COMMENTS

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Nov 4, 2008
COMMENTS Viva beef exports
The dog days of summer are just about over and the last big summer hol iday for beef sales—Labor Day—is just about here. Gener ally, we see an end of summer rally in the beef, and we have to some degree. But with expecta tions of $105 fed cattle around the corner, it doesn’t appear that the beef cutout values will be supporting this type of fed market.

The summer beef markets have been the best ev er, and August fed cattle trading in the high-$90s has definitely set a new record price. While cash fed cattle have moved forward, the live cattle fu tures have lost the clear direction they had around the Fourth of July when deferred cattle contracts were reaching new highs—perhaps unrealistic new highs—with April touching $118. It was trading last Thursday at $108.70.

One of the elements that helped hold this summer market together was beef exports. Mexico and Can ada are the U.S. top export destinations, but coun tries like Russia and Vietnam came on the scene in a big way and the resumption of South Korean trade is finally having some impact. For the month of June, red meat exports were up 30 percent, with Mexico up 18 percent and Canada up 40 percent.

South Korea is starting to get over their U.S. beef issues and trade is expanding as Koreans re turn to U.S. beef. According to USDA, 2,300 metric tons were sold during the last week of July. For the week ending Aug. 18, they imported 2,900 metric tons. This market is growing very rapidly.

The Japanese are also slowly coming along. June 2008 beef exports to Japan were up 66 per cent over a year ago. Hopefully, they will be ready soon to move beyond 20-month cattle and start into 30-month cattle.

One small footnote about the tumultuous situa tion in Korea is that the Munhwa Broadcasting Company issued a public apology over its erroneous reports about the dangers of U.S. beef. They said they made six translation errors in some U.S. beef reports. The Korean Communications Commission made this outfit apologize for their disparaging re marks.

Just a small error that created hysteria, in jury and some deaths to Koreans. That episode was similar to yelling fire in a crowded theater.

U.S. beef exports are on the move and are still the key to the U.S. cattle industry’s future pros perity. The U.S. has exported 831 million pounds so far this year and, with a low value dollar, you can expect to see that number rise. As a matter of fact, the Livestock Marketing Information Center is forecasting 2008 beef exports to be 1.83 billion pounds. Beef exports prior to the bovine spongi form encephalopathy (BSE) blowout in 2003 reached 2.52 billion pounds. It appears that if we’re going to have a chance at hitting the $110 market for fed cattle, we’re going to need these ex port markets to be strong. We still have a way to go to reach pre-BSE levels. Exports were 66 per cent of 2003 levels at mid-year.

The export markets absolutely saved pork pro ducers this summer. June data alone shows pork exports up 68.7 percent over a year earlier, and for the year-to-date, pork exports were up 113 percent.

This kept the pork cutout values in respectable ter ritory and the lean hog market traded between $70 and $75 most of the summer when pork supplies were very large and expected to produce losses in the hog sector. As much as 20 percent of domestic pork production was exported during the summer months. Domestic pork production year-to-date is up nearly 9 percent.

If beef production rose that much in a year, I don’t think the beef market would hold together as well as pork did. Beef production is up 1.7 percent and the cutout is having a hard time staying in the $160s. Fourth-quarter beef production is expected to be down 2 percent from last year. However, I’m not sure that’s enough to put $10 on the fed market unless export markets rise to the occasion. We’re walking into lower beef supplies for the next couple quarters and if the cutout doesn’t support the high er fed cattle prices with reasonable volume, it could be problematic.

Exports are the bright spot for the market be cause the dollar has made it affordable to buy U.S. beef overseas, and domestic economics have forced many families to watch their spending, which gen erally doesn’t bode well for the beef industry. — PETE CROW

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