Brewing trade war adds to market uncertainty

Cattle and beef prices grind mostly lower

Despite a mid-week lull in long-falling cattle futures, markets continued under bearish pressure from growing supplies and uncertainty surrounding agricultural trade with China (see “Proposed tariffs weigh on markets” below).
Although there were some late-week instances of steady to $5 per cwt higher, steers and heifers traded primarily steady to $5 lower with instances of $10 lower, according to the Agricultural Marketing Service (AMS). Analysts there explain both low prices and a strong cold front in the Southern and Northern Plains hampered receipts.
Feeder Cattle futures closed an average of $1.48 higher week to week on Friday (March 29-April 6). That was after closing an average of $1.69 lower to end the week.
“Feeder cattle are caught in a bottleneck of lower fed cattle prices, increasing supplies of fed cattle, sharply lower cattle futures and record supplies of competing meats,” AMS analysts say. “As the entire livestock complex struggles with these issues, demand and exports are very important to keep product moving and prices stable.”
Fed cattle lose more ground
Friday’s plunge in futures prices dashed hopes of kick starting the week’s sluggish and lower negotiated cash fed cattle trade.
Live sales for the week were $2-$3 lower in the Southern Plains at $117-$118 per cwt. Prices were as much as $6 lower in Nebraska at $114 earlier in the week, although there were a few trades there on Friday at $118. Dressed sales were $2-$7 lower at $184-$188.
After $1.52 and 25 cents lower in the front two contracts, Live Cattle futures closed an average of 80 cents higher week to week on Friday.
“Packers continue purchasing cattle aggressively, with the previous week’s total cattle purchases (negotiated, negotiated grid, formula and forward contract combined) reportedly 23% larger than last year and 36% more than the three-year average,” says Isaac Olvera, livestock and meat market analyst for Informa Economics IEG.
“Of the increase, a disproportionately large percentage of cattle were listed as being sold in the negotiated purchase, 15- to 30-day window. Cattle purchased in the 15- to 30-day window have increased each of the past four weeks and made up approximately 11% of total cattle purchases the previous week.”
Despite cash fed cattle prices declining more than expected, Olvera says Informa Economics IEG believes second-quarter prices should be $3-$4 more than those implied by Live Cattle futures for that period.
“At this juncture, it would seem difficult to push finished cattle prices below $100 per cwt this summer,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “There is plenty of bearish information, such as the number of cattle on feed and heavier carcass weights increasing beef supply, but that should be priced into the market at this time.
“The summer months will drag cash prices for finished cattle lower as is normally expected, but below $100 seems like a stretch. The key for cattle feeders the next several months is to stay current with marketings and look to the margin on the next set of feeder cattle to place.”
Packers are selling more out front
Wholesale beef values continued to sputter ahead of grilling season and the year’s heaviest supplies of fed cattle, which should also be the most in several years.
“Weekly average beef production through the first quarter of 2018 was up an estimated 3% from the year prior; a far cry from last year’s 6.1% year-over-year growth during the same quarter, but prospectively, will come in as the largest first-quarter production on record when final slaughter numbers for March are released in mid-April,” Olvera says.
Choice boxed beef cutout value was $6.73 lower week to week on Friday at $214.31 per cwt. Select was $3.09 lower at $205.60. Those prices remain higher year over year with Choice $6.41 higher and Select $5.32 higher.
Citing recent trends in retail beef featuring, Olvera explains, “One thing is relatively certain—packers are trying to sell out in front of the anticipated larger supplies of cattle that are expected to hit show lists by mid to late April. Forward beef sales in the 22- to 60-day window (which leave delivery of sale ranges from mid-April to late May) escalated sharply in the previous week’s National Comprehensive Boxed Beef report, up 47% week to week and nearly even with the prior year.”

Proposed tariffs weigh on markets

Trade and tariff rhetoric between the U.S. and China accelerated this week, fueling violent swings in commodity and equity markets, while broadening the shadow of market uncertainty.
Never mind the tariffs imposed last month on steel and aluminum imported to the U.S. by some countries. In simple terms, the battle between China and the U.S. began percolating last August when the administration instructed the office of the U.S. Trade Representative (USTR) to launch an investigation under the Unfair Trade Act of 1974, referred to as the USTR Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.
Based on findings of that investigation, President Trump announced late last month that the United States would address China’s unfair trade practices—including the forced transfer of United States technology and theft of U.S. intellectual property—by imposing $50 billion worth of tariffs on Chinese imports to the U.S.
China responded last weekend by announcing new tariffs on U.S. pork and some fruits.
On Tuesday, the USTR published a proposed list of products imported from China that could be subject to the new tariffs.
A day later China issued proposed tariffs on a long list of U.S. goods traded to China, including tariffs on 25% of the agricultural and food products it imports from the United States, including U.S. beef.
On Friday, according to the White House Press Office, the Trump administration directed the USTR to determine if an additional $100 billion worth of tariffs would be appropriate under section 301. All of the tariffs the U.S. is considering are subject to a public comment and public hearing process.
Considering the potential impact of additional Chinese tariffs on U.S. beef and pork, Glynn Tonsor, agricultural economist at Kansas State University, explains, “The Chinese market for U.S. red meat indeed remains highly valued both today and for the foreseeable future. However, the U.S. export portfolio is more diverse than in the past, and hence likely less impacted by any changes in trade with any single country.”
Tonsor provides an insightful factsheet that summarizes the relative concentration of export destinations for U.S. beef and pork.
In it, he explains, “The Herfindahl-Hirschman Index (HHI) is an often-used measure of market concentration where lower values reflect less concentration and a value of 1 reflects reliance on one sole country.”
By that measure, market concentration is relatively low for both U.S. beef and pork exports. The HHI for pork last year was around 0.20; about 0.18 for beef.
Beef exports continue strong
The most recent statistics from the U.S. Meat Export Federation (USMEF) underscore the value of international beef and meat trade to domestic producers.
U.S. beef export volume in February was 11% more year over year at 100,593 metric tons. Beef export value increased 18% to $599.8 million. Although that’s the lowest monthly value total since May 2017, it’s the highest on record for the month of February. For the first two months of the year, beef export volume is 10% more than last year and value is 20% more at $1.22 billion.
February beef export value averaged $322.29 per head of fed slaughter, up 16% from a year ago. For the first two months, per-head export value averaged $306.69, up 15%.
U.S. exports of pork and lamb also were higher year over year in February for both volume and value.
“Red meat exports are off to a strong start in 2018 and continue to deliver excellent returns for U.S. producers,” says Dan Halstrom, USMEF president and CEO. “The outstanding level of export value per head slaughtered is especially encouraging at a time in which U.S. meat production is high and the trade climate is somewhat volatile.
“Through all the uncertainty, international customers remain very committed to U.S. pork and beef. This reinforces the importance of having experienced USMEF staff members located in key markets, working every day to maintain customer loyalty and reinforce the United States’ reputation as a reliable supplier.”

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

North Central

South Central

Southeast

CME Feeder Index

CME Feeder Cattle Futures

CME Live Cattle Futures

CME Corn Futures

CME Oil Futures (WTI)