The choice/select spread widened the last two weeks to its highest point of the year as choice production declines and choice demand heats up seasonally.
The spread narrowed counter-seasonally in late September and early October.
The spread, as charted by the Livestock Marketing Information Center, shows a strong tendency to rise from mid-August to late November, a time when orders for choice-graded holiday cuts increases. The five-year average rises inexorably during this period.
A similar rise, albeit at lower levels occurs in the spring and early summer as demand for choice-graded grilling items increases. This rise culminates with the Independence Day holiday.
Last year, the third-quarter spread widening began right on schedule the first week of August but peaked early, the third week of September. From there, it tapered into the year-end holidays, punctuated by a short burst higher in early December.
This year, the spread had a late-summer peak and appeared to be following last year’s trend more aggressively, only to have it widen again in the last two weeks. It now appears ready to pierce last year’s down-trending line.
CONSUMERS RESIST HIGHER PRICES
If retail and restaurant meat buyers are nervous about chasing choice prices higher, they have good reason.
A compilation of data from the Bureau of Economic Analysis and the USDA’s Economic Research Service shows a definite trend in per-capita beef consumption as annual prices rise. Of course, more goes into beef consumption than just price, but an LMIC spatial graph shows a definite decline beginning with the onset of the Great Recession in 2008.
However, that time period also coincides with an extended drought in the nation’s food belt, reductions in herd sizes and lowered beef production.
But whatever the reason, annual per-capita beef consumption did not show a strong tendency to move out of its cluster around 67 pounds until 2008 when it dropped 2.79 pounds, or 4.27% to 62.50 pounds from 65.29.
From there, consumption has shown a stronger tendency to decline as the price increased, culminating in last year’s 56.42 pounds as the price reached $4.96 a pound. It seems reasonable to assume, then, that 2014 beef consumption will be lower as prices continue to rise.
STRESSED PACKERS FORCE BOXED-BEEF PRICES HIGHER
Two weeks ago, beef packers were thought to be losing $40.99 a head on the cattle they slaughter, according to the Sterling Profit Tracker. This was down $19.55, or 32.4% from $60.64 in just one week.
And last week’s cash cattle price gain of $6.00 per cwt to $170 for slaughter inventory this week will only add to packer red ink.
As a result, packers are pushing product prices hard this week, resulting in higher prices but lower volume.
Wholesale beef prices were up sharply on Tuesday, following steep gains on Monday amid moderate demand and light offerings, and the choice/select spread narrowed to $12.46 from $13.21.
The USDA reported its choice cutout value at $251.56 per cwt, up $2.36 for the day. Select was reported at $239.10, up $3.11 from Monday.
However, cash sales were remained light with only 79 loads of fabricated product sold into the spot market, after only 65 loads on Monday.
Cash feeder cattle prices are stabilizing as shown by the CME Feeder Cattle Index, which for the seven days ended Monday was up $0.31 to $238.51 from $238.20. The Oct futures contract settled Tuesday at $238.27, down $0.05.
Feeder cattle pricing action looks like it wants to take some short-term steam out the market as futures prices continue to waffle ahead of Oct expiration. Nov also is showing technical weakness, even though it is below the index.