Trade, corn, weather: where will the market go? |

Trade, corn, weather: where will the market go?

The USDA Economic Research Service reports that beef imports are up 6 percent and exports down 4 percent year to date, relative to the same time last year.

Will the excess supply of beef on the domestic market spell trouble for those marketing calves in the coming months? What else is on the radar for cattle feeders?


Superior Livestock Representative Birch Negaard says the value of a 600-pound steer calf this fall is less than last summer, but he blames the uncertainty of the corn supply and price, as well as feeder losses over the past year.

“Corn, corn corn. Higher corn prices are driving values,” the Sundance, Wyoming cattle broker said. “Plus, those feeders didn’t make any money last year and a lot of it was due to the weather.”

Negaard said that feeders want to buy calves at a price where they can lock in a breakeven. Although there may be fewer feeders looking for calves now because of lost equity and concern over feed costs, he doesn’t think they will shy away completely.

“I think they will buy calves but I think they are going to want to know what their costs are.” By August, the industry should have a better grasp on corn and forage values, he said.

The calves that have sold recently on Superior Livestock have been around $10 cwt back from last year’s prices at this time, Negaard said, but he added that in the most recent sale, the spread between heifers and steers was less than in 2018.

Jim Robb, Senior Economist with the Livestock Marketing Information Center agrees that corn quantity and value will be an influencer in the fall calf market, but he points out that with adequate moisture in much of cattle country, forage shouldn’t be a limiting factor, as it sometimes is when corn prices are high.

“There seems to be lots of forage nearly everywhere, except northern North Dakota,” he said, pointing out that wheat pasture in the Midwest and hay in the northern plains should both help push demand for calves, and should give the cow-calf producer options.

He expects the fall calf market to be slightly lower than 2018 prices because of predicted higher corn prices, but he doesn’t think corn is likely to skyrocket.

“Because of the overall headwinds, we think calf prices this fall will be 2-4 dollars per hundredweight lower,” he said. Robb added that if corn remains moderately high, the market could see calf buyers showing a preference for heavier calves. “This could be a year where the market could be volatile depending on outside factors week to week, But I’m thinking if you have the financial ability and forage, it could be a year where it may pay to feed the lighter end of the calves as opposed to selling them all at once.”

Like others, South Dakota Cattlemen’s Association President Steve Ollerich believes a tighter corn supply, or the illusion of one, could strain the calf market, but he believes forage will be plentiful, particularly in light of USDA regulations temporarily allowing “prevent plant” wet farm ground to be planted to forage crops.

The South Dakota Cattlemen met with South Dakota Representative Dusty Johnson to help him understand the need for farmers to be allowed to plant forage crops. Corn silage, millet, sorghum, oats and other crops have been put in “prevent plant,” acres with the understanding they must be grazed, baled or chopped to be used for forage, the Elkton, South Dakota cattle feeder explained.


Higher imports for 2019 are due in large part to the drought in Australia, said Robb, and he thinks imports are likely to slow for the rest of the year, although he admits he did not expect them to be this high throughout the spring.

“We’re importing 90 percent lean from South American and Australia, that is a different product than we are exporting,” he explains, adding that the higher quantity of lean imports along with high numbers of dairy cows helps explain the tough cull cow market over the past several months.

Global trade uncertainty including recent disputes between China and Canada as well as China and Brazil will all affect U.S. import levels, he said.

“If China doesn’t take Canadian product, it will come here. This is a world trade flow model. China keeps throwing wrenches in the system.”

Australians are grain-feeding more cattle all the time, Robb said, which will also affect the U.S. in terms of trade. “They (Australia) are building more feedlots. That product will go to Japan and China at our expense,” he said, due in part to a lack of trade agreement between U.S. and Japan, he believes.

Leo McDonnell, a seedstock producer representing the United States Cattlemen’s Association said that the U.S. beef industry is a “supply sensitive industry,” and is greatly impacted by even a small amount of increased supply, such as the six percent import bump over the past several months.

“Obviously if imports are up, we will have more supply. U.S. beef demand is tremendous, and the profit margins for packers, wholesalers and retailers are huge. But the cow-calf producer has become a price-taker.”

McDonnell said it is no secret that imports, sometimes valued even higher than domestic product, are used to weaken domestic prices.

“If I could pay a premium for 10 percent of the hay in the country and saturate the market with it, and artificially lower the price, it would be worth it, right?” he said.

According to McDonnell, it is well-known that imports are a tool used to impact the market. “The chairman of the international trade commission once said ‘Packers can and do use imports at times to suppress domestic prices.’”

McDonnell added that the Republican Commissioners of the Senate Trade Deficit Review Commission once testified that ‘imports are used to suppress domestic prices.’

R-CALF USA’s CEO Bill Bullard says the same. “There’s been a fundamental shift in our industry that has allowed meatpackers to capture a greater share of beef profits both from the domestic market and from exports.

“The meatpackers are capturing the profits that a fully competitive market should be more equitably allocating to each participant in the supply chain,” he said.

In other words, there is money being made selling beef, but not by the cow-calf guy, at least in the current market environment.

Bullard said undifferentiated imports are a direct substitute for domestic production, and that it only takes a small amount to cause domestic prices to fall. “Those who look at feed costs and the weather situation as major contributors to depressed prices are completely ignoring the fact that demand remains strong. Consumers continue to pay near record-high prices for beef.”

The producer’s share of the beef dollar was about 44 percent in 2018, compared to about 62 percent in 1980, said Bullard. While the percent of the beef dollar that the producer captures fluctuates year to year, it has trended steadily downward since 1990 other than a five-year period from 2011 to 2016 when the producer obtained over 50 percent.

Gregory, South Dakota, cow-calf producer and backgrounder Dustin McIntosh says an increase in cattle and beef imports is a “huge issue” for the domestic cattle market.

“My biggest issue with the imports is that we’re being told by USDA, that we’re experiencing lower cattle prices because of ‘recent record high levels of cattle on feed.’” The Kennebec, South Dakota BankWest loan officer said that with high levels of cattle on feed, and low cash cattle prices, the addition of imported beef to the market only serves to challenge the already strained cattle prices.

McIntosh has felt the effect of market challenges first-hand.

“If we are importing these cattle to fill a need, why do the packers continue to see triple digit gains while feeders see triple digit losses?” he questions.

“I want to be clear, I have no issue with the packers making money, but we have to make something too, or we can’t survive.”

Besides providing product that competes with domestically-produced beef, McIntosh believes that imported beef and cattle serve another purpose to meatpackers. The mandatory price reporting law, which is intended to help provide a basis for the cash market, does not apply to imported product, so packers may be sourcing imported beef and cattle in an effort to circumvent the reporting requirement, thus maintaining an artificially low cash market.

“Are they bringing in imports to skirt formula cattle so they don’t have to go into mandatory price reporting?”

McIntosh has heard the claim that imported lean beef and cattle will help drive U.S. cattle prices up by adding value to the extra fat from domestic slaughter cattle, but he isn’t seeing this play out. “Weigh-ups have been worth 30-50 cents this winter, why do we need to import beef in addition to our domestic supply with prices that low?”

Ollerich agreed that lean beef imports suppress the cull cow market.

“They are getting the meat so cheap, it affects our cow price here. Our cows are better than what they import, but it (the imported beef) is a cheap product and some people look at price instead of quality,” he said. And even though the imported product tends to be of lower quality than that produced here, it impacts the price of the U.S. live cattle market, Ollerich said. “They still lower the fed cattle market,” he said.


Ollerich said U.S. beef exports have been strong for several years, so the fact that export volumes dropped this spring may just mean they can’t keep increasing at the same rate. “Exports add $250 to $300 to a carcass,” he said, adding that trade deals will continue to find success in finding a home for U.S. beef because our product is “so good.”

Although he thinks there is potential for increased exports, Robb believes the world economy is slowing and he sees “headwinds” for U.S. exports of beef and pork.

Bullard said lower export figures will add even more product to the domestic supply, but he points out that data does not indicate that U.S. calf prices are positively impacted by higher export volumes.

“We see an inverse relationship that has occurred several times. From 2004 to 2008, exports were low and cattle prices were high. From 2012 to 2015, export values were depressed and cattle prices were at all time highs. What I’m saying is that the producers are not receiving the expected benefits from increased export sales. Someone is making money, but not the producer.”

Bullard believes the data show that trade has in fact negatively impacted the U.S. beef producer over the past five years.

“They tell us exports increase cattle values but history says otherwise,” he said.

“In 2018, prices were at a six-year low even while we experienced record export values. There is no correlation between increased exports and live cattle prices. It’s not the producer selling beef in the export market.”

By calculating what the per-head value of imports and exports have been over the past five years, Bullard concluded that the net loss to producers resulting from both import and export activity is an average of -$32.78 per year for the past five years.


McDonnell agrees that strong beef demand is helping uphold current cattle prices and ought to remain strong into the foreseeable future.

“The number one thing is they are kicking butt with beef demand, globally and domestically. But we are price-takers because of a lack of competition due to concentration in the meatpacking industry.” McDonnell also points out that if corn prices remain high, fat cattle should keep moving through the market without getting overfed.

Robb said feeders have been doing a good job of keeping supply fresh and moving cattle in a timely fashion this summer, which, if it continues, ought to help uphold the market, too.

“Although the futures are reacting to the short corn crop, there is a lot of potential to settle down. A lot of people said we’d be trading fed cattle at $101 right now and we’re trading them at $109 to $110 per hundredweight.”

“We have to see two more months of doing a great job marketing cattle and then the feedlots will be ready to buy calves and yearlings,” he said.

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