Relationships Affecting the Choice-Select Spread. Curt Lacy Extension Economist-Livestock University of Georgia

Transcription

1 Relationships Affecting the Choice-Select Spread Curt Lacy Extension Economist-Livestock University of Georgia

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3 Overview Factors that affect the Choice-Select Spread Short-term and long-term implications

4 Review on Supply and Demand Commodity Beef Price (P) Supply Market Price Demand Quantity (Q)

5 Factors Affecting Supply & Demand Supply Changes in input prices Changes in technology Sales price of substitutes Government policy Demand Population Changes in income Changes in prices of substitutes and complements Consumer s tastes and preferences

6 The Choice-Select Spread Difference in Choice Cutout (wholesale price) and Select Cutout. Cutout values are composite numbers.

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8 Beef Carcass Composition

9 The Choice-Select Spread Difference in Choice Cutout (wholesale price) and Select Cutout. Cutout values are composite numbers. The Choice-Select spread is the difference in two composite numbers. The CS is the price difference for 2 distinct markets.

10 Choice-Select Spread Choice Beef Select Beef Price Choice-Select Spread Price Quantity Quantity THERE IS MARKET FOR CHOICE BEEF AND A MARKET FOR SELECT BEEF

11 Real World Factors the Choice-Select Spread Demand Demand for specific cuts. International Trade. Time of year. Supply Inventory. % Graded. Production factors including genetics, technology and environment. Price signals (pounds, YG vs. QG, branded, etc).

12 Demand for Specific Cuts Annual Pounds of Per Capita Domestic Consumption Other Cuts, 5 Processed, 9 Beef Dishes, 7 Ground, 28 Steak, 13 Stew, 8 Source: USDA-ERS. Factors Affecting U.S. Beef Consumption

13 Demand for Specific Cuts Purchasing Patterns by Location Lbs. Retail Wt Ground Stew Steak Beef Dishes Other Cuts Processed 0 At Home Away from home Restaurants Others

14 Additional Demand Considerations Trend in out of home expected to increase More RTE products for home consumption Wal-Mart effect??

15 Demand Time of Year

16 CHOICE MINUS SELECT BEEF PRICES Carcass Cutout Value Lbs., Weekly $ Per Cwt Avg JAN APR JUL OCT Livestock Marketing Information Center C-P-68 05/02/07

17 $/Cwt 115 PRIMAL CHUCK VALUE Monthly Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Choice Select Livestock Marketing Information Center

18 $/Cwt PRIMAL LOIN VALUE Monthly Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Choice Select Livestock Marketing Information Center

19 Demand International Markets

20 MAJOR U S BEEF EXPORT MARKETS Carcass Weight, Annual Mil. Pounds Avg. 2000/ Japan Canada Mexico Korea I-N-18 03/14/07

21 International Demand Country Major Cuts Select or Choice Mexico Round, Chuck, Ribs and Brisket Select South Korea Chuck, Short Plate Select Japan Short-plate, Chuck, Loin Choice Canada Round, chuck, loin, ribs Choice/Select

22 Demand Export Markets Typically about 6-10% of U.S. production. We export because the cuts are worth more there than here. Typically prefer Select product. Increased openings of export markets SHOULD stabilize or widen Choice-Select Spread especially in off months.

23 Demand Summary Select and Choice beef are two distinct markets International trade is very important

24 Supply of Choice and Select

25 Percentages of Steers & Heifers Grading Choice or Select /15/1997 2/15/1999 2/15/2001 2/15/2003 2/15/2005 2/15/2007 Choice Select

26 Commodity Beef Price (P) Supply Market Price Demand Quantity (Q)

27 Pounds Graded by Type ,400,000 1,200,000 1,000, , , , ,000 0 Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 CHOICE SELECT

28 Why Would Pounds of Select be Increasing? Producing more select cattle? Single-trait selection? Environment. Other traits more economically important than quality grade? Grading more cattle?

29 What s Really Important? /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ /4/ Ch-Sel ,000 1,000+

30 Pounds Graded by Type ,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 SELECT CHOICE

31 Conclusions There appears to be inconsistencies in what people say and what they pay. We are not necessarily producing more Select cattle, we are just grading more cattle. When the markets starts paying for Choice and not pounds, producers will respond.

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33 CHOICE MINUS SELECT BEEF PRICES Carcass Cutout Value Lbs., Weekly $ Per Cwt Avg JAN APR JUL OCT Livestock Marketing Information Center C-P-68 05/02/07

34 Grading Percentages 2006 vs Percent Grading Jan Apr Jun Aug Oct Choice 2006 Choice 2007 Select 2006 Select 2007

35 Outlook for 2007 Slightly more beef supplies. Larger supplies of Select beef (weather). Smaller supplies of Choice beef (weather). Higher and more volatile CSS ($30 in Summer??)

36 Longer-term Outlook Increasing beef supplies. Larger supplies of Select beef. Larger supplies of Choice beef. Development of exports could relieve pressure on Select cuts here at home. Wider spread long-term.

37 Take Home Message The Choice-Select Spread is the difference in 2 distinct markets. Anything that affects supply or demand in either market changes the spread. Export markets are important to the Choice-Select spread. Even though buyers say they want Choice product they pay for pounds. We aren t really producing any more Select carcasses, we are just grading more could be volatile. Longer-term look for a wider Choice-Select spread.