Breaking Down Cutout Values

Focused marketing of a premium beef brand demands some attention to tracking price spreads across differing quality specifications. The USDA quality grade scale provides the domestic measuring stick by which the trade differentiates demand across the quality spectrum. Including branded categories like the Certified Angus Beef ® (CAB®) brand to the mix adds complexity to market reporting.

USDA’s “National Comprehensive Boxed Beef Cutout” report (LM_XB463) for all fed steer and heifer product offers a price quote for “Branded Beef.” It’s important to note that “branded beef” in this report consists of any USDA certified brand within any of the quality grades. This price is consequently blended across products with differing marbling requirements and additional specifications, leaving it wanting for more detail. However, USDA’s “National Weekly Boxed Beef Cuts for Branded Product” (LM_XB452) offers a breakdown of cut prices in categories for Upper 2/3’s Choice, Lower 1/3 Choice and Select with nothing specified in branded Prime. In last week’s report the number of loads (weight equivalent to 40,000 lb. loads) in branded Lower 1/3 Choice was 11% of total branded loads while Select loads were 5% of the total, leaving the remaining 84% to Upper 2/3’s Choice brands. While useful to retail end-users, this report likely garners little producer attention and does not summarize total carcass cutout price segregation.

The blended nature of the “branded” category in the Comprehensive Cutout recommends that we use a modicum of caution when referencing this often-quoted price. Consequently, we look to Expana’s CAB® price quote, captured weekly from trade sources, in an effort to specifically delineate the brand premium above commodity Choice. Expana’s quotes are also simple averages, in contrast to USDA’s volume-weighted data. Consequently, the two are not directly comparable even though they reflect the same relative market trends over time.

Armed with an understanding of the peculiarities of these reporting methods, it’s worth noting that the year-to-date average “branded beef” cutout premium above USDA Choice in USDA’s Comprehensive report is $6.94/cwt. At the same time, Expana reports CAB® (traditional, Upper 2/3’s Choice) premium at $17.63/cwt. over Choice. Both data sources are valuable and informative, but are derived from quite different product specifications and weighted differently.

Additionally, “comprehensive” data reporting is quite useful in analyzing beef cut price trends over time. The beef trade, including the Insider Market Update, tends to favor weekly or daily spot market prices. These values get attention because of their “bid and ask” nature of “in the moment” pricing. This lends a feeling of a closer touch to what the retail beef market is demanding. However, just like the fed cattle trade, a majority of beef pricing is formula-based, tied to base spot prices but with quality price spreads factored in for delivery in the future. Comprehensive price data includes all delivery periods, reflecting 100% of the trade volume, both short and long term in nature. As a result, price spreads in the comprehensive report are a reliable guide to what wholesale price relationships are doing while daily spot market price spreads are more headline-grabbing and reactive to what fewer buyers and sellers are doing in a short time span. This factor has recently been demonstrated when the Choice cutout has traded below Select in daily spot trades, reflecting a run on Select product from a buying base finding Select supplies historically tight.