Choice/Select Spread Widens Sharply

The difference between the USDA’s choice and select cutout values, called the choice/select spread, is widening at a rapid pace, but the reasons for the move are less than clear.

A seasonal rise in slaughter rates, along with a seasonal decline in slaughter weights hardly seems sufficient to explain a very unseasonal rate of spread widening.  It could be that consumers are finally learning about the good-eating benefits of choice beef over select, yet choice cutout prices remain below last year.

As of the end of May, the weekly average choice cutout value was $223.19 per cwt, $35.92, or 13.86%, below a year ago’s $259.11.  The weekly select cutout value was at $204.78 per cwt, 17% below year ago.

The fact that cutout values are below a year ago is not surprising as fed cattle, and therefore beef supply, have increased relative to last year, said Jim Robb, director of the Denver-based LMIC, in the latest Livestock Monitor.

However, the choice/select spread has been widening sharply since early May, and middle meats, or areas from which steaks are cut, have been performing relatively well at the wholesale level, Robb said.

 

COMPARISONS

 

As of the end of May, the rib and loin choice cutout values were only 7% and 8% below year ago levels, respectively.  These prices have stayed relatively strong compared with the end meats, which mostly are made into roasts or hamburger, which were down 18% to 20% year over year.

Within the Select cutout value, the rib has stayed relatively strong, down only 6% year over year.  The loin cutout was down 16%, though, and the majority of end cuts were down 20%-25% (the brisket, however, was down 12%).

As of June 1 the spread was $21.82 per cwt, the largest it had been since May of 2004.  But looking at the year-over-year changes in the values, the select cutout has decreased relatively more than the Choice cutout.

Additionally, the select cutout is seeing more weakness in the loin value than the choice.

“Overall, the widening choice/select spread appears to be mostly demand driven,” Robb said.  “As cattle and, therefore, beef prices decline, relative to last year, people seem to be more willing to pay a relatively higher price for choice beef items compared to select.”

 

WILL IT LAST?

 

The premium of choice over select cutout value may begin to erode from its lofty level soon as it typically does in late June and July, Robb said.  The data show a strong seasonal tendency for a summer dip.

Still, if the demand for choice holds-up, the premium easily could remain above 2015 for the balance of this year.

 

CASH CATTLE MARKET QUIET

 

Cash cattle markets Monday were quiet with no bids or offers reported.

Cattle markets Friday traded $3 to $7 per cwt higher at $128 to $132.50 on a live basis.  Cattle traded at $203 per cwt, down $1, on a dressed basis early in the week, but moved to $2 to $3 higher at $206 to $207 later.

The USDA’s choice cutout Monday was $1.49 per cwt higher at $224.10 per cwt, while select was up $1.72 at $200.08.  The choice/select spread narrowed to $24.02 from $24.25 with 95 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Friday was $148.71 per cwt, up $1.50.  This compares with the Aug settlement Monday of $145.52, down $1.15.