Beef Exports: A Bright Spot in 2017
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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