CASH live cattle prices set a record-breaking pace in June, with new all-time highs for four weeks in a row. Boxed beef cutout values also performed better than expected, reaching their highest level in a year. But they were far below the record levels set during the height of the COVID-19 pandemic. The comprehensive cutout (cuts, grinds and trim) the week before last averaged $318.44 per cwt. This was up $2.06 per cwt on the prior week and up $8.25 per cwt in three weeks. But it was down 0.2% on the same week last year. The comprehensive set an all-time record of $421.80 per cwt the week ended May 15, 2020. But it fell rapidly to be at only $206.82 per cwt six weeks later.
Of note was that the volume of 6577 loads the week before last included 28.3% spot sales, 55.5% formula sales, 16.2% forward sales and 11.2% export sales. The last category has not exceeded 12% of total sales in the last five weeks. The week also saw the price of domestic lean manufacturing beef (90CL) set an all-time record of $371.06 per cwt, the seventh record in successive weeks. In contrast, the Choice cutout in the weekly comprehensive report averaged $302.95 per cwt. The daily Choice cutout advanced last week in large part because of the July 4 holiday-shortened production week.
Rain Collapses Cargill Beef Plant Roof
Daily kills the first three days were also lower than expected despite the holiday. Part of the reason was that a portion of the roof of Cargill’s beef processing plant in Dodge City, Kan., collapsed the weekend before last after more than four inches of rain fell in a short span. No one was injured and the beef processed in coolers and the distribution center was not damaged, says Cargill. It closed the fabrication floor on July 1 but resumed operations there on July 2. The harvest floor was expected to reopen last Friday. Cargill leveraged the broad footprint of its supply chain to minimize disruptions to customers and producers, it said. The Dodge City plant is 900,000 square feet and employs more than 2600 workers. It has a daily slaughter capacity of 6000 head.
As noted above, cash live cattle prices set another new record the week before last. The 5-area steer price averaged $195.81 per cwt live or $313.47 per cwt dressed. These were up $0.97 per cwt and $2.92 per cwt, respectively, from the prior week. These prices were well above the then-record prices set in November 2014. Very little cash trade had occurred last week when CBW went to press early because of the holiday. One load sold in Iowa Monday at $197 per cwt live. Tuesday saw a very light trade at $195-198 per cwt live or $315 per cwt dressed up north and at $189 per cwt live in Kansas. A seasonal top in prices is likely during this time period, says Andrew Gottschalk, HedgersEdge.com. The largest monthly average basis for western Kansas since 1975 was a 4.9% cash premium over the August live cattle futures in 2016. At today’s dollars, a similar level would approximate a $9.30 per cwt cash premium. An historically large positive cash basis should lend itself to active trade volume going forward. Hedgers will likely take advantage of this basis, he says.
FIRM ANNOUNCES LAYOFFS
CENTRAL Valley Meats will lay off nearly 180 employees at Cargill’s former beef plant in Fresno, Calif. With a capacity of approximately 1600 head per day, the facility currently employs around 900 personnel. Both Cargill and Central Valley Meats expressed commitments to retaining as many employees as possible through the ownership transition. Central Valley announced in May it was acquiring the plant.
MEXICO’S GROWTH POTENTIAL CONTINUES
MEXICO continues to have growth potential for U.S. red meat even though exports have already reached record levels. This is why the U.S. Meat Export Federation (USMEF) held an inaugural U.S. Red Meat Symposium in Mexico City June 13-14. The meeting examined Mexico’s economic and political climate, highlighted the market’s continued growth potential and explored emerging opportunities for U.S. red meat. USMEF Chair Randy Spronk and Secretary/Treasurer Dave Bruntz participated, along with key USMEF staff from Mexico and the Denver headquarters, to emphasize the industry’s commitment to this critical market.
Mexico is a very important customer for the U.S., especially with its potential for undervalued cuts, says Spronk. The turnout for this symposium was outstanding. USMEF even had to limit the number of importers who could attend. He expects it will become a recurring event for the industry, he says. An important component of the symposium was the face-to-face networking opportunities for U.S. suppliers and Mexican importers, including product displays and samplings.
There is uncertainty on exporters’ minds related to the recent presidential election, while importers were asking about the U.S. cattle cycle, says USMEF President and CEO Dan Halstrom. But buyers and sellers were mostly talking about demand. Some may see Mexico as a mature market but it is still a growing market. As reflected by the market tours, presentations and trade discussions over the two days, there are new and emerging opportunities here for U.S. products, he says. Jonn Slette, the director of USDA’s Agricultural Trade Office in Mexico City, also sees Mexico as a growth market. Over 60% of Mexicans are still at or below the poverty line but as they move into the middle class, this is where U.S. growth is going to be, he says.
U.S. Exports Face Headwinds And Tailwinds
U.S. animal product exports face both headwinds and tailwinds in a number of ways, including livestock and poultry diseases that often lead to trade restrictions. Tariff and nontariff trade barriers can form obstacles to the export of U.S. animal commodities. Trade agreements can facilitate competition by opening access to markets for U.S. animal product exports but they can also benefit U.S. competitors. Emerging economies, such as those of Southeast Asia, represent new opportunities for increased U.S. animal product exports. These are highlights of a new report written by Danielle Ufer of USDA’s Economic Research Service, published in the June 26 issue of ERS publication Amber Waves.
The U.S. is a leading global exporter of beef, pork and chicken, as well as several dairy products, writes Ufer. While U.S. animal product exports have grown in recent years, those of global competitors also have strengthened. Like the U.S., many major players in animal product export markets have strong export portfolios across multiple animal commodities. However, they all must contend with trade barriers, disruptions, tensions and provisions in trade agreements, which can represent opportunities as well as threats to competitiveness and overall trade performance, she writes.
U.S. animal product exports exceeded $37 billion in 2023, representing about one fifth of the value of total U.S. agricultural exports, writes Ufer. The U.S. holds strong market positions in many of its most common destinations for animal agricultural commodities, including Japan, South Korea, China and the North American markets of Mexico and Canada. In 2022, U.S. exports accounted for more than two thirds of Canada’s total imports of beef, pork, chicken and many dairy commodities, and more than 83% of those same categories for Mexico. Export competitors for U.S. animal products include the European Union, Brazil, New Zealand, Australia and Canada, she writes.
Issues related to livestock or poultry disease have presented some of the biggest challenges for U.S. animal product trade in recent years, writes Ufer. Diseases that can be passed from animals to humans are a natural cause for trade restrictions given the public health risks. Even animal diseases not passed to humans can motivate countries to put trade restrictions in place to protect their agricultural sectors and food supplies.
Report Cites BSE As Example
In the past three decades, bovine spongiform encephalopathy (BSE) was an example of a disease that influenced trade, writes Ufer. When the disease was discovered in the U.S. in 2003, foreign markets closed their borders to U.S. beef. Exports of U.S. beef subsequently dropped from $3.2 billion in 2003 to $551M in 2004. Such restrictions can last well beyond the actual threat of the disease. Even after the World Organization for Animal Health declared the U.S. to be of negligible risk for BSE, U.S. beef trade partners were slow to remove restrictions and U.S. beef exports only recovered gradually. China restored market access only in 2017.
Outbreaks of highly pathogenic avian influenza (HPAI) in the past decade also have resulted in trade restrictions on a variety of animal products, including chicken broiler meat, writes Ufer. While importing countries claimed the protection of public health to justify BSE-related restrictions, HPAI-based restrictions were primarily instituted with the stated goal of protecting domestic poultry industries. More recently, countries have limited their HPAI-based import restrictions to products originating in affected geographic regions rather than from an entire country. This trend has helped reduce the effect of disease threats to exports and market access. Still, the impact of any severe outbreak can reduce total exports, she writes.
On the other hand, disease outbreaks in a trading partner’s domestic industry or when an export competitor faces disease-related restrictions open a window for U.S. exports, writes Ufer. Recent events surrounding African swine fever (ASF), a disease with no known human health risk but that is often fatal to swine, are one such example. In 2018, China’s domestic pork industry was devastated by an ASF outbreak, heavily contributing to a nearly sixfold increase in China’s pork import, from $2 billion to nearly $12 billion in two years. U.S. pork exports to China grew at an even faster rate, more than tripling from $129M in 2018 to $507M in 2019 and then tripling again in 2020.
Challenges Arise Over Certain Practices
Another challenge for exporters is when importing countries restrict products that come from livestock raised using specific practices, writes Ufer. Among the most common such restrictions on U.S. exports are those on products from animals raised with growth-promoting substances such as ractopamine and other beta-adrenergic agonists. U.S. beef and pork producers have used growth promotants extensively in recent decades. Major markets for beef and pork such as China or the EU prohibit imports of meat produced using such substances despite statements from the World Health Organization and Food and Agriculture Organization that ractopamine is safe under certain thresholds. Measures on production standards such as animal welfare requirements or environmental impacts also threaten exports and competitiveness. The EU included animal welfare standards in its 2022 and 2023 trade agreements, respectively, with New Zealand and Chile.
The political relations and policies defining trade relationships also can present threat and opportunity for U.S. animal product exports, writes Ufer. Global markets generally are structured such that tariffs, tariff-rate quotas, and safeguard mechanisms often bind and restrict trade. Trade negotiations and free trade agreements often relax these policies as well as nontariff barriers. Trade agreements have become essential in creating or preserving market access. Moreover, they help establish long-term expectations for trade prospects with specific trading partners or coalitions. The U.S. is party to several trade agreements enacted over the past three decades, including many with the world’s largest animal agricultural commodity partners. The U.S. had 20 free trade agreements in place in 2022, she writes.
U.S. competitors also engage in trade agreements, complicating the global network of trade advantages for the U.S., writes Ufer. For example, the South Korea-EU Free Trade Agreement (KOREU) implemented in 2011 offered tariff reduction benefits similar to those in KORUS. The terms of KOREU effectively neutralized much of the U.S.’s preferential access advantage over the EU, the top competitor in South Korea’s imported pork market. Foreign relations and tensions over issues beyond agricultural commodities also can impact market access, she writes. More on this topic on the next page.
Other Events Can Affect Exports
Tensions over events unrelated to trade also can affect exports, writes Ufer. The U.S. and Russia imposed sanctions and counter sanctions on agricultural imports from one another after Russia’s 2014 invasion and annexation of Crimea. Because of these actions, the U.S. lost all access to Russia’s poultry market. Russia had been a major destination for U.S. chicken, with exports worth $306M in 2013, the year before the sanctions.
Opportunities for U.S. exports may arise amid tensions between U.S. trade partners and competitors, writes Ufer. Recent political tensions between Australia and China resulted in restricted market access for Australia’s beef exports, compounding Australia’s challenges of a severe drought. Although it is not clear to what extent Australia and China’s political tensions may have directly benefited U.S. beef exports, they created a potential advantage for the U.S. industry, where processors retained Chinese approval and market access, she writes.
Notable opportunities for U.S. animal product growth exist in emerging markets, writes Ufer. A prime example is in Southeast Asia, where imports of animal commodities have grown since 2000. Typical economic drivers such as income growth continue to boost demand for imported and domestic animal products. Other factors may create demand for specific products. For example, African swine fever reduced Vietnam’s pork supply, leading to an increase in pork imports for that country. Export potential already is evident in some commodities such as U.S. dry skim milk product, for which several Southeast Asian countries are among the top global importers. In 2022, four of the five largest Southeast Asian dry skim milk product export markets bought more than a third of their imports from the U.S. ERS researchers found similar prospects for other animal product exports in emerging markets as their economies continue to develop, writes Ufer.
P&S RULE FACES UPHILL LEGAL BATTLE
USDA’s latest proposed Packers and Stockyards rule, the Fair and Competitive Livestock and Poultry Markets rule, might face an uphill legal battle due to a U.S. Supreme Court decision. The court on June 28 overturned decades-old legal precedent, which could impact USDA’s and other agencies’ ability to regulate in the future. The so-called Chevron Doctrine previously allowed federal agencies to interpret laws when established federal statutes were unclear. If statutes were ambiguous, federal agencies were able to decide what was meant in cases due to the precedent set by Chevron v. Natural Resources Defense Council in 1984, writes MEAT+POULTRY.
Several trade associations, including the American Farm Bureau Federation (AFBF), expressed support for the court ruling and its potential benefit to farmers. Farm Bureau applauds the Supreme Court for recognizing the damage Chevron deference has caused to the federal government’s balance of power, says AFBF president Zippy Duvall. Congress for decades has passed vague laws and left it to federal agencies and the courts to figure out how to implement them. AFBF has been a leading voice on this issue and has argued on behalf of farmers who are caught in a regulatory back and forth when administrations change the rules based on political priorities instead of relying on the legislative process. AFBF is pleased the Court heard those concerns, he says.
The National Cattlemen’s Beef Assn (NCBA) also lauded the decision. Our elected officials in Congress should be making our laws, not unelected bureaucrats at federal agencies, said NCBA president Mark Eisele. Cattle producers have experienced numerous instances of federal agencies enacting overreaching regulations on their farms and ranches, exceeding their authority granted by Congress. He is glad the Supreme Court is reining in these federal agencies and putting power back in the hands of those elected to represent us in Washington. In the last four decades, Congress has ceded authority to unelected federal bureaucrats who make the regulations that impact farmers and ranchers every day, said NCBA’s Mary-Thomas Hart. This decision will impact almost every regulation that NCBA has worked on. The decision puts Congress back in the driver’s seat for crafting policy, reins in the administrative state and strengthens accountability, she says.