Industry At A Glance: Cutout Price Spreads

The Prime/Select spread, which has seen a dramatic uptick in the past several years, has now surpassed $50/cwt.

Nevil Speer

October 31, 2012

1 Min Read
Industry At A Glance: Cutout Price Spreads

Monitoring market conditions from week to week is always important. However, from a long-run business perspective, influence upon the value chain requires sustained price signals. In other words, investing in change around management and marketing is futile if there’s no assurance of payoff over an extended period of time.

For instance, last week’s “Industry At A Glance” chart and discussion emphasized the importance of price signals in regard to the long-term increase in carcass weights over time. The market has also been sending some clear signals on the quality/program side. The Choice/Select spread encroached $20/cwt. last year and has now seasonally crept to $15 at the end of October; more importantly, the long-term (52-week) average is currently about $10/cwt.

comprehensive cutout prime branded choice

Meanwhile, the branded program spread has surpassed $20 and the 52-week average is closing in on $17/cwt. (keep in mind, branded program premiums include both lower and upper Choice).

The real story, though, is in the Prime/Select spread, which has seen a dramatic uptick in the past several years, and the 52-week moving average has now surpassed $50/cwt.! These are encouraging signals from a final-demand perspective; consumers are increasingly emphasizing a willingness to pay for high-quality, program-backed beef products.

As such, the market is clearly trying to pull more high-quality product to meet that demand. What influence might these developments have on supply management decisions in the production sector in the months and years to come? Let’s have a discussion; leave your comments below.

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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