Published on: 07:42AM Apr 17, 2009
The chart of the week is the weekly USDA choice boxed beef cutout. The choice beef cutout is an indicator of overall choice beef prices published by the USDA twice a day. The index is relatively seasonal and is a good indicator of upcoming beef price expectations. As one can tell from the chart below, in mid April the choice beef cutout typically begins a sharp upward move to inflated price levels that carry through the Fourth of July holiday. This is due mainly to a seasonal rise demand for the grilling season. Right on cue, the choice beef cutout has moved sharply upward this week helped by some stability in the financial markets. There are several factors that could temper pending increases including a large supply of cattle grading choice and the ongoing world economic recession. However, it’s important to remember that the USDA choice beef cutout is an index of negotiated sales for delivery in the next 21 days and does not include previously contracted product. In other words, it is an indicator of the spot market. So any portion of beef output for the coming months that was previously contracted would not be included in the choice beef cutout. If the relatively depressed price levels experienced during the winter and early spring encouraged abnormally strong forward beef contracting for the grilling season, spot beef supplies may be tighter than anticipated which could trump the bearish factors mentioned above. By the way, choice 0×1 beef strip forward contracted pounds booked during the first quarter of this year were 30% higher than last year and 47% larger than 2007.
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