Listen to the explanations of why fed-cattle prices have been so lackluster this spring and you’ll inevitably hear about beef demand. Of course, with cattle-on-feed numbers down by 5.3%, it’s difficult to blame supply.

However, according to the University of Missouri's Glenn Grimes and Ron Plain, their beef-demand index was actually up 3.4% for the months of December through February. Beef exports are up as well, also defying expectations. The bottom line is that beef demand hasn’t been nearly as soft as anticipated.

What the market’s been reacting to is an anticipation of weakening demand more than weak demand itself. Of course, once fed-cattle prices slip, wholesale beef prices will follow and, to some degree, it becomes the embodiment of the adage of the self-fulfilling prophecy.

One thing we’ve seen is consumers trading down – buying hamburgers instead of steak, which has been a major contributor to the declining Choice/Select spread. While overall beef demand is the key factor, we’ve witnessed that the Choice/Select spread is more than just an indicator of demand for Choice and Select product; it’s also an indicator of market leverage between feeders and packers.

When the Choice/Select spread is high, packers are forced to be aggressive to meet their demands for Choice product, forcing them to be aggressive on certain types of cattle. That then acts as a strong support for the market. With the Choice/Select spread so low, the market moves even closer to a "true" commodity market setting (yellow #2 corn is yellow #2 corn, a fat steer is a fat steer). And, and as we’ve known for quite some time, the only ones who benefit from a commodity market are those who can either leverage economies of scale or those who can sell below-average offerings at average prices.

It’s amazing how quickly market signals are passed through the system. We’re already seeing this somewhat in the bull market where cattlemen have been shifting their focus away from quality grade and focusing more on pounds, muscle, efficiency and calving ease. As one cattlemen said, "you never get paid for a dead calf, and pounds and efficiency are always rewarded."