Source: Government of Alberta
“The U.S. Choice-Select boxed beef price spread is the difference between wholesale boxed beef cutout values for the USDA’s Choice and Select quality grade carcasses,” explains Ann Boyda, provincial livestock market analyst with the Alberta government. “Prices for subprimals of differing quality grades reflect consumer demand as well as supply factors.”
The USDA quality grades of Choice and Select are indications of the degree of marbling, which provides tenderness and taste. Wider Choice-Select spreads indicate that consumers are willing to pay more for U.S. Choice beef relative to U.S. Select beef. These spreads inform industry of what consumers want.
Seasonality of cattle production affects the U.S. Choice-Select spread. For example, if fewer cattle are grading Choice in the spring and there is an increased demand for steaks produced from the rib and loin primals for the summer, one would expect a wider Choice-Select spread.
The U.S. Choice cutout value with its desired cuts increases faster than the U.S. Select cutout value, resulting in a wider U.S. Choice-Select spread in early summer. The spread then seasonally narrows until October, when there is a gradual widening with greater demand for U.S. Choice loin and ribs over the holidays.
“The U.S. Choice-Select spread provides information for production decisions,” says Boyda. “To achieve the USDA Choice quality grade, cattle usually must be kept on feed longer which results in a higher cost of production. The value of the U.S. Choice-Select spread signals that producers may be rewarded through higher fed cattle prices.”
The U.S. Choice-Select spread ended 2022 at values above US$30/hundredweight (cwt), and started 2023 at a relatively high value of US$27/cwt. Subsequently, the U.S. Choice-Select spread has trended down to just over US$10/cwt. Year-to-date (January to March 31, 2023), the average value for 2023 is US$14.98/cwt, 129% higher than the same period in 2022. Current spreads are still relatively large for this time of year.
Chart 1. Weekly U.S. Choice-Select Spread
“The minimum marbling standards used for USDA Choice and Select are comparable to those used in Canada for AAA and AA grades, respectively,” explains Boyda. “The Canadian grades do not allow dark coloured meat, yellow fat, or other off-quality characteristics. The AAA and AA cutout values are subject to comparable demand factors experienced in the U.S. and the U.S. cutout values can serve as an indicator of market conditions.”