Unusual Choice-Select price spread emerges
Lower dressed weights may further exacerbate the spread.
July 5, 2023
In recent weeks, the number of carcasses presented for grading has shown Prime and Choice graded carcass percentages lose ground in favor of Select-graded carcasses. The decline is not all that atypical as dressed weights for fed cattle lighten during the summer months, and higher grading percentages tend to correlate with higher dressed weights. What has been unusual this year is the price spread between Choice and Select.
The Choice-Select price spread has been larger than last year and the five-year average for most of this year, ranging from about $10 to over $30 per cwt. Seasonally, this should be the peak of that spread and then taper off through the rest of summer. Last year the spread did not taper off but held a wide range in the second half of the year between $20 and $32 per cwt. This year is also not expected to drop as seasonally occurs.
Cattle on feed saw larger than expected placements in May but are at a low level relative to a year ago. This year could match last year’s on-feed inventory dip or be slightly below. This would indicate we may pull cattle ahead during certain times in the second half of 2023 and may not see as strong of an increase in dressed weights as a result. Those lower dressed weights are likely to impede a substantial rise in the availability of Choice-and-higher graded beef, further exacerbating the Choice-Select spread.
This year has already surpassed last year’s price differentials, and it seems likely the second half of the year will do more of the same. We expect the Choice-Select spread to remain elevated, but may trade at a large range in the second half of the year than we saw last year. Expectations are for higher quality beef to remain in vogue, and premiums for Choice and higher graded beef to remain strong in 2023 and beyond as the U.S. takes cattle numbers lower.
A quick note on Prime-graded beef: Certain primal values continue to drive the Prime premium over Choice, but this spread may be one to watch closely for certain consumer groups that opt in. The Prime market is in a bit of transition in recent years as it has become more widely available to consumers at the retail level. This has enabled continued gains in the spread between Prime and Choice. We have seen little evidence that consumers have traded down from this product, but some of that may be masked by the decline in Prime product available. Year to date, the number of carcasses grading Prime was 9.49% versus 9.64% a year ago and 11.16% two years ago.
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