Beef cutout spreads

Beef cutout price spreads: Prime still leads in premiums paid

There is more premium product in the marketplace. And yet, there’s still a significant and consequential premium for Prime and Branded product.

Last week’s Industry At A Glance highlighted the persistent upward trend in terms of the percentage of the slaughter mix achieving the Prime quality grade. As noted in that column, “…we’re into November and the industry is fast encroaching on 9% of the population achieving Prime – all-time high. That’s no fluke, though. That’s the result of a long-running trend. The 52-week moving average is now 7.5% - versus just four years ago when it was only 4%.” 

Within that construct, the concern among producers is often around the risk of  “more means less.” That is, more Prime product in the marketplace means smaller premiums on a per-head basis. This week’s illustration provides some context around that discussion.   

The graph features wholesale value differences (four-week moving averages) between Prime, Branded and Commodity Choice versus Select. Not surprisingly, the price spread between Prime and Select has declined due to increased product availability; bigger volume has effectively narrowed the spread. 

However, that said, the Prime spread is still running above $20 per cwt – the equivalent of $180 per head. That’s a significant value difference – nearly double the current premium for commodity Choice. Meanwhile, the branded spread has been trending in an upward fashion since the summer low. 

Bottom line: There is more premium product in the marketplace – that’s the result of a higher proportion grading Prime coupled with bigger beef production volume. And yet, there’s still a significant and consequential premium for Prime and branded product. That speaks to the demand equation for high quality beef.  

What’s your read on this trend within the beef complex? How do you perceive the long-run implications of these trends? Leave your thoughts in the comments section below.  

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY. Contact him at nevil.speer@turkeytrack.biz.

 

TAGS: Beef Marketing
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