The US Foreign Agricultural Service in an analysis of the conditions in China said cattle and beef consumption and demand likely will continue to outpace domestic production, leading to a 10% increase in beef imports at 8.6 million tonnes.
CATTLE HERD DECLINING
China’s cow herd beginning stocks in 2019 were forecast by USDA staff to decrease by 0.1% and the calf crop to decrease to 51 million head. This forecast follows the recent trend of China’s shrinking inventory.
From 2017 to 2018, the cow inventory shrunk by 2% and from 2018 to 2019, the inventory was forecast to shrink by another 2%.
Unlike the swine and poultry industries in China, the beef cattle industry is very disparate. Most are raised in backyard farms while farms with yearly slaughter rates of 50 or more account for less than 30% of the total herd size.
China’s central and local governments have been providing incentives for cattle producers, the incentives are targeted more toward large-scale farms and do not often reach the smaller farms. This, along with stricter implementation of environmental laws, long breeding times and rising feed costs have forced small farms to continue their retreat from the market, exacerbating the cattle supply shortage. Large farms continue to expand in number and size, but are being outpaced by small farms exiting the market.
RETALIATORY TARIFFS ON US FEEDS TO PUSH 2019 FEED COSTS
Overall feed costs likely will increase next year because of rising corn and soybean meal prices, the FAS report said. The central government reduced the corn subsidy program and encouraged soybean plantings through a pilot soil rotation program launched in 2016.
Over the past two years, the Ministry of Agriculture and Rural Affairs reported that corn production area fell by 3.33 million hectares, of which 1.26 million was transitioned to soybean production.
In addition to decreased production, corn utilization has increased because of central government policies encouraging increased use in the further processing industry, ethanol in particular, the FAS report said.
That production drop and the increase in demand was expected to result in a need for more corn imports, the FAS said. However, with China’s levying of tariffs against the US, a key supplier, the ability to fill the gap economically with imported corn likely will be limited.
Soybeans and soy-based feed products also could experience a price push, the FAS said. There are industry reports that 95% of all soy bean meal consumed by the livestock industry is sourced from overseas.
So the ongoing trade tensions between the US and China were expected to continue injecting uncertainty into the feed market, increasing the overall feeding costs for Chinese livestock producers.
CATTLE, BEEF RECAP
No fed cattle sold Wednesday on the Livestock Exchange Video Auction, compared with 280 that traded three weeks previous at $109.50 per cwt.
Light cash cattle trading was reported in Nebraska this week at a steady $107 per cwt on a live basis and $170 dressed.
Cash cattle traded last week at $107 to $108 per cwt on a live basis, unchanged from the previous week, and at $168 to $170 on a dressed basis, also unchanged.
The USDA choice cutout Thursday was down $0.75 per cwt at $204.04, while select was off $0.03 at $197.24. The choice/select spread narrowed to $6.80 from $7.52 with 98 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday, was $152.60 per cwt, down $0.03. This compares with Thursday’s Sep settlement of $154.95, up $0.32.