Guest Opinion

Opinion
Jun 15, 2012
by WLJ

Beef wholesale values improving

The Choice boxed beef cutout value was $197.16/cwt. last week, the second highest weekly average this year and only $1.35/cwt. below the early March peak. Choice values have made a strong rebound after dropping to a weekly low of $177.79/cwt. in mid-April. Currently, Choice boxed beef is 13 percent higher than the same time last year. The latest Select boxed beef weekly average was $185.01/cwt., up 10 percent from one year ago at this time.

The Choice-Select spread has widened sharply in recent weeks, which is the typical seasonal tendency at this time of year. The latest boxed beef values increase the Choice-Select spread to $12.15/cwt., about double the $6.03 spread this time last year. The spread is also above the five-year average level of $10.13/cwt. (for this time of year), which represents the first time the spread has exceeded the five-year average weekly level since the first week of January. Thus, the Choice-Select spread has gone from a seasonal low in late March of 30 cents/ cwt. (well below the average seasonal low) to current levels above the average level for this time of year.

What do the increase in both Choice and Select boxed beef values from year ago levels and the widening of the Choice-Select spread in recent weeks tell us about beef market conditions and, in particular, about beef  demand? Total beef production is down 2.8 percent so far this year so higher prices would be expected with steady beef demand. Thus, higher boxed beef prices do not necessarily reflect increased beef demand, though they do suggest that demand is holding steady in the face of reduced supplies and higher prices. However, the increase in Choice relative to Select prices does suggest stronger demand for high quality beef. This is borne out in the changing values of various wholesale cuts. At the current time, Choice wholesale values for ribeye and tenderloins are up 27 and 24 percent year over year while chucks and rounds are up 13 and 6 percent compared to last year.

The increase in wholesale beef prices from year ago levels could be due mostly to reduced beef production so far this year. However, the sharper increase in middle meat values relative to end meat values and the wider Choice-Select spread suggest that beef demand is improving. Wholesale values are expected to increase further with sharper year over year beef production decreases in the third quarter. Continued improvement in beef demand will determine how much higher wholesale beef prices may go. — Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

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