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CME: Choice Beef Cutout Set to Go Premium in W9/2018

02 March 2018

US - The Choice Beef Cutout got a nice boost last week and the momentum is carrying over into this week, reports Steiner Consulting Group, DLR Division, Inc.

The step up was a little steeper than the normal seasonal tendency and a week earlier than a year ago. The Choice Beef Cutout is set to go premium to the 90 per cent Lean Beef Trim price this week. Last year, the Choice Beef Cutout advanced above 90 per cent Lean Beef Trim values in the second week of March and stayed there for three weeks.

Choice beef volumes in negotiated trade have been limited in recent days, suggesting that beef processors were well-sold going into the first weekend in March. Beef production during the first half of February was up 3-4 per cent from a year earlier, yet trade volumes have run below a year ago throughout the second half of the month, and by an amazingly wide margin in recent days.

The current situation for beef supplies is similar to a year ago, in terms of comparisons to the prior year. The Livestock Marketing Information Center (LMIC) is expecting current quarter beef production to be up 3.6 per cent.

A year ago, first quarter beef production was up 6.1 per cent, and consumer demand for beef was on the verge of a revival after a disappointing 2016. The stability in the Choice Beef Cutout paralleling the production increase so far this year supports a continuation of the optimism about the beef market that developed last year.

This year’s challenge lies in the size of the increase in beef production during the spring quarter. Last Spring, beef production increased 3.5 per cent from the Spring of 2016. This Spring’s projected increase is pegged at 6.3 per cent by the LMIC, an acceleration in output instead of moderation from the Winter to the Spring.

In late-February 2017, the cattle futures market was structured to sell more beef in the Spring by pricing April cattle at a $9 discount to the spot cattle market and June cattle were discounted $19. This year, April cattle are discounted $4 and June cattle are discounted $11 to the spot cash cattle market.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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