them with choice/select spread data, it is clear that prices for choice beef have declined. The wholesale price for choice the first week of July and has remained below year-earlier prices ever since.
What’s more, the choice beef cutout value has dropped sharply over the last three weeks.
Seasonally, beef prices tend to begin rising ahead of the year-end holidays, where choice and prime rib roast demand goes up as does hamburger. Orders begin coming in to packing plants about now, resulting in a bump in choice cutout prices.
Whether demand picks up this year is anybody’s guess now, with the narrower choice/select spread.
CASH FED CATTLE TRADE SHARPLY LOWER
Cash markets followed futures sharply lower with trades reported in Kansas at $124 per cwt on a live basis, $6 below last week. In Nebraska’s dressed market, light trading was seen at $189 to $190, $12 to $13 lower than last week.
However, most asking prices held at $130 to $133 live.
Cash cattle prices last week were down $6 to $7 per cwt with action in Iowa at $126 to $128 on a live basis with dressed action at $203 to $205. Nebraska trades were reported at $129 to $130 live and $208 down to $202 dressed. Trading also was reported in Kansas and Colorado and Texas at $128 to $130. In all cases, the lower prices came later in the week.
The USDA reported lower boxed beef prices again Wednesday with its choice cutout down $0.69 per cwt at $208.62 and select off $3.49 at $204.20 with 182 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Tuesday was $189.87, per cwt, down $0.59. This compares with the Oct settlement Wednesday of $178.17, down $2.65.