Exports support market

Oct 1, 2010
by WLJ

Trade at midweek last week was reported $1 lower in the southern Plains at $96-97 live basis. In the northern Plains and Corn Belt regions, dressed prices traded mostly steady at $152-154 even as composite boxed beef prices continued to post declines last week. Choice boxed beef prices slipped back $1.07 at midday last Thursday to trade at $155.64 while Select lost 95 cents to hit $147.41 as packers discounted middle meats in an effort to spur some buying interest among the retail segment.

Beef prices have been sliding over the past several weeks as a result of growing concerns about the economy and the ability of consumers to bounce back from their entrenched position. Export sales have been strong enough to support beef prices through the first three quarters of 2010. However, sales have started to falter in some key markets, which is hampering the ability of packers to push cutout prices higher, accounting for some of the recent softening in the market.

According to data released last Thursday by USDA, exports of beef to Japan have increased 35.3 percent from last year’s levels. However, during June, the most recent data available, Japanese imports of frozen beef equaled 25,157 metric tons, a 9 percent decline from the previous June. Imports of fresh, chilled beef were down 6 percent from June 2009. Although the June totals were disappointing, shipments of beef to Japan for the year-to-date period are well above last year’s total, reaching 34,539 metric tons, well above last year’ total for the same period of 25,521 metric tons. There is clearly work remaining if the U.S. wants to recapture market share in Japan. Recent statements show no near-term resolution to easing the age restrictions in place for U.S. beef. Although imports of beef from Australia are down 7 percent from a year ago, the total volume of beef that Japan is buying from Australia, 181,416 metric tons for the year-to-date period, leaves plenty of room for expanding U.S. market share if the age restrictions can be overcome.

A look at the export market in Korea gives a clear indication of how much difference expanded access would make in Japan. The Korean market is smaller in terms of overall economic power, however, it is nearly equal in purchase volume to Japan. For the first eight months of the year, South Korea’s beef imports rose to 53,008 metric tons. During August, imports of U.S. beef by Korea rose12.7 percent over the previous months to 24,311 metric tons. That total was a 25.4 percent increase the previous August and the single biggest month since December 2003 when bovine spongiform encephalopathy was discovered in the U.S.

The Korean market may hold more immediate potential for U.S. beef producers. Korea already allows beef from older animals in accordance with internationally-recognized trade standards and consumers are showing an increased acceptance of U.S. beef there. In addition, the Korean beef herd is contracting.

"Korea’s domestic cattle slaughter for the year-to-date through July was down 13 percent from a year ago," according to USDA’s Agricultural Marketing Service. "The increased demand for beef in Korea is being driven by lower cattle slaughter, less beef production, and robust consumer demand because of the strong economy."

As a result of that demand, U.S. exports of beef to Korea are up 56.7 percent for the year-to-date period. However, despite the solid gains in the market, Australia is still the heavyweight supplier of beef to Koreans. For the year-to-date period, Australia has increased shipments by 9.3 percent, reaching 89,190 metric tons. As the U.S. continues to work toward building the market in Asia, there is clearly room for improvement in both the Japanese and Korean markets.

Feeder cattle

The international trade is also playing a role in the feeder cattle markets, helping to boost prices for cow/calf producers. Feeder cattle imports from Canada are down sharply from 2009 levels. The Canadian dollar has strengthened considerably since last year and now trades at or near-par with the U.S. dollar. The increase in the strength of the Canadian dollar has removed much of the incentive for Canadian producers to ship feeder cattle south the U.S. feed yards. As a result, through Aug. 21, 2010, feeder cattle imports from Canada have reached just 158,785 head, 27.4 percent lower than the same period last year. That has helped to support feeder cattle markets in some of the northern tier, pushing feedlot buyers who might normally source Canadian feeder cattle into the U.S. market.

The opposite is true for shipments of Mexican feeder cattle to the U.S. which, this year, have posted an increase of 29.6 percent through Aug. 21, 2010. Total imports of feeder cattle from Mexico reached 673,797 head, compared to 654,024 for the same period last year. Prices in the U.S. for Mexican feeder cattle still represent a premium over what is available to sellers south of the border, meaning it is still desirable for producers to ship their feeder calves north to the U.S.

Despite the increase in feeder cattle imports, the volume remains very minimal, with combined imports from both Mexico and Canada representing slightly more than a week’s total slaughter volume in the U.S. Calves from U.S. producers are also of a generally higher quality than those from south of the border, so they have little impact on pricing in the U.S. at current volumes.

One factor that is taking a significant role in fall calf prices is the recent run in corn prices, which topped the $5 per bushel mark two weeks ago. However, last week, some of that pressure was relieved as a bearish USDA ending stocks report predicted a corn carryover of 1.71 billion bushels, an increase of 324 million bushels predicted by the agency as part of last month’s World Agricultural Supply and Demand Estimate. As a result, corn prices retreated sharply from their contract highs posted last Monday at $5.28 per bushel. The selling pressure pushed prices lower to $4.95 per bushel last Thursday, easing some of the concern over input prices during the winter ahead. As a result, some of the later-week sales last week showed price strength compared to those earlier in the week.

Last Monday in Oklahoma City, OK, feeder steers and heifers sold steady on good demand, while steer and heifer calves sold $1-3 lower on good demand. And, at the sale in Joplin, MO, steer calves were called $3-5 lower while heifer calves sold $2-3 lower. Yearlings traded steady to $3 lower with demand moderate to light on moderate supply.

Meanwhile, farther west in La Junta, CO, light steer calves sold $1-2 higher, from $117-132, while heavier classes were $1 higher, from $110-120. Lightweight heifer calves were also $1-2 higher, from $105-114, while heavier weights brought $95-104.

Farther north, fall numbers are still light as grass is reportedly still in good supply in many areas. As a result, few trends were available. However, Torrington, WY, reported a good run of cattle with steer calves weighing 400-550 lbs. selling firm with a higher undertone. Yearling steers weighing 700-800 lbs. sold $1-3 higher, with yearling steers over 850 lbs. selling firm to $2 higher. Heifer calves weighing 400-550 lbs. sold steady to firm on a light test, with heifers weighing 600-750 lbs. selling steady to $1 lower and those over 800 lbs. selling steady to $2 higher with some instances of as much as $3 higher. To the north in Billings, MT, on a light test of all classes, steer calves were called $2-4 lower while heifer calves were steady to $1 lower.

On the West Coast, in Galt, CA, feeder and stocker cattle in all classes sold steady last week. Steers in the 500-600 lb. class brought a range of $115-136.50 while heifers of similar weight sold from $90 to $105. Steers in the 600-700 lb. class sold from $100-119 and heifermates were $85-100. Heavier 800-900 lb. steers sold from $93 to $105 and heifers in the same weight range sold from $80 to $90. — WLJ