Markets are getting a bit stronger which is right on time for this time of year. I would expect cattle markets to get a bit stronger going forward. We’ve had a lot of good things happen and some good things about to happen. Japan has officially changed our tariff structure on beef, which should be a positive market element. This should motivate Japan to buy more beef from us.
Dan Halstrom at the U.S. Meat Export Federation said, “This agreement is one of the biggest developments in the history of red meat trade, as no international market delivers greater benefits to U.S. farmers and ranchers, and to the entire U.S. supply chain, than Japan.” Tariffs will go from 38.5 percent down to 9 percent over 15 years.
Then there is the EU quota deal, which guarantees us a specific volume of high-quality beef going to Europe. We are guaranteed an export quota of 35,000 metric tons of hormone-free beef per year, which before we had to share a 45,000-ton quota with every other international beef exporting nation—mainly Paraguay, Argentina and Australia, all aggressive exporters. Granted, it’s a small amount, but at this point every bit helps sell more U.S. beef. By my calculations, it would take just over a million fed cattle to fill the EU market quota.
And we also have the U.S.-Mexico-Canada trade agreement, which is right on the edge of ratification. This has been a politically motivated hang-up by the Democrats’ impeachment hysteria. Speaker of the House of Representatives, Nancy Pelosi, has been saddled with the impeachment episode and not putting USMCA on the congressional schedule. But we hear from our friends in Washington that we should have a vote before the Christmas break. Congress must show us they can get something productive done. That would be a nice Christmas present for the beef industry.
It’s amazing that agriculture must bear all this political pressure, especially when farm and ranch income is at a low point. China still looks like the big prize. It certainly has been for Brazil. Brazil is seeing record high prices for beef. In Sao Paulo, Brazil’s largest city, wholesale beef prices rose to 14.69 reals. With an exchange rate of 4.2 reals to the dollar, beef is selling for $3.49 per pound. I suppose that would be the equivalent of our beef cutout values, which are currently at $2.27 for Choice beef. I would imagine that most of Brazil’s beef isn’t Choice.
Since the beginning of 2019, China has approved another 24 Brazilian beef processing plants for export to China; only 16 plants were approved at the beginning of the year. China imported 320,000 tons of Brazilian beef so far this year, and Brazil expects more plants to gain Chinese export approval.
Can you imagine what would happen to U.S. cattle markets if we were able to ship just 250,000 tons of U.S. beef to China. It would be dramatic and could add lots of value to feeder cattle and fed cattle prices.
We are hearing that China is ready to strike a trade deal. In a CNBC report, ICBC Standard Bank’s chief economist, Jinny Yan, said, “A trade deal is ‘eminent.’ The two largest economies are working toward a phase one trade deal, with U.S President Donald Trump saying Tuesday that negotiators are in the final throws of talks.” With the U.S tariffs scheduled to start Dec. 15, the tariff would be 15 percent on another $160 billion of Chinese goods.
Yan said that “the key priority for (Chinese President, Xi Jinping) and policy makers across China is stability, so anything that overthrows stability is going to be essentially a concern. That includes Hong Kong, the U.S. China situation, and that is why a phase one deal is absolutely crucial.”
Yan also said that “China’s industrial profits fell 9.9 percent in October, year over year, and the slump in China is driven primarily by a slump in domestic consumption, rather than a trade war. That has been seen in the previous year or two because we are seeing disposable income growth slower than actual gross domestic product growth, so whilst most people are worried about GDP growth, what we should really be worrying about is actual income growth in China.”
It appears that we have earned a few positive trade deals for agriculture. Markets will respond if we’re able to produce what these countries want. China still has a problem with ractopamine, and I don’t think the EU will ever understand the hormone science behind U.S. beef production. Then there is that source verification thing. What are we going to do in the beef industry to attract and retain more foreign customers? —PETE CROW
