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Beef Exports: A Bright Spot in 2017

As the year winds down, beef exports have been a bright spot for agriculture.

As the year winds down, beef exports have been a bright spot for agriculture. Year-to-date sales over 14% above last year continue to exceed expectations, as well as the five-year average. With the benefit of hindsight, it looks somewhat simple. There were a number of variables that came into play over the last 12 months that helped support beef prices and exportable beef.

You might remember the early stages of winter (particularly in February), when fires in the western regions of the Plains states made it a difficult winter for many cattle producers. In turn, this helped provide underlying support, and more than likely helped trigger imports from countries looking for beef. Better-than-anticipated world economies helped to provide underlying support, as end users more aggressively purchased beef. Catalysts, such as concerns of shortfall of inventory, are often noted as an economic reason to step up purchases.

Shortly after the issues in the Plains states, Brazil had a series of problems, particularly problems related to their government. Whether it was government scandals or a tainted beef issue, it wasn’ a good scenario for countries importing beef from Brazil. Confidence went down, and consequently U.S. exports (or at least interest in U.S. exports) moved higher. A very late and impactful winter storm in the Plains states also impacted supplies, adding more of a reason to buy sooner than later.

A new administration may have helped with China’s renewed interest in U.S. beef. China had been out of the beef market from the U.S. since 2003, and this year has resumed imports. We believe this is due in part to Brazil’s issues, stronger negotiations with the new administration, and the expectation that imports are necessary to meet the needs of their growing economy.

As the year wore on, a weaker dollar was also viewed as supportive, as it slid in comparison to the uptrend from the previous six months. The U.S. dollar index was trading near 102 at the beginning of 2017. By December, it dropped down to 91, or a change of 10.8%. More than likely, this helped to spur foreign buying interest.

Five consecutive years of strong crops in the U.S. suggest more than ample feed supply. This should be a warning flag to those who may be friendly to cattle prices in the next one to two years. View rallies as opportunities to defend, as it is likely the herd is growing. Corn, along with other feeds, is cheap and available. This makes it an easy decision for many producers to feed grain to cattle, especially in what we would term cattle country. Producers considering selling corn in the open market now will likely experience a loss. While the Western states remain dry, in particular the northwestern region of the Plains states, pasture conditions did improve during parts of the summer. This was also a catalyst to tightening inventory, and may prolong the long-term impact if dry weather continues to be an issue. Recent drought monitors showing a lack of moisture continue to suggest big concerns in the western Dakotas and Montana. 
 
The cattle market is likely growing. This gives rise to the idea that rallies will likely be short-lived and should be viewed as opportunities to defend. We will analogize the cattle market to corn, where rallies have occurred in recent years and have been shallow, and then quickly fell apart. Increasing supplies of beef in the years ahead will likely cause similar market action.
 
As in any market, be ready to take advantage of favorable prices when they are presented. 

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Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.
 
 
Lisa Heder 
Support Services Team Lead | Stewart-Peterson
Office: 800.334.9779 | Fax: 262.334.6225
lheder@stewart-peterson.com
www.stewart-peterson.com
 
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.

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