June 1, 2009

 

 

The spread between wholesale choice and select beef prices is at a crossroads, but analysts think there's a slightly better chance of it narrowing.

 

The analysts gave the nod to the choice/select spread narrowing for at least the next few weeks because of the seasonal tendency for such a move. They acknowledged, however, that there are forces in place that could widen the spread.

 

According to US Department of Agriculture figures supplied by the Livestock Marketing Information Center, or LMIC, the weekly average spread from 2003 through 2007 peaks in the 19th week of the year. Last week was the 20th week.

 

This year's choice/select spread is following the 2008 pattern very closely, the LMIC figures showed. Last year, the spread was widening coming into late May and then dipped before widening again into mid-July.

 

The 2003-2007 average shows a sharp rise to the annual peak before falling to a trough in late July or early August.

 

Through last week, the choice/select spread was widening as the percentage of choice-grading beef carcasses declined, said Bruce Longo, market analyst with Urner Barry's Yellow Sheet. Select product also is being pressured by a lack of consumer demand, he said. The combination could mean lower prices overall, but a widening of the spread.

 

Since the spread this year is tracking last year's line very closely, it is sitting well below the 2003-2007 average and could be pulled apart by strong demand for choice product at a time when the amount of choice beef becomes tighter, the analysts said. Last year's spread went counter to the seasonal tendency into July and August by rising instead of declining.

 

But Jim Robb, agricultural economist with LMIC, said the percentage of carcasses making the choice grade the last two years has risen as more technology improves the consistency of the grading system. This means there is less of a tendency for the spread to widen because of supply issues, a change he thinks is permanent.

 

Also, the recession has shifted some choice-beef demand over to the select, which would tend to narrow the price spread, Robb said.

 

Scott Brown, livestock analyst for the Food and Agricultural Policy Research Institute, said that even if the economy turns around soon, he didn't think the choice/select spread pattern would diverge appreciably in the short term from last year, which means it will struggle to widen.

 

Last year, some restaurant data suggested that traffic already was slowing at this time of the year, Brown said. Slower restaurant traffic means fewer orders for choice beef steaks and more of a tendency to keep the spread narrow.

 

That predated the official declaration of the recession, and Brown said he expected the slower restaurant traffic to continue after the recession officially ends.

 

But whatever happens to the spread in the near term, Brown said, it will have a lot to do with the economy and demand for choice product.