Farm Credit Services of America released a report on Apr. 28 examining the recent inversion of the Choice/Select beef spread and its implications for the beef industry. The report, authored by Don Close and published through Terrain, discusses whether this traditional measure remains meaningful in today’s market.
The topic is important because changes in consumer demand and product mix could affect how producers interpret pricing signals. The report suggests that American consumers have shown a steady preference for higher-quality beef products, making older grading spreads less relevant.
Close said that while an inverted spread once indicated consumers were choosing lower-quality products over higher-quality ones, current supply dynamics mean this measurement may no longer be accurate. He explained that “in previous years, an inverted spread mattered. But the grading percentage then was about 60% Choice or better and about 40% Select.” Today, most retail stores offer primarily Choice or better cuts, with Prime carcasses now representing up to 15 percent of supply compared to just two to four percent previously.
The shrinking supply of Select-grade beef is a key factor behind recent price changes rather than increased consumer demand for lower grades. According to Close, “the main reason is that the supply of Select product has contracted,” leading to price increases as supplies dwindle. He added that some institutional buyers such as hospitals still use Select products and they remain present in many prepared frozen foods.
Looking ahead, Close does not expect the inversion of the spread to disrupt markets unless economic factors change significantly: “Is this going to be a long-term scenario? I certainly don’t think so.” He recommends monitoring other metrics like the Choice/branded cutout or Choice/Prime spreads instead.
Farm Credit Services of America operates as a customer-owned cooperative within the nationwide Farm Credit System according to its official website. The organization focuses on delivering reliable credit services for farmers, ranchers and rural communities according to its official website. It features more than 50,000 stockholders according to its official website and maintains 42 local offices across several states according to its official website.
Additionally, Farm Credit Services of America invests in rural communities through efforts in education, hunger relief and health services according to its official website, and has returned over $4.1 billion in cash-back dividends to customer-owners over time according to its official website.
