Cattle futures closed sharply lower on Monday, unable to maintain the foothold established at the end of last week. Pressure likely came from a variety of directions, including expectations for larger show lists of fed cattle this week and an anticipated break in wholesale beef values.
Live Cattle futures closed an average of $1.62 lower ($1.30 to $2.07 lower).
Feeder Cattle futures closed an average of $2.28 lower ($1.12 to $2.92 lower).
Choice boxed beef cutout value was 38¢ lower Monday afternoon at $249.46/cwt. Select was $1.56 higher at $221.36.
Major U.S. financial indices closed sharply higher on Monday, with tech stocks helping fuel a record-high close for both the Dow Industrial Average and the S&P 500. Surging tech stocks included a record-high price for Amazon during the session, following Friday’s announcement that it intends to buy Whole Foods Market.
The Dow Jones Industrial Average closed 144 points higher. The S&P 500 closed 20 points higher. The NASDAQ closed 87 points higher.
“Beef exports to China could be a very big deal in the future but will likely start fairly slowly,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.
For one thing, in general terms, little is known about the composition of Chinese demand for U.S. beef. For example, it’s unclear how much preference the Chinese will have for middle meats versus end meats, let alone specific cuts, or what mix of USDA Quality Grades.
“It will likely be a moving target for many months,” Peel says. “However, given that unofficial flows of U.S. beef have been entering China in recent years, some beef packers may have insight, at least initially, into beef product demand in China.”
According to Peel, other likely challenges that could hamper beef exports to China at the outset include: understanding how official exports will affect the flow of unofficial U.S. beef exports that filtered into China during the ban, or vice versa; building U.S. supplies eligible for export to China.
“It is possible that unofficial flows will convert quickly into official exports, in which case, apparent initial volumes of exports to China may simply displace export volume currently being transshipped through other countries,” Peel explains. “It is possible that the unofficial flows will continue and be augmented by new official exports. It will be important to look comprehensively at export volumes across countries to understand the net effect. It is even possible that China will move quickly and aggressively to stop unofficial flows, which could happen before official flows have developed and could actually result in a temporary reduction in net beef exports. The next few weeks/months will no doubt be very dynamic.”
Peel expects exporters to move cautiously until market values and export procedures become more certain. He points out that typically the added costs of qualifying beef for export encompass the entire carcass, rather than the specific cuts that are shipped. That means the value of exporting what the Chinese ultimately demand will have to cover the cost of qualifying the entire carcass.
“There are many unknowns but it seems unlikely that beef exports to China will have a large noticeable effect on cattle and beef prices and beef production in the U.S. initially,” Peel concludes. “Over time, with growing market share, prices for particular products might be affected depending on the quantity, quality and specific products demanded in China. More general price effects on beef and perhaps cattle will depend on the dynamics of demand relative to supply for U.S. beef products in the Chinese market. The U.S. industry will benefit over time from some combination of higher prices and/or increased export volumes as the Chinese market grows.”