Strong consumer demand for choice beef appears to be a constant in the beef market now, and unless things change abruptly, and soon, wholesale prices for choice and select beef appear likely to remain inordinately wide into the new year.
As of last week, the choice/select spread was at $25.00 per cwt. This is $11.39, or 83.7%, above last year’s price of $13.61 per cwt and $12.73, or 103.7%, above the 2013-2017 average of $12.27.
USDA data that was compiled and graphed by the Livestock Marketing Information Center in Denver show that the percentage of choice beef versus select beef that is being produced by the industry is up from earlier in the year. The production spread has leveled somewhat in the last few weeks, but shows no signs of narrowing.
What’s more, total beef production has not changed much from last year and for September ran very close to the previous five-year average. September’s commercial beef production totaled 2.189 billion pounds, the USDA said. This compares with September 2918’s production of 2.158 billion and the 2013-2017 average of 2.127 billion.
So, paying more for the same quality and quantity of a product is a classic definition of stronger demand.
CATTLE PRICES OUT OF SYNCH?
But if choice beef demand is up, why are fed cattle prices so low? In a word, supplies.
It looks like fed cattle prices have recovered from the Tyson fire scare and are nearly back to last year’s level. At least they are close enough to say they are back in line.
The latest Cattle on Feed report showed that feedlot supplies are not front-end loaded. Feedlots are doing a good job of selling cattle for slaughter as soon as they are ready, and packer buyers appear ready to soak them up to fill their orders for beef.
Fed cattle supplies became more available as the US herd size peaked and more heifers were sent to the feedlots rather than being kept for breeding. As the herd size, and calf crop, fade in coming months and years, supplies of fed cattle will tighten again, and prices will move back higher.
It’s the age-old cattle cycle playing out.
Going forward, history suggests that fed cattle prices will continue to strengthen into early November. From there, they will level off, and could even dip around the Thanksgiving Day holiday.
Another short jump is likely late in the year as beef buyers look to secure enough product for New Year’s surf-&-turf retail specials.
Last year, though, fed cattle prices continued to rise unevenly through December, only to flatten for January and then peak in the spring.
CATTLE, BEEF RECAP
Cash cattle trading was reported last week at $174 to $175 per cwt on a dressed basis, steady to up $1 from the previous week. Live-basis trading occurred at mostly $109 to $110 per cwt, with some up to $111 late, up $1 to down $1.
The USDA choice cutout Tuesday was up $2.65 per cwt at $230.55, while select was up $2.81 at $203.57. The choice/select spread narrowed to $26.98 from $27.14 with 77 loads of fabricated product sold into the spot market.
Correction: Three steer contracts were tendered for delivery against the Oct live cattle futures contract Monday, not zero as was reported.
Two steer contracts were retendered for delivery at 1 on Tuesday.
The CME Feeder Cattle index for the seven days ended Monday was $144.83 per cwt, up $0.48 from the previous day. This compares with Tuesday’s Oct contract settlement of $145.42, up $0.02, and the Nov settlement of $145.47, down $0.25.