It’s remarkable that were in the middle of August and fed cattle are trading at the $116 level. Last May many market analysts were expecting the fed market to be around $102 or so. Cattle feeders have done a great job marketing cattle this summer and keeping carcass weights in reasonable parameters. Beef production is only up .03 percent over a year ago, but we’ve slaughtered 1.3 percent more cattle or about 250,000 head more than a year ago.
The average all-fresh retail beef price is $6.16 and is above the high set when cattle numbers were at their lowest. It’s a great day when an industry can expand production and expand prices at the same time, something we don’t see very often in the cattle/beef industry. The packing industry has matched production with consumption well and beef is competing with other meats, which have also expanded production, but have not seen the price gains.
The live cattle futures haven’t responded to this outstanding beef demand and the deferred contracts are holding the fed cattle market back. There are a lot of “what ifs” facing the market right now, but we need to remember that 90 percent of beef production is consumed domestically. It seems like folks are just sitting back and waiting for the other shoe to drop in the domestic and global economy.
The stock market took a big hit last week on the news that President Donald Trump was going to impose tariffs on $300 billion of Chinese goods. China responded by saying that they would cut off all U.S. ag imports. So, the trade skirmish continues. Agriculture shouldn’t even be in this fight, but commodities and global trade politics seem to like it that way.
I understand that China may not need the grain from the U.S. right now since their pork production is failing fast, but one would certainly think that they would be needing our pork. They even have ownership in the U.S. pork industry through the Smithfield acquisition several years ago. Pork is a Chinese staple and when prices get too high the population isn’t very happy. China produces roughly half of global hog production and they haven’t been able to get African swine flu under control.
As far as the beef market goes, we never had much trade with China, so we never lost anything. Beef exports were quite reasonable. We export about 10 percent of our domestic production but if we could raise it to 15 percent it would certainly help producers in the U.S.
The EU was big news last week as the U.S. secured a beef quota of 35,000 metric tons of non-hormone-treated beef. At the end of the day that order would amount to about 55,000 head of cattle—a half day’s slaughter in the U.S. The USMCA trade deal is essentially done and waiting for Congress to act on it. And we all know that someone is going to try to make some political hay out of it. Mexico and Canada are done with it; the U.S. government is holding it up.
Then we have Japan and the fallout from the Trans-Pacific Partnership (TPP) trade deal, which Trump pulled out of. The TPP has given Australia a big tariff advantage and beef sales have suffered in the U.S. However, the news is that the two countries will get a bilateral deal put together sometime in September, which would put U.S. beef producers on a track to lower tariffs to Japan.
The USMEF said the end of July beef exports were down just 2 percent from a year ago, but value maintained itself. Getting these export markets popping on all cylinders would be a boon to U.S. grain and meat producers.
Then there is the corn market, and nobody seems to have a handle on that. Corn prices have been falling ever since the USDA estimated that 92 million acres were planted, and analysts expected 87 million. Too much moisture, not enough heat; growing conditions are too varied around the country to really know. A new report comes out this week so perhaps we’ll know more.
Meanwhile feeder cattle markets are moving sideways. Yearling steers are trading between
$135 and 145, depending on what they are. Calves are trading all over the map. Cattle feeders don’t have a lot of protection going forward. As a result of all these market elements, the caution flag is up. Trade carefully. — PETE CROW
