A monthly column written for Beef Central by US red meat market commentator, Steve Kay, publisher of US Cattle Buyers Weekly
SEPTEMBER is a transition month for the US beef complex.
The last of the year’s three biggest beef buying holidays is behind the market. These are the Memorial Day holiday at the end of May, the July 4 Independence Day holiday and the Labor Day holiday on September’s first Monday. The market normally struggles after Labor Day until beef buying, especially by retailers, starts picking up again in mid-October.
This year will be no exception, with some important differences. The price of grainfed cattle put in their weekly low for the year in 2017 in the week ended September 4 at US104.66 per cwt live. They then advanced the next four weeks.
The opposite might occur this year, as analysts forecast that prices might fall several dollars this month. This year’s weekly low so far is US$106.87 per cwt set the week ended July 1. Last week saw an average of US$107.67, which arrested a four-week decline.
Analysts say prices might rally again slightly but fall back the last two weeks of the month and eventually re-test the US$104-105 level.
That’s because the market continues to face ample supplies of market-ready cattle the rest of the year and into February. The number of cattle on feed on September 1 in feedlots 1,000 head in capacity or larger was a record for the month and easily topped the previous record set in 2001. The number of cattle on feed 150 days or more on September 1 was second only to the 2015 record and was 33pc larger than a year earlier, says analyst Andrew Gottschalk, HedgersEdge.com.
There’s also the prospect of more cattle coming out of small feedlots in the US Corn Belt, as farmer-feeders have likely fed more cattle to ‘walk’ the corn off their farms, because of low corn prices. These cattle tend to be heavier than average carcase weights, so those weights will be watched extremely closely each week for the next two months.
Grainfed steer and heifer weights are now above year ago levels, with heifer weights record high for this time of year.
Despite the likely ample supplies to come to market, the futures market continues to believe that the weekly cash lows for the year have been established. The October live cattle contract last Friday closed at US$109.95 per cwt and the December contract closed at US$114.42 per cwt.
The supply data suggests cattle feeders must accelerate their marketings from now on to work through the larger numbers, say analysts. But they will likely have to accept lower prices to do that. The opposite, though, might occur if futures prices remain at a premium to cash prices. This would encourage cattle feeders to hold out for higher prices and would likely delay marketings. Cattle feeders would thus become less current in their marketings instead of becoming more current, and this would show up in carcase weights that would advance more than the seasonal increase.
On the beef side of the market, wholesale prices have held up better than expected until now, partly because fed beef processors harvested fewer grain-fed steer and heifers than expected. In the eight weeks from mid-July, they processed an average of 511,200 steers and heifers per week, well below what analysts had forecast. They had expected the weekly level to average at least 520,000 head.
Wholesale beef prices (the boxed beef cutouts) declined last week, which was concerning to analysts as it was a holiday-shortened production week. But retail beef sales in the week leading up to the Labor Day holiday failed to meet expectations, partly because of wet weather through the Midwest region. This literally put a damper on grilling.
Beef now faces increased competition from pork in the US, as its production is likely to increase for the next two months and produce more pork than last year. US pork production year to date is up 3.4pc on the same period last year while beef production is up 3.0pc. October is National Pork Month and the pork industry encourages and supports retailers to feature pork more aggressively than at any other time of the year.
Fortunately for beef, global demand for US beef continues to boom, while pork exports have maintained their year-over-year volumes despite tariffs imposed by Mexico and China on US pork.
At least that’s what occurred in July, the latest month to provide export data. This was because buyers in other countries stepped up their purchases of US pork, says the US Meat Export Federation. The tariffs though, put a dent in values. Pork exports in July totaled 176,413 tonnes, up 1.5pc from a year ago. They were valued at US$465.3 million, down 5pc year-over-year and the lowest monthly value since February 2016.
Beef exports posted another near-record month in July. Led by another spectacular performance in South Korea and strong growth in Japan, Taiwan and Latin America, July exports climbed 12pc in volume to 116,575t, valued at US$722m, up 16pc from a year ago, says USMEF.
They were just below the May 2018 record of US$722.1m. For January through July, beef exports established a record pace in volume (779,450t, up 10pc year-over-year) and value (US$4.76 billion, up 20pc). These numbers suggest that US beef continues to provide stiff completion for Australia beef in key Asian markets.
The European Union, meanwhile, has taken a step to attempt to settle a longstanding World Trade Organisation dispute over the export of US beef to the EU. But the move is unlikely to increase the tiny amount of beef the US exports to the EU.
The European Commission (EC) has recommended that the Council of the EU open negotiations with the US to settle the dispute. The EC suggests the EU should allocate the US a part of the existing quota to import no-HGP beef into the EU that is also available to exporters from other countries.
The existing quota, however, is only 45,000t and it is not known how much of that the US might be granted. Besides, the amount of the quota will not increase under the EC’s recommendation.
Moreover, the EC’s recommendations do nothing to remove the 32-year HGP ban that shuts almost all US beef out of EU markets.
Any US beef destined for the EU must be produced under USDA’s Non-Hormone Treated Cattle (NHTC) program. Similar requirements apply to Australian exports. Only 150,000 to 175,000 US cattle are certified under this program each year, so giving the US more of the 45,000t quota is an empty gesture.