Spreads for Higher Quality Grades will Widen

By : Dr. Andrew Griffith, Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee

I spoke with six individuals this past week that send cattle to either Kansas, Nebraska, or Iowa for finishing. A recurring theme was in relation to the spread between Prime, Branded, Choice, and Select beef. Some of the conversation was that the spreads have narrowed and the market is not offering the incentive to have as high of grading cattle. Looking back at the data does not support this assertion.

It is important to note that the price spread between different quality grades of beef have a seasonal component which means the spreads change throughout the year depending on supply and demand. The Prime to Branded beef spread exceeded $40 per hundredweight for 11 weeks in 2019. In the past five years, the only other time this happened was during the summer of 2017. The Choice Select spread the back half of 2019 was fairly typical in magnitude, but it was actually wider for a longer period of time than is typical. I think the issue is that most of these spreads are narrow given the current market, but narrowing this time of year is typical.

The spreads for higher quality grades will widen moving into summer.

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