Large Choice-Select Beef Value Spreads

By : Josh Maples, Assistant Professor and Extension Economist, Department of Agricultural Economics, Mississippi State University

The widespread between Choice and Select beef cutout values continues to send a signal for more choice beef. The spread has been near or above $20 per cwt since June. The average weekly spread in October was more than double the historical seasonal average and November was seasonally large, too. For 17 of the 21 weeks from July 6th to November 23rd, the weekly average Choice-Select spread was the largest for that week of the year over the past two decades.

 

The Choice-Select beef spread is a measure of the value of the Choice boxed beef cutout relative to the Select cutout and is influenced by supply and demand factors for both grades. The supply impacts on Choice beef are perhaps the most obvious factor over the past few months. The percent of cattle graded Choice has been about one to two percent below year-ago levels for each month since June. These months have also been at or below the five-year average. Simply put, there have been fewer Choice cattle than were probably expected. Since most cattle either grade Choice or Select, the lower percentage of Choice cattle implied a higher percentage of Select cattle. Indeed, the percentage of cattle grading Select has been higher each month since July compared to a year ago.  The result of relatively less Choice beef and an increase in Select beef has played a key role in the larger Choice-Select spread.

 

Demand for particular beef cuts also plays an important role. A wider Choice-Select spread is typically expected in October and November largely due to seasonal demand for Choice ribs and loins (i.e. the middle meats) during the holidays. For example, Choice ribeye prices usually increase due to seasonal demand. Wholesale Choice ribeye prices hit just over $10.00 per pound a few weeks ago and continue to hover around $9.60. This is compared to a 2018 high of $9.15 per pound. Choice rib and loin primal values are 4% and 7% above a year ago, respectively while the Select rib primal value is only up 1% and the loin primal value is the same as a year ago.

 

In summary, both supply and demand factors have contributed to the historically large Choice-Select spreads over the past few months. The result has been a big incentive to try to attain that Choice or higher grade on fed cattle.

 

The Markets

    Week of Week of Week of
Data Source: USDA-AMS Market News   11/29/19 11/22/19 11/30/18
5-Area Fed Steer all grades, live weight, $/cwt $118.21 $115.96 $117.10
all grades, dressed weight, $/cwt $186.83 $183.59 $183.38
Boxed Beef Choice Price, 600-900 lb., $/cwt $232.36 $236.75 $213.39
Choice-Select Spread, $/cwt $21.07 $22.55 $14.30
700-800 lb. Feeder Steer Montana 3-market, $/cwt $150.00 $144.51
Nebraska 7-market, $/cwt $145.79 $156.28 $157.31
Oklahoma 8-market, $/cwt $145.00 $145.07 $146.39
500-600 lb. Feeder Steer Montana 3-market, $/cwt $163.98 $168.05
Nebraska 7-market, $/cwt $158.44 $161.93 $172.62
Oklahoma 8-market, $/cwt $160.69 $156.01 $162.76
Feed Grains Corn, Omaha, NE, $/bu (Thursday) $3.49 $3.53 $3.46
DDGS, Nebraska, $/ton $153.50 $153.00 $154.00
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