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March 11, 2022
As the industry adjusts to high corn prices what will happen to the Choice/Select spread?
Over a 12-month time period, the Choice/Select spread is typically narrowest in the January to March timeframe as the demand for Choice graded middle meats is at its lowest and the supply of Choice graded cattle is typically at its highest. In contrast, as we go into summer, the demand for Choice graded middle meats is higher as retailers fill shelves in anticipation of the grilling season, but the supply of Choice graded cattle is lower as we see more calf-fed cattle being harvested.
The percentage of lightweight animals (<700 pounds) placed on feed is highest in November and this percentage typically decreases until May.
The last few weeks have seen the Choice/Select spread narrow to $3.97, compared to a 2019-2021 average of $5.78 for the same week. Considering we began 2022 with a spread that was almost $4.50 wider than the 2019-2021 average, the narrow spread illustrates the back up in cattle processing in January. Currently, the average weekly year-to-date dressed steer weight is up 9 pounds over 2021 and 24.8 pounds over the 2019-2021 average for this time of year.
The increase in dressed weights is partially due to the backed-up cattle supply due to COVID labor issues in the packing sector. As cattle finish at higher weights, the percentage of Choice graded cattle tends to increase. Year to date, the percentage of cattle grading choice is up 1.25% over the 2019-2021 average.
Related:Selecting your next herd sire
Seasonally, the Choice/Select spread will widen until late June/early July due to the supply/demand considerations for Choice and for Select beef. However, given the higher percentage of lightweight cattle placed on feed since November, as compared to the 2019-2021 average lightweight percentage placed on feed, the Choice/Select spread will likely widen more than average.
How wide the spread becomes is dependent on corn prices when cattle are placed, the percentage of cattle grading Choice, total amount of beef production, as well as beef demand. If we hold all those factors affecting Choice/Select spread at a constant level and allow only the percentage of beef grading Choice to change, the impact of a 1% change in cattle grading Choice, can have almost a 9% change in the spread. This means that since the average 2016-2020 spread was as wide as $22.45 in June, a decrease of 1% in Choice graded beef could widen that spread by another $2, providing some incentives to feed cattle longer and to heavier weights.
Source: University of Wisconsin-River Falls, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
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