Trade issues shape future cattle market

Heading into the second half of the year, demand concerns for beef mostly have to do with how current trade issues affect competing meats, as well as domestic and global economies.

Wes Ishmael

July 30, 2018

3 Min Read
Trade issues shape future cattle market
Photo Credit: basar17/Thinkstock

Given the long-burning market trepidation heading into the summer’s much-anticipated and -feared swell in fed cattle supplies, it’s the second half of the year that could be lots dicier if brewing trade issues remain unresolved.

“Despite increased beef production in 2018 — up nearly 4% so far this year — beef demand has been quite strong and has limited beef and cattle price pressure in the first half of the year,” explained Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in June market comments. “Domestic beef demand has been buoyed by strong macroeconomic performance, including a declining unemployment rate. Foreign demand for U.S. beef has boosted total beef demand with a 13% year-to-date increase in beef exports through April.”

Through June, packers windrowed the most ample fed cattle supply in about a decade, encouraged by reportedly record profit margins, thanks to heftier consumer demand than many expected. Although wholesale beef values declined seasonally, retail beef prices continued about on par with a year earlier.

Cattle prices continued to be more resilient than many believed possible, with expected record beef production this year of 27.125 billion pounds. Plus, the drought-driven earlier cattle placements contributing to the fed cattle summer bulge should leave more price support moving forward.

Related:How to capture export value

Heading into the second half of the year, demand concerns for beef mostly have to do with how current trade issues affect competing meats, as well as domestic and global economies.

“Negative impacts on exports of other meats means that more total meat must be absorbed in the domestic market,” Peel explained. “Total U.S. red meat and poultry production is expected to increase nearly 3% year over year to a record level over 102 billion pounds. Any slowdown in meat exports will undoubtedly add pressure to domestic meat prices.”

Consider domestic pork production, which is on track to hit a record. Already, counter-tariffs between the U.S. and trading partners are taking a toll on exports.

In May, pork exports to China and Hong Kong were 31% less than a year earlier for volume and 25% less for value. According to the U.S. Meat Export Federation, the decline was due in part to the additional 25% tariff increase imposed by China in April.  In early June, Mexico — the largest destination for U.S. pork exports by volume — levied a 10% tariff on unprocessed pork (not including variety meats). That tariff was scheduled to double the first week of July.

Related:Focus on the bigger picture; trade adds value

That’s before considering the impact on domestic and global economies.

“Tariffs on U.S. products will impact domestic GDP [gross domestic product], slowing macroeconomic growth and reducing domestic spending. At the same time, U.S. tariffs on steel and aluminum from numerous countries have been broadened, in the case of China, to include a host of other imports,” Peel explained. “This will impact domestic prices for products manufactured with imported inputs, as well as directly increasing prices on imported consumer products. Tariffs on U.S. imports are largely paid by consumers as higher retail prices in the U.S.  All of this will negatively impact domestic spending and employment, with likely negative consequences on domestic beef demand.”

Considering the trade battle between the U.S. and China specifically, Tanner Ehmke, manager of CoBank’s Knowledge Exchange Division explained, “Trade concerns pose the single greatest risk to the projected global economic growth of 3% to 4%. The U.S. and China have been driving the growth, benefitting emerging markets around the globe. A trade war between the two is dangerous for economies around the world.”

According to CoBank’s Quarterly U.S. Rural Economic Review for the second quarter, “The risk of an escalating trade war is the greatest threat to the U.S. and agricultural economies in the near term. Nearly 70% of U.S. agricultural exports are sold to destinations that are under active negotiations or embroiled in trade disputes.”

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