Wholesale beef prices have rallied sharply in the last two weeks as end users prepare for the Labor Day holiday weekend and the start of the school year. Some end users also have started accumulating beef for the holidays earlier than normal. The rally into late August is not that unusual for this time of year and follows similar patterns in 2010 and 2011. Tighter cattle supplies and buyer anxiety of commodity price inflation have made the recent rally even more significant. The choice beef cutout closed on Monday evening at $193.90/cwt., $6.5/cwt. or 3.5% higher than a year ago. The choice cutout has rallied some $16.2/cwt. or 9.1% since the  beginning of August. During the same timeframe last year, the choice cutout rallied about 8% only to pullback by the first week of September. The select cutout closed on Monday evening at $185.30/cwt., $2.2/cwt. or 1.2% higher than the same time last year. Since the beginning of August, the select cutout has rallied some $14.5/cwt. or 8.5% from a year ago. The rally in the choice and select cutouts has been driven almost entirely by higher middle meat (steak) prices. The rib primal value (a composite value of the cuts/trim from the rib) closed on Monday evening at $288.80/cwt, $32.8/cwt or 13% higher than a year ago. The increase in the rib value contributed more than half of the overall increase in the cutout. Loin primal value was quoted at $266.20/cwt, $14.2/cwt or 6% higher than a year ago, contributing another 40% or so to the overall cutout. Gains from other parts of the carcass have been limited or even negative. Chuck and round primal values, which were the value leaders the last two years, are currently trading near year ago levels while the short plate is down 8% and flank is down 2%. The value of the  short plate, which accounts for about 7% of the carcass, has been negatively affected by lower credits for fat beef trimmings. Indeed, the sharp decline in the price of 50CL beef trim has been a drag for the overall carcass. The price of 50CL beef trim is currently trading about 50% below what it was last year. In previous years, a good portion of the fat trim from carcass processing was going into making Lean Finely Textured Beef. With about 75% of the LFTB processing capacity removed following boycotts from retail and foodservice operations, there is plenty of fat beef trim in the open market.

Live steer prices have increased following the recovery in wholesale beef values and futures market participants expect the rally in live steer values to continue. Last year, the choice cutout took a brief dip after Labor Day but then continued to rally into November, approaching $200/cwt. Live steer futures for the balance of the year are below $130/cwt, reflecting expectations that the cutout will follow a similar path as last year and hover in the $195-205 range between September through December. Live steer prices imply significant beef prices inflation in 2013. But, for that to happen we will need to see increased contribution from other parts of the carcass, particularly rounds and chucks.