The spread between wholesale choice and select beef prices is nearing a critical point where it will make a seasonal low, but predicting just when it will happen is a little like reading the entrails of an economist.
The seasonal average pinch point for the 2012-16 weekly average choice/select spread happens in two weeks. This number is $5.75, according to USDA-Agricultural Marketing Service data compiled by the Livestock Marketing Information Center.
However, last year’s low in the choice/select spread occurred around the last week of August or first week of September at $1.15.
The real point is that choice beef is about to become more expensive relative to select, a good thing for cattle feeders who are trying to feed cattle to a point where all cattle in their care reach their full genetic potential for marbling. Marbling is the intermuscular fat that tenderizes and flavors beef.
Looking at the data, it’s easy to see that the choice/select spread did not equal last year’s spring/early summer highs. There was a notable rise that eclipsed the performance of many previous years, though, but it peaked early compared with the 2012-16 average.
GUESSING THE BOTTOM
There is an old adage about foretelling the future that goes something like, “tell them what or when but never what and when.” To that saying could be added the element of where.
Still, in the realm of markets, it’s good to make reasonable guesses about what, when and where. In this case, the what is the bottom of the wholesale choice/select spread, and the where is the numerical bottom, neither of which is as important as when because when the choice/select spread begins to widen the fed cattle market follows with higher prices.
It’s important to note that consumer demand for choice beef has risen in the last few years as many realized the eating quality difference and were willing to pay for it. More grocery meat case space now is devoted to choice product as a result, which only enhances the buying interest of consumers.
It’s also important to keep in mind that export demand for US beef may be affected increasingly going forward by export weakness and uncertainty, so saying that demand is fixed may be a bit of a stretch.
Still, the largest influencer of beef prices is supply, and with US beef production up about 3% so far this year, it’s no wonder that this year’s spring/early summer peak came a little early.
This increased supply also may affect the timing of the summer low by pushing it back from the 2012-16 average and closer to the 2017 low point.
CATTLE, BEEF RECAP
One pen of fed cattle sold on the Livestock Exchange Video Auction last Wednesday at $112 per cwt, up $6 from the last sale three weeks previous.
Cash cattle traded Friday afternoon at $112 to $113 per cwt on a live basis, up $2 from the previous week, and at $178 to $180 on a dressed basis, up $5.
The USDA choice cutout Tuesday was down $0.17 per cwt at $204.65, while select was off $0.08 at $197.95. The choice/select spread narrowed to $6.70 from $6.79 with 106 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday, was $148.27 per cwt, down $0.22. This compares with Tuesday’s Aug settlement of $152.75, down $0.50.