A new year and new challenges are in store for the cattle industry. Looking forward and attempting to forecast our challenges, I believe trade will be a major issue facing our industry. We will again produce more beef than the prior year.
Beef cattle herd growth is forecast to be about three-tenths of a percent higher this next year, marking the near end of unprecedented herd growth. The dairy industry was growing but is now on the down side of their expansion and in the midst of a full-on liquidation. Dairy producers have reached their limit, producing milk at a loss the entire year. This will send more cows to the slaughter markets.
The dairy industry is a huge contributor to beef supplies, and with the advent of sexed semen, many dairymen are turning to beef genetics to breed cows and produce bull calves that will yield more red meat.
Anecdotal information I heard related to one trade in Minnesota, where dairy springers, a month or so away from calving, traded for $600 a head. These heifers are a month away from getting on the milk line. Cattlemen and dairy producers have already seen salvage values for bulls and cows drop dramatically.
We will need to sell more beef this next year. One of the big challenges is a trade deal with Japan. The administration wants a unilateral agreement with Japan to lower high tariffs on beef. Japan purchased over $2 billion in U.S. beef this past year; they’re a good customer.
The Trans-Pacific Trade Pact (TPP), which the Trump administration pulled out of, went forward this past week without U.S. participation. Australia and New Zealand will have lower tariffs starting at 27.5 percent and ratcheting down to 9 percent over a period, going into Japan. The U.S. tariff is still at 38.5 percent, which will have a huge impact on Japanese beef sales and other beef markets. I would say that the Trump administration has about six months to produce a trade deal with Japan or try and get back into the TPP deal.
Beef demand could be a greater challenge this next year. Economic uncertainty threw the stock markets into a tizzy in December, which could dampen the wealth effect, forcing consumers to start watching their spending and turn to cheaper protein sources.
Beef sales have been on a good trajectory the past few years and it amazes me that the average all-fresh beef price was at $5.60 per pound or higher most of last year. Beef consumers contribute every dollar the cattle industry receives.
Export markets have been a bright star for the beef industry and have remained strong. The TPP deal could change that. Cattle prices are good and are forecast to remain good for the next few months. Cattle feeders are seeing some positive returns after a long period of feeding losses.
We need to get the economics focused on the producers now. The packers and retailers have done very well selling and processing beef. They’ve been seeing extremely positive margins. But with more beef on the market it could be a challenge going forward.
Then there is China. Trade talks occurred last week with the U.S. trade representative and China. But there are no conclusive results from the meetings other than both countries are eager to come to an agreement. China has started buying U.S. soybeans in recent weeks and some pork. This African swine flu is a much bigger deal than the Chinese will admit. They need to buy pork to keep the population content. Trump has set a deadline of March 2 to strike a deal, with the threat of more tariffs on Chinese goods.
I get the feeling that agriculture is in pretty good shape. China did approve the import of five varieties of GMO seed and they’re already buying beans and pork. The big deals are going to be the technology transfers, the theft of intellectual property, and the internet hacking and banking. Those elements will be harder for the Chinese to deal with. In China there is no such thing a private property.
So, for 2019, ag trade and opening new markets is paramount. Commodity prices are too low and we must get that ag production moved and sold; we need more customers. Farm incomes are expected to decline again this year and I know most farmers and ranchers would like to see higher prices. Ironically, this is where we need government to be business-minded and open the world to fair trade. — PETE CROW
