Ag Economist: Markets Overreacted To Tariffs

An agricultural economist at the University of Wisconsin-River Falls told Extension Agents this week that lean hog and live cattle futures prices could rebound, despite China’s import tariffs.

Brenda Boetel, said in this week’s “In The Cattle Markets” from the Livestock Marketing Information Center that both markets had been driven lower than was reasonable to expect following the announcement of retaliatory tariffs by China.

China imposed the tariffs after the US imposed tariffs on allegedly subsidized Chinese steel and aluminum imports.  China’s tariff on US beef amounts to 37%, up from 12%, while the tariff on US pork went to 25%.

However, Boetel said she expected 2018 fed cattle prices would be lower than pre-tariff expectations of 5% lower.  But year-over-year declines should not be at the same levels seen in the second quarter of 2018, perhaps in the area of 5% to 6% lower, given the large number of cattle.




The US beef and cattle market is right to be concerned about China’s beef tariff, but the market likely over-compensated, Boetel said.

“The markets should correct themselves for the overreaction last week,” she said.  “Packers still have profitability, and cash trade will strengthen soon and going into fall.”

With that said, though, China’s duties on US beef are daunting, Boetel said.  After all, Australia faces only a 7.2% duty on its beef.

About 16% of US beef and veal exports went to Taiwan/Hong Kong in 2017, Boetel said.  Mainland China took less than 1%.

The new tariff rates likely will make it difficult to promote US beef in China, especially since it already is priced at a premium to other imports, she said.

Cattle prices topped out for the year in February when the weekly USDA five-market average was $129.75 per cwt, Boetel said.  Prices then eroded only to rebound slightly in May to $124.81, but by the last week of June, the price had fallen to $106.87.

The first quarter saw prices 2.8% above 2017, but April-June prices have been 12% below the 2017 period.




It isn’t new to say that China’s tariffs on US pork hurt more than those on US beef, although if pork exports are hurt badly enough, the back-up in supply could hit beef markets, a market analyst said.

Boetel said US pork exports to China have been below year-ago levels since April.  May saw a 31% decline.

And since the US exports about 23% of its pork production, of which mainland China/Hong Kong account for about 11%, this tariff increase likely will bring even more pork on to domestic retail shelves this fall, creating price pressure for beef, Boetel said.

Additionally, pork production typically peaks in the fourth quarter, and this year will see record production, she said.




One pen of fed cattle sold on the Livestock Exchange Video Auction Wednesday at $112 per cwt, up $6 from the last sale three weeks previous.

Cash trade was reported last week at $110 to $111 per cwt on a live basis, steady to up $1 from the previous week and at a steady $173 to $175 per cwt on a dressed basis.

The USDA choice cutout Thursday was down $0.31 per cwt at $204.49, while select was off $0.17 at $196.92.  The choice/select spread narrowed to $7.57 from $7.71 with 114 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Wednesday, was $148.31 per cwt, down $0.28.  This compares with Thursday’s Aug settlement of $154.45, unchanged.