The cattle and beef complex remains under immense pressure as a result of current supply and demand fundamentals. The abrupt decline in live cattle prices continues to support positive packer margins despite the simultaneous downturn in wholesale beef prices. The recent increase in year-over-year weekly beef production has been a drag on beef cutout values, but another factor helping to explain the decline in wholesale prices is weaker than expected beef demand.
Beef primal values have declined sharply over the last month, some of which can be attributed to the seasonal transition from grilling items to roasting items. Record-heavy steer and heifer weights continue to pressure the 50-percent lean beef (50CL) market. The expected seasonal uptick in cow slaughter in the fourth quarter, brisk imports of lean processing beef, and large volumes of boneless beef in cold storage could result in further declines in the 90-percent lean beef (90CL) market.
Choice and Select beef cutout values have declined steadily since late August, and the spread between the two has narrowed (approximately $5.51/cwt as of October 9th). Supportive of this squeeze is the current relationship between the percent of beef grading Choice or Select and the Choice-Select spread. The narrowing spread between the Choice-Select cutouts is logical due to the large amounts of Choice beef in the supply chain. Thus far in 2015, the percent of beef grading Choice has ranged between 68 and 70 percent and Select between 19 and 22 percent, whereas for the same period in 2014 Choice beef ranged between 64 and 68 percent and Select between 23 and 28 percent.