The Choice-Select spread that took a drubbing during the Great Recession has come back in spades. After trudging along in the single digits for what seemed like forever, it began climbing in August and has averaged around $18 in recent weeks; it was $19.19 last Friday.
"...(recent) strength in Choice beef has been attributed to both smaller numbers of Choice-grade cattle and continued large cow and bull slaughter, and to Walmart's decision to sell Choice beef in their stores," says John D. Anderson, American Farm Bureau Federation senior economist, in a recent In the Cattle Markets. "The proportionally large cow/bull slaughter is providing ample supplies of processing/lean beef, which is blended with 50% lean trim and, thus, has increased the demand for 50% lean trim from Choice cattle. The tightness in Choice beef supplies is due in part to the motivation to reduce feeding periods because of high costs of feed and feeder cattle, which results in fewer cattle grading Choice. In the face of tight Choice beef supplies, increased demand for Choice product from the retail sector has manifested itself in higher Choice beef prices relative to Select..."
Meanwhile, analysts in this month's Livestock, Dairy and Poultry Outlook reported that placements of feeder cattle in feedlots of 1,000 head or more continue to be drought-driven, and as a result, have been heavily weighted toward calves under 600 lbs. While improving for some larger, older cattle with fewer days on feed, feeding margins for many cattle remain negative due to increased costs of longer feeding periods for cattle placed at lighter weights, they add.
"With increased usage of Choice product by Walmart, the Choice Select spread has widened, and this could well continue until we see increasing supplies of Choice beef in the mix, normally in the March-April period," says Emmit Rawls, University of Tennessee ag economist, in his Nov. 11 Livestock Comments. "The wide spread could have significant implications for cattle which do not grade a high percentage of Choice. In addition, this could very well trickle down to feeder cattle and purebred cattle. Down the road, should Walmart switch back to Select beef, additional ripples in the cattle ocean would be expected. Will their decision to sell more Choice have supply implications for programs such as Certified Angus Beef?" he asks.