Cattle futures started Friday on soft footing and lost ground from there, with some attributing pressure to Japan’s announced tariff increase on U.S. beef imports through next March (see below).
Live Cattle futures closed an average of $1.10 lower through the front five contracts (87¢ to $1.40 lower) and then 32¢ to 62¢ lower.
Feeder Cattle futures closed an average of $1.52 lower across the front half of the board ($1.05 to $1.85 lower) and then 22¢ to 52¢ lower except for 2¢ higher in March.
Choice boxed beef cutout value was 21¢ lower Friday afternoon at $206.22/cwt. Select was 16¢ higher at $196.82.
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Major U.S. financial indices closed narrowly mixed on Friday amid apparent profit taking and news that included softer quarterly earnings at Amazon, as well as estimated second-quarter GDP of 2.6%, which was in line with expectations.
The Dow Jones Industrial Average closed up 33 points. The S&P 500 closed 3 points lower. The NASDAQ closed 7 points lower.
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The tariff rate for U.S. frozen beef exports to Japan will increase 11.5% (from 38.5% to 50.0%) Aug. 1, due to implementation of Japan’s quarterly beef safeguard mechanism. The increased tariff will be in place through March of 2018.
As agreed to in the 1994 World Trade Organization Uruguay Round, Japan maintains separate quarterly import safeguards on chilled and frozen beef, allowing imports to increase by 17% compared to the corresponding quarter of the previous year, according to the U.S. Meat Export Federation (USMEF). The duty increases from 38.5% to 50.0% when imports exceed the safeguard volume. Japan’s frozen beef imports in the 2016 Japanese fiscal year were lower than in previous years, thus the growth in imports during this first quarter of the current fiscal year exceeded 17%, driven in part by rebuilding of frozen inventories and strong demand for beef in Japan’s foodservice sector. The most recent quarter saw strong growth in imports from all of Japan’s main beef suppliers.
Japan was the top export market for U.S. beef, valued at $1.5 billion in 2016. According to data compiled by the USMEF, first quarter U.S. beef sales to Japan increased 42% over 2016. In addition to the United States, the 50% percent safeguard tariff also applies to imports from Canada, New Zealand, and other countries that do not have a free trade agreement with Japan.
“I am concerned that an increase in Japan’s tariff on frozen beef imports will impede U.S. beef sales and is likely to increase the United States’ overall trade deficit with Japan,” said U.S. Agriculture Secretary Sonny Perdue, in a statement on Friday. “This would harm our important bilateral trade relationship with Japan on agricultural products. It would also negatively affect Japanese consumers by raising prices and limiting their access to high-quality U.S. frozen beef. I have asked representatives of the Japanese government directly and clearly to make every effort to address these strong concerns, and the harm that could result to both American producers and Japanese consumers.”
The implications for U.S. beef exports are significant because U.S. frozen beef now faces an even wider tariff disadvantage compared to Australian beef, according to USMEF:
“The duty on U.S. frozen beef imports (effective Aug. 1, 2017 through March 31, 2018) will be 50% while the duty on Australian beef will remain at the current rate of 27.2%, as established in the Japan-Australia Economic Partnership Agreement (JAEPA).
“Through the JAEPA, Japan transitioned from quarterly safeguards to annual safeguards, which are much less likely to be triggered. The snapback duties on Australian beef have also been reduced, minimizing any potential impact on trade. Japan also agreed to similar terms in its economic partnership agreement with Mexico and in the Trans-Pacific Partnership (TPP).
Moreover, the folks at USMEF point out that conditions have changed since the quarterly safeguards were established in 1994, and the growth in Japan’s imports this year has not adversely impacted Japan’s domestic beef producers. Prices for wagyu carcasses and wagyu feeder cattle are down from the record highs of last year, but are otherwise the highest in recent history.