An odd "inverted" beef market

The arcane world of selling beef at retail is totally different from producing cattle on the ranch, or feeding them in the feedlot, or even slaughtering them at the packing plant.

80% of the beef produced is sold ground, largely through fast food restaurants like McDonald's. It's that other 20% of the crop where the greater profits lie and where the challenge to marketers is most severe. Most of the ground beef is so-called "no roll," which is not graded. Next most common is the lower USDA grade, select, which also winds up ground. The challenge is to sell as much of the select beef and most of the higher grade, choice, in cuts like steaks and roasts rather than ground. The price per pound is higher, with higher profit margins.

When cuts don't sell after a day or two, they can always be ground and sold readily, but that is not the highest and best use of the most tender, flavorful beef. Lately, the industry has been discovering ways to take muscles that were previously always ground and sell them as steak (the flat iron cut comes to mind), or develop a new use, such as was done a few years ago for inside skirts, used in fajitas.

With this background, its easier to understand the panic among beef marketers last week, when select beef rose in price higher than choice at wholesale. Traders moved quickly to restore choice to its more pricey norm, ending the so-called inverted market. Most attributed it to the season, when summer grilling of steaks hasn't begun yet and buyers are looking more for long-cooking, cheaper cuts like pot roast or stew meat, while the weather's still cool.

Industry analysts and historians could only find a handful of days when such a market inversion occurred, but it's noteworthy when it does, because its so unusual. Some blamed it on economic conditions, where fewer people are eating out in restaurants, where the more expensive cuts are sold.

In any case, all agreed it was no cause for panic. Feedlots will feed cattle to select (fewer days) rather than choice (more time on feed), to bring the market back into equilibrium.