Cattle markets were a little softer this week, down $1 from the prior week. But it is remarkable that the market has maintained its strength despite the large numbers of cattle ready for slaughter. Feeder cattle markets remained strong at the video sales, as well.
Beef demand has carried this rapid expansion of the nation’s cow herd extremely well. The national cow herd has grown 16 percent over the past three years. In May and June, analysts were talking about a fed cattle market that would be below $100 cwt. The wildcard is that domestic demand and export demand have been remarkably strong and there are no serious signs that demand will slow down.
The cattle feeders have been aggressive marketers and it’s remarkable that the packers continue to process 650,000 head per week for most of the summer, clearing record-finished fed cattle. Supplies of finished cattle should start to decline going into fall and the fed market should advance.
However, the live cattle futures don’t seem convinced yet, with December trading at $112. This seems a bit cheap to me. The bizarre part of this market is that packers continue to earn over $200 per head. This has been the greatest string of record profits for packers. Cattle feeders need to get some leverage back and start building the fed market higher.
I’ve watched most of the big video sales this summer and tried to pay attention to the trends. There are a bunch more Non-Hormone Treated Cattle on the market this summer than ever before and I’m seeing a $10-15 premium on 5-weight steer calves. Some guys are even taking them into the GAP program, which doesn’t take much more effort other than an outside audit. But the GAP 4 cattle don’t seem to be adding that much more value. GAP-certified cattle seem to be a way for Whole Foods Grocers to source cattle for their beef program.
Now the hog market did take it on the chin over tariffs. Those markets have been down about 20 percent since the tariffs were announced. News came out that Chinese hog producers have run into a problem with an African Swine Fever outbreak, the extent of which no one really knows. But the futures quickly added $10 to live hog prices. Suddenly China may not be able to afford a 25 percent tariff on U.S. hogs.
The fever has hit four hog operations over the past two weeks and authorities have exterminated about 20,000 hogs to limit the damage. The virus can travel easily, by many means, and could potentially be devastating for a country that relies heavily on pork production.
In 2015 the U.S. experienced an outbreak of Porcine Epidemic Diarrhea virus that claimed over 8 million pigs, about 10 percent of the U.S. population.
NAFTA was in the news last week and it appears that the U.S. and Mexico are coming closer to an agreement. Some news sources said they could have a framework by the end of the week. These discussions have been going on for long enough and it’s time to complete them.
We’ve been hearing a lot about tariffs and trade wars, which have been going on for a while now. There is still no discernable effect on the cattle and beef markets. The global economy is generally strong, and people have learned to love beef again.
I read an interesting report from Fisher Investments in their 2018 outlook. The report said: “Headlines decry individual measures’ impact on local producers, warning tariffs render them unable to compete. We see numerous warnings about U.S. soybean producers flailing now that China’s new tariff is in effect. But this is overwrought. U.S. soybean farmers don’t sell directly to Chinese firms. They sell to commodity brokers, who shop globally for the highest bidder. U.S. commodity brokers might not sell directly into China now that tariffs apply. But they can sell to a German broker, who can flip them to China for maybe a 1 percent cut. The farmers still receive market prices. The middlemen get a profit. Chinese buyers pay a 1 percent fee instead of a 25 percent tariff. Alternatively, China may simply buy more beans from Brazil and fewer from America—and brokers sell more American beans to Brazil’s non-Chinese customers.
“In short, we think it becomes clear this ‘trade war’ is mostly sound and fury, with little substance. Trim away the fluff and there is very little left.” — PETE CROW