A -$144/head is the lowest live-to-cutout spread since 1998.

Nevil Speer

May 23, 2013

2 Min Read
Industry At A Glance: The Live-To-Cutout Spread

The live-to-cutout beef spread provides some insight into packer gross margins over time. This spread is calculated as revenue from wholesale beef and by-product sales, less the cost of a live steer/heifer. Remember that gross margin does NOT equal profit; it doesn’t account for costs associated with maintaining and operating a beef plant such as labor, overhead, cost of capital, etc.

Most important to this discussion, the live-to-cutout beef spread is often used as an indicator of relative leverage within the industry. That is, some argue that spread differences over time reflect relative leverage in the marketplace. That argument was especially pronounced when the spread peaked in 2003; packers were unduly taking advantage of weekly negotiations.

However, since that time, the spread has chopped lower as the fed supply has become increasingly tight. The 2012 average was a negative $144/head, the lowest since 1998.

live to cutout spread cattle prices

Nonetheless, some of that same discussion has flourished in recent months, given the market’s recent disappointing performance. Simultaneously, the level of alternative marketing arrangements continues to rise in the industry. As such, the discussion about alternative marketing arrangements (captive supplies) have seemingly resurfaced. The argument is that the cash market has become increasingly thin, thereby providing beef packers with undue opportunity to manipulate weekly pricing of the fed cattle market.

Where do you ultimately see those discussions headed? Accordingly, how do perceive the overall condition of the cash market at the current time, and its relationship to the economic health of both the packer and feeder? Leave your thoughts below.


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About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

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