Uncertainty grows with tariff wonderments

 Although cattle fundamentals are unchanged, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University says all market bets are off amid the chaos wrought by evolving, far-reaching tariffs and the global response to them.

“U.S. and global economies are being hit with a maelstrom of tariffs and political actions that will impact markets in innumerable ways, many of which will not be immediately apparent but will continue to grow in the coming weeks,” Peel says, in his early-April market comments. “Supply chains in the U.S. are immensely complex and virtually every market will be negatively impacted directly or indirectly by tariffs and disruptions in flows of goods. Trade disruptions are sucking value out of markets and the economy. International trade, fundamentally no different than any trade in the economy, increases total value, as a result of the basic economic principles of specialization and comparative advantage. Gains from trade are the fundamental engine of economic growth. Massive trade disruption on the current scale will lead to increased product and input costs and sharply higher transactions costs in the short run. In the long run, permanently altered trade flows will lead to resource misallocation and lower total economic potential in the U.S. and globally.”

Peel notes the current domestic cattle and beef supply situation offers cattle markets more resilience than enjoyed by others. However, he says, “The weight of macroeconomic chaos may overwhelm cattle and beef markets and may completely alter the industry trajectory in the coming years. The record high cattle prices we have already experienced should go even higher…but they may not.”

Upward price direction remains

In the meantime, cash cattle prices remain resilient, buoyed by the supply and demand fundamentals Peel mentioned. 

Feedlot placements in February (feedlots with capacity of 1,000 head or more) numbered 1.6 million head, according to the March Cattle on Feed report. That was 336,000 head fewer (-17.7%) than the same month a year earlier. The March 1 feedlot inventory of 11.6 million head was 261,000 head fewer than a year earlier (-2.2%). 

USDA’s Economic Research Service (ERS) increased projected feeder steer prices for this year for all quarters, compared to the previous month, in the March Livestock Dairy and Poultry Outlook. Prices were forecast at $273 in the first and second quarters, $274 in the third quarter and $279 in the fourth quarter for an annual average of $274.75. Prices are basis Med. and Lg. #1 steers weighing 750-800 lbs., selling at Oklahoma City.

“The combination of tight supplies of feeder cattle, the recently constrained pace of cattle imports from Mexico due to protocols to mitigate the spread of New World Screwworm, and uncertainty surrounding the terms of trade for cattle imported from Canada and Mexico are creating some volatility, pushing prices higher for U.S. feeders and stocker operations to secure their cattle needs,” ERS analysts explained. 

Likewise, the ERS increased the forecast five-area direct fed steer price for the remainder of this year, compared to the previous month’s outlook, in April’s World Agricultural Supply and Demand Estimates (WASDE). Based on forecast strong consumer beef demand, projected prices increased $3 to $205/cwt. in the first quarter, $6 in the second quarter to $204, $8 in the third quarter to $206 and $7 in the fourth quarter to $207. 

Beef production was projected 15 million pounds more year over year at 26.7 billion pounds. If so, it would be 288 million pounds less than last year (-1.1%). The increase was based on heavier projected dressed weights and higher cow and bull slaughter, partially offset by lower steer and heifer slaughter.

Beef consumers hang tough

On the consumer side of the fence, beef demand continues at a strong pace, based on a recent reading of consumers’ willingness to pay for their protein of choice.

The Livestock Marketing Information Center (LMIC) provides an overview in a March issue of the Livestock Monitor, based on February retail meat prices reported by USDA.

“The price of all fresh retail beef rose by 6.2% to $8.32 per pound, retail pork prices increased by 1.6% to $4.84 per pound and retail broiler prices climbed 5.1% to $2.05 per pound,” according to LMIC analysts.

However, global demand for U.S. beef turned softer, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). U.S. beef exports in February of 98,198 metric tons (mt) were 5.5% less than a year earlier, while value declined 4% to just over $800 million. 

However, February exports increased year-over year to South Korea, Canada, Egypt and the Philippines, and reached the highest value on record to Panama. 

“It was encouraging to see beef exports to Korea trend higher despite considerable economic and political headwinds, and Canada’s demand for U.S. beef has been very robust to start the year,” says Dan Halstrom, USMEF president and CEO. “But exports to China lost momentum in February, likely due in part to the slowdown after Chinese New Year and the questions about plant eligibility. Unfortunately, China has still failed to address the issue of beef plant renewals.”

U.S. pork, beef and poultry plants and cold storage facilities were due for a five-year eligibility renewal by China’s General Administration of Customs (GACC) in February and March of this year. Many Pork and poultry plants were renewed on the March 16 expiration date, but GACC still has not renewed the eligibility of any U.S. beef establishments, and the majority of U.S. beef production is now ineligible for China.

“This impasse definitely hit our March beef shipments even harder, and the severe impact will continue until China lives up to its commitments under the Phase One Economic and Trade Agreement,” Halstrom says.

China also announced additional retaliatory duties of 34%, to take effect April 10, in response to new U.S. tariffs. This will create further obstacles for U.S. pork and beef exports to China, according to Halstrom, who notes that new U.S. tariffs have also created uncertainty for buyers of U.S. red meat in other destinations where retaliation could impact market access and prices.

“USMEF is hopeful that instead of retaliating, other trading partners will choose to lower trade barriers for U.S. exports,” he said. “This would certainly ease the concerns of importers and reduce volatility in the global markets.”