Cattle markets roar
The cattle markets had a nice rally last week after throwing a head fake the prior week. August feeders ran up to $114.07 and cash sales from Superiors last video sale are supporting these futures markets to some degree; the feeder cattle index is still about $108. Are things getting better for the cattle and beef industries? Perhaps so, but still we have a lot of speculators in the cattle futures who appear to be providing a welcome boost to the market over and above what the fundamentals might suggest.
However, there are a few fundamentals working to move product. Beef exports appear to be getting better. A representative from JBS said that 25 percent of their beef sales are exports right now and that drop values are supporting the market much better. Russia also made a big purchase of beef recently which has helped raise prices. We also know that carcass weights are down on these fed cattle. Feeding country has had more winter than they bargained for, particularly in the southern Plains. Carcass weights are down 31 pounds from a year ago, so were producing less tonnage.
Cattle placements in feedlots were down 0.8 percent in February and total numbers on feed is the lowest it has been in six years. The cattle marketing rate has been very good and has exceeded the fiveyear average. Last month, marketings were at their highest level for the month since 2003, so there are a lot of positive things happing. With lower fed cattle supplies ready for market, the packing industry has announced that they will not be discounting cattle over 1,050 pounds, which would tell me that modern cattle have enough performance in them.
We need to keep working on export markets.
With new leadership in Japan, the U.S. government and the beef industry see an opportunity to open trade up with them and extend their export criteria to include cattle up to 30 months of age, although even that limit is below the standard set by the World Organization for Animal Health which allows trade in animals of any age, so long as specified risk materials are removed.
Its been several years since the U.S. has sat down and had a face-to-face with the Japanese government over the beef issue. Not necessarily because we havent wanted to, but because their government and politics were unsettled, so there was nobody to talk to. They went through five ministers of agriculture in very short order.
Ag Secretary Tom Vilsack headed to Japan this week to pitch the expansion of beef trade in the near future. He is apparently planning on taking a new approach with the Japanese, listening to what their concerns are, which he claims the Bush administration didnt do. Lets hope he is successful with the new government so that we can quickly regain the $1.4 billion market that once existed. Its not expected that he will come back with an order for beef from older cattle though.
On the topic of trade in over-30-month cattle, Canada announced their 18th case of bovine spongiform encephalopathy a few weeks ago, which has stirred up the activities of the anti-Canadian groups. It is perplexing that any cattle turn up with the disease after the feed ban, which has been very effective at nearly eliminating the issue. If I recall correctly, there hasnt been a diagnosed case of Creutzefld-Jakob disease in quite some time that was associated with contaminated beef.
Sen. John Tester, D-MT, has introduced a bill called the Meat Safety and Accountability Act. This bill would require USDA to trace back any contaminated meat to the source. R-CALF has been helping Tester write the bill, which would attempt to take retailers and further processors off the hook for distributing contaminated beef. However, everyone involved in the meat chain should assume responsibility for pathogen problems, not just the major packers.
Its difficult to see where this proposal would help the meat industry, which takes pathogen elimination very seriously. I would have to think that if the major packers are going to be the scapegoat on any pathogens passed down the processing line that they may expand into processing more finished meat products to control the process and limit liability. In other words, this bill could lead to more consolidation. The bill may sound good to some, but it is certainly a double-edged sword. And, of course, we dont want to pass any more legislation that could hurt business and put people out of work. PETE CROW