Although Cattle futures closed mixed on Monday, the rally in the session earlier hinted at some stability, and with the higher week-to-week close, the sense that the bottom might have been established.
Live Cattle futures closed narrowly mixed (25¢ lower to 17¢ higher).
Feeder Cattle futures closed mixed (an average of 35¢ lower—10¢-87¢ lower—except for 12¢-35¢ higher in three contracts).
Choice boxed beef cutout value was 73¢ higher Monday afternoon at $215.04/cwt. Select was $2.46 lower at $203.14.
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Major U.S. financial indices were sharply higher for much of Monday’s session, on what were perceived as hopeful statements from the U.S. Treasury Secretary, regarding the prospects of a trade war with China. Markets barreled lower late a report circulated that the FBI raided the offices of President Trump’s personal lawyer.
The Dow Jones Industrial Average closed 46 points higher. The S&P 500 closed 8 points higher. The NASDAQ closed 35 points higher.
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“As we work through the escalating trade tensions that are currently roiling markets, it will be beneficial if all sides remember that trade adds value and is not a zero-sum game,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.
Whether between individuals or nations, Peel points out that trade boils down to the same factors.
“Trade between two economic agents adds value to both and is the basis for nearly all economic growth,” Peel explains. “These gains from trade are the result of specialization where market participants capitalize on their comparative advantage in some activity. Comparative advantage allows all parties in a market to produce at their lowest opportunity cost thereby using scarce resources most efficiently.”
He uses the example of an individual buying the parts to build a computer rather than buying one off the shelf. It’s more efficient to buy one—capitalizing on someone else’s comparative advantage.
“International trade is fundamentally no different than any other trade in terms of the underlying economic forces. However, the complication of multiple governments and lots of politics often puts international trade under a different lens,” Peel explains. “One of the concerns is trade deficits that sometimes result from international trade. The term trade deficit is usually applied to the negative balance of goods that occurs when a country imports more products from another country than it exports to that country. To call this negative balance of trade a deficit is really a misnomer as it does not imply any unpaid obligation, in contrast to, say, a budget deficit.”
For instance, Peel says Oklahoma has a tae deficit with Florida and California in terms of the fruits and vegetables consumed in the state.
“Oklahoma does not have a comparative advantage in fruit and vegetable production and it would not be efficient to produce them all in the state. However, the state’s trade deficit regarding fruits and vegetables is part of a bigger economic picture and not a source of concern,” Peel explains. “In general, the same is true for country-to-country trade deficits…it is part of a larger picture involving the entire macro-economy of the country and the broader global trade picture. For example, goods sourced cheaper in another country free up resources and consumer dollars in the U.S. to support other businesses.”