A Few Thoughts by John Nalivka– Reason for optimism but don’t throw caution to the wind
May 18, 2017
Last week, China announced they will begin importing U.S. beef no later than July 16th. This new export business will add to this year's already robust beef export market. For the 1st Quarter of 2017, U.S. beef export tonnage was up 22 percent from a year ago and the value of those exports was up 23 percent.
There are still a couple of sticking points concerning food safety before shipments begin but these will be ironed out. As to be expected, the resumption of poultry trade between the two countries must be worked out, as well as requirements for beef concerning animal ID, hormone-free, and antibiotic-free. Also, I would think non-GMO might be tossed into the discussion.
The U.S. does not have a mandatory cattle ID program and furthermore, I don't think we will in the near future. So, China will have to accept our voluntary system and I think they will. We can also meet any stipulations with regard to hormones, antibiotics, and even non-GMO but those stipulations will reduce the potential supply of beef that could be exported to that market.
We can only speculate as to what the final agreement will look like and consequently the potential market impact is also speculative. Trade agreements and the market both involve human interaction and that interaction is sometimes not too predictable.
But additional export business does support wholesale beef prices. Price support as the result of exports tends to be seen across the market as the psychological impact is as real as the trade volume impact on prices. The timing for initiating this export business to China could continue to support current price strength into the third quarter when I expected the increasing supply coupled with increased pork production to pressure the market. Feedlots in a current position is already a positive factor as cattle numbers increase.
Yes, there is a great deal of speculation and that is part of any trade negotiation. But, at least there are fewer issues in this bi-lateral agreement and there is reason for optimism for the beef industry. However, this optimism should not lead cattlemen to throw caution to the wind. Markets are generally in balance today with all production sectors realizing a positive return above variable costs. The best strategy is to stay the course with realistic price expectations.