In the Cattle Markets
How 2018 market prices line up with the past.
Steer and heifer slaughter levels for the year to date have been slightly lower than forecasted, but up almost 2.3% over 2017. Slaughter will continue to have year-over-year increases, but the year-over-year increases will be smaller. September slaughter will likely be smaller than July. Live weights are up on average for 2018 almost 6 pounds (lb.). Beef production was previously anticipated to be up approximately 3.7%, but the year-to-date increase will be closer to 4%. First-quarter beef production was up 2.6% from 2017; whereas, second-quarter beef production was up just more than 5%.
Cash market prices topped out for the year in February when the weekly five-market average was $129.75 per hundredweight (cwt., live basis). Prices eroded only to rebound slightly in May to $124.81. By the last week of June, the price had fallen to $106.87 per cwt. In the first half of this year, the five-market price was 8.3% below 2017’s.
The first quarter of 2018 saw prices that were 2.8% above 2017, but April-June prices have been 12% below the same 2017 time period. Given the expected increase in beef production, prices were anticipated to be lower in 2018. Where prices go from here will depend a lot on the trade situation.
Trade with China currently dominates the market news. From an agricultural perspective, it is a daunting situation. April saw tariff increases on U.S. pork and soybeans, and effective July 6, China’s duty rate on U.S. beef went from 12% to 37%. Note that Australia faces only a 7.2% duty on their beef.
Should the United States be concerned about the tariff? Yes, but the futures market likely overcompensated last week. Approximately 16% of our beef and veal exports went to Taiwan/Hong Kong in 2017; mainland China took less than 1%. This increased tariff will likely make it difficult to promote U.S. beef in China, especially since it is already priced at a premium to other imports. U.S. beef producers need to be concerned, though, about the 25% tariff implemented by China on U.S. pork products.
April 2018 saw a 25% tariff on U.S. pork to China. Since April pork exports to China are well below 2017 levels. May 2018 saw a 31% decline in pork exports to China and Hong Kong. Given that the U.S. exports about 23% of their pork production, of which mainland China/Hong Kong account for about 11% of our exports, this tariff increase will likely bring even more U.S. pork on domestic retail shelves this fall, further creating price pressure for beef. Additionally, pork production typically peaks in the fourth quarter, and this year will see record pork production.
Where will prices go? Prior to any trade war, expectations were that finished cattle prices would be approximately 5% lower in 2018 than 2017. Given the current trade situation, lower wholesale beef prices and large pork production prices may dip even lower, but the year-over-year decreases should not be at the levels seen in the second quarter of 2018. The markets should correct themselves for the overreaction last week. Packers still have profitability, and cash trade will strengthen soon going into fall. Nonetheless, year-over-year decreases in prices will likely be 5%-6% given the large number of cattle.
Editor’s Note: Brenda Boetel is a professor in the Department of Agricultural Economics at the University of Wisconsin–River Falls and a contributer to the Livestock Marketing Information Center, which provided this article. Find more at lmic.info.