Fed-cattle supplies, beef production and stores of competing meats are all at high levels for this time of year, but several market factors have helped support prices.

The price spread between Select and Choice carcasses has widened, suggesting that packers are having a hard time meeting their demand for Choice beef in spite of large numbers of cattle coming out of feedyards at heavy weights. The average spread between Select and Choice carcasses, as reported by the U.S. Department of Agriculture stood at $10.37 per hundredweight on Oct. 23, compared with averages between $4 and $5 during late August and early September.

Boxed beef cutout values also improved during October, climbing from $107 per hundredweight to more than $113 per hundredweight for Choice carcasses weighing 550 to 700 pounds.

Consumer demand must be playing a significant role, as supplies of beef and competing meats are large. As of September 30, USDA reported cold storage holdings of red meat at 847.8 million pounds, up 14 percent from one year ago and the largest total on record for the end of Septem-
ber. Pork supplies in cold storage on September 30 were record large and stocks of frozen beef were 30 percent higher than on the same date in 1999. Cold-storage supplies of chicken were the second largest on record for end of September.

Another factor that has helped support cattle prices is the value of beef byproducts. The "drop credit," plays a significant role in cattle prices. The Livestock Marketing Information Center reports that over the last 16 months, byproduct values have improved steadily and have helped support live cattle prices. Compared to a year ago, the higher value of byproducts has added about $1 per hundredweight to live-steer prices.

Hides, according to LMIC, typically contribute about 62 percent of the overall byproduct value, when that value is calculated at slaughter. In recent weeks, hides have been selling for $80 per hide, or about $10 above a year ago. Currently, hides contribute from $5 to $ 6 per hundredweight to the value of a live slaughter steer. According to USDA estimates, the value of all byproducts for the week ending Oct. 6, 2000, totaled $8.71 per hundredweight on a live steer equivalent basis. That was $1.11 per hundredweight above a year ago.

Much of the increase in byproduct value is due to improvements in foreign economies and export opportunities. Two years ago, economic recession affected several nations that are key export customers for the U.S. beef industry. Declines in beef exports negatively affected cattle prices, and loss of byproduct markets contributed significantly to the problem. In early 1998, USDA estimated that the live steer byproduct value was below $6.70 per hundredweight, about $2 lower than current value.

LMIC predicts that byproduct values will remain near current levels at least into 2001, which should help support live-cattle prices during a time of high feedyard inventories, heavy carcass weights and large-volume beef production.