The Cattle Range Home Page
October 9, 2017
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The Story Behind the Beef Cutout

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The Story Behind the Beef Cutout
Ag Center Cattle Report

The various cuts making up the composite box price tells a story that frequently is missed when reviewing the daily fluctuations. The choice cutout may be up or down for the day but important to a more complete understanding of beef demand is an examination of the various cuts and the change in each and the reasons for the change in price. These changes reveal a meaningful profile of beef demand that tells more than the individual price changes. When is the last time you took the time to examine the changing trends revealed in the price relationships of the different primal cuts?
 
In a manner that is similar to the live trade, much of the daily and weekly pricing of beef is according to a formula derived from reports of spot prices reported by USDA. It is convenient for both retailers and beef processors to know they have a large share of their weekly production headed out the door at prices that are not negotiated but fixed for the week. This provides some stability to pricing and prevents loggerjams of unsold product at the beef plant.
 
Overlooked by many who are closest to the market are the sometimes revealing story of changes in consumer, food service, and export demand for beef that set the stage for prices for live cattle months out in front of us. These changes might mean the addition of a new export market such as China with differing taste in beef cuts thereby shaking up the balance of the composite cutout. Or changes might reflect a lost export market with heavy purchases of rib plates.
 
McDonalds recently announced plans to discontinue the purchase of frozen hamburger meat. This change signaled a heavier reliance on domestic fresh hamburger meat and this change impacted the imports of frozen beef from our foreign trade partners.
 
Ground beef prices vary in large price movements during the course of the year. This changes are not minor fluctuations without meaning. Instead they often disclose important changes in production and useage that will determine more accurate price forecasts if read properly. A 3% increase in the choice grade translates into more fat trim available and the need for more chucks or rounds to grind in order to mix with increasing fat tonnage.
 
The high dollar cuts such as loins and ribs fluctuate with the prosperity of the consumers. Higher wages and more jobs means larger purchases of more expensive cuts of beef. Retailers pick up on these trends in real time and changes in consumer preferences can create important clues for consideration by beef producers in the live sector.
 
Given the vast data sets available to the beef industry, much more analysis needs to occur at the primal cut level to allow the various sectors of the beef industry the time to respond to ever changing trends in beef demand. Beef demand is dynamic rather than static. The reports detailing changes in price need to change every year as new views of the market emerge and new interpretations of the data allow us to adapt to new demand changes for the beef products.

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