NEED FOR QUALITY SUPPORTS THE MARKET
By Mary Kurzweil CattleFax Analyst
Overall , cattle have performed well on the year from a grading perspective , spending most of 2023 at or above yearearlier levels for Choice plus Prime percentage . That said , recent weeks have seen a decline in the Choice grade , and as we approach the winter holidays , the supply of high-quality cattle could be a concern .
While a decline in Choice grade is a seasonal move , this drop has been significant , moving well below levels seen in the past few years . Prime has fared better from a percentage perspective , averaging above a year ago and on pace to track the five-year average . Upper two-thirds Choice has also performed well for the year but has seen a seasonal decline and does not typically improve until the spring .
Though grading percentage is always important approaching the holidays , this year it will likely be more crucial with continued consumer appetite for quality and year-over-year declines in slaughter expected to continue .
On the year , there has already been more than an 800,000 head decline in fed slaughter . Even with a relatively strong grading performance this year , of that decline , 630,000 or 78 % of that has been from Prime or Choice grading carcasses . With about another 200,000 fewer cattle expected to be harvested in the fourth quarter compared to year-ago levels , supplies will be smaller regardless of grading percentage .
Though weights are seasonally increasing , and steer weights have seen year-over-year gains , the winter holiday demand especially is largely driven by piece count items such as the rib and loin . The fourth quarter is expected to average 15,000 head per week below year-ago levels in fed slaughter , so if a smaller percentage of them are grading Choice and better , this will exacerbate the decline in supply for these items .
Though there are economic headwinds and demand concerns floating around , thus far demand for quality has been stout and is expected to continue . Already the spread has averaged more than $ 20 per cwt , which is $ 4 per cwt higher than where it was year-ago at this time . In the next two months , the spread has potential to approach $ 30 and downside risk should be limited with more Choice and Prime product needed .
Ultimately , these supply concerns on the beef side should be supportive to the fed cattle market as packers will need to compete for higher quality cattle . Though cattle feeders have already seen a relatively strong leverage position for much of the year , that can improve further as packers may need to continue to kill even with margins close to breakeven to fill orders and maintain market share .
Bottom line : The combination of smaller fed slaughter and a lower percentage of Choice grade beef should be a supportive factor to the fed cattle market as quality cattle will be needed to fill holiday beef orders .
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