The wide spread between Choice and Select beef cutout values, which has been near or above $20/cwt. since June, continues to widen, sending a signal to produce more Choice beef, according to Mississippi State University agricultural economist Josh Maples.
In fact, he said the average weekly spread in October was more than double the historical seasonal average, and November was seasonally large, too. For 17 of the 21 weeks from July 6 to Nov. 23, the weekly average Choice/Select spread was the largest for that week of the year over the past two decades, Maples noted.
The supply impacts on Choice beef are perhaps the most obvious factor for the wider spread over the past few months, he said.
“The percent of cattle graded Choice has been about 1-2% below year-ago levels for each month since June,” Maples said. "These months have also been at or below the five-year average. Simply put, there have been fewer Choice cattle than were probably expected."
In other words, the percentage of cattle grading Select has been higher each month since July compared to a year ago. “The result of relatively less Choice beef and an increase in Select beef has played a key role in the larger Choice/Select spread,” he added.
Still, demand for particular beef cuts also plays an important role, Maples said.
“A wider Choice/Select spread is typically expected in October and November largely due to seasonal demand for Choice ribs and loins (i.e., the middle meats) during the holidays,” he said.
While Choice rib-eye prices usually increase due to seasonal demand, Maples noted that wholesale Choice rib-eye prices hit just over $10.00/lb. a few weeks ago and continue to hover around $9.60. This compares to a 2018 high of $9.15/lb., he said.
“Choice rib and loin primal values are 4% and 7% above a year ago, respectively, while the Select rib primal value is only up 1%, and the loin primal value is the same as a year ago,” he said.
The historically large Choice/Select spreads over the past few months have resulted in a big incentive to try to attain that Choice or higher grade on fed cattle, Maples noted.