CAB Market Update
Fed cattle trade was highlighted by sales on March 21, which featured substantially higher prices as packer demand for spot market cattle pressed prices higher in all regions. The five-area weighted average for the week summarized strong market support with a $212.76 per hundredweight (cwt) live steer price and $335.15 per cwt dressed price in the North.
The North-South price spread remains a factor in the market, although smaller at this time than the record-wide spread in the $10 per cwt range last summer.
Nebraska and Iowa prices were reported from $212 per cwt to $215 per cwt live, while Texas and Kansas prices were between $209 per cwt and $210 per cwt.
The March price pattern has been exceptionally bullish, with this latest development bringing the month’s fed cattle price increase to just over $14 per cwt.
Carcass cutout values reflect strong price trend
Carcass cutout values have also reflected a very strong price trend through March as healthy demand has been met with lower weekly fed cattle harvest head counts to culminate in higher values.
Even so, increasing cattle costs for the packer have outpaced boxed beef price increases. As such, packer margins remain well below breakeven in spot market calculations.
Price increases across several cuts were noted during the week of March 17, but most notable is demand and higher values focused on middle meats.
Ribeyes and strip loins were the highlight attractions in the week’s Certified Angus Beef (CAB) pricing report, with the week-over-week price change spiking nearly straight upward for each.
Wholesale ribeye rolls were up 80 cents per pound or seven percent on the week prior, while strip loins were up 85 cents per pound or eight percent on the week. Top sirloins were up next with a 20 cents per pound single-week increase to bring the wholesale price change to four percent for the week.
Carcass quality spreads pop
The last edition of the CAB Market Insider focused on the total carcass value contribution between the four major beef carcass primals.
A summary of this discussion revealed the chuck and round primals contributed a slightly larger share of total carcass value in the past two years. This is due to increasing demand for cuts from end meats which could be easily substituted as lean grinding material in the face of limited cull cow harvest.
An adjustment of focus this week swings attention back to the pricing power middle meats exert in the beef market. In particular, high-quality steak and roast items such as ribeyes, strip loins, tenderloins and sirloins carry an outsized share of the load when it comes to generating pricing separation up and down the carcass quality spectrum.
Beginning in January, typical seasonal trends pressured quality price spreads rapidly lower as beef demand shifted away from middle meats.
The premium between U.S. Department of Agriculture (USDA) Choice and Select dropped from December’s record $38 per cwt to the season’s low $12.20 per cwt in early March. A similar, less pronounced narrowing between CAB and Choice cutout values narrowed this gap to $16 per cwt for the period.
The latest market highlights show middle meats surging to higher prices as spring demand sets in early and smaller recent harvest totals create urgency for buyers. As carcass cutout prices have shifted swiftly upward, the spread between CAB, Choice and Select have widened.
The Urner Barry report for the week of March 17 pegged the CAB-Choice spread at $20 per cwt and Choice-Select spread at $16 per cwt. Today’s daily USDA weighted report indicates the Choice-Select spread has widened to $20 per cwt.
The pattern depicted in the chart’s timeline, beginning in February, shows the trends for the combined rib and loin primals compared to the combined chuck and round primals. The price spreads for the cutout values are weighted for the share of total carcass value contributed by each.
Note the divergence in price spread direction between CAB and USDA Select. The rib and loin primals are shown with widening price spreads for quality recently while the chuck and round spreads are narrowing.
Summarizing total carcass value, the CAB-Select carcass price spread in the first quarter was narrowest in mid-February at $29.65 per cwt and has quickly widened to $36.54 per cwt.
It’s yet to be seen if spring demand and the price spreads that come with it are here to stay through the spring season. Price spreads narrowed last year from late March into early April, but remained rather strong in the two previous years.
Carcass quality, including CAB carcass certification rates and combined Choice and Prime quality grades, are running at peak historic levels. The latest CAB acceptance rates touched 43 percent of Angus-type carcasses and have since pulled back to a still-stellar 41 percent.
Demand ahead of spring holidays, plus the pace of packer harvest schedules, will be the key factors in the equation.
Paul Dykstra is the director of supply management and analysis at CAB. He can be reached at pdykstra@certifiedangusbeef.com.
