Over the last several weeks, US/China tensions have heightened over Taiwan, raising concerns among cattle producers about the sensitivity of the US beef industry to such tensions, said Elliott Dennis, Extension livestock economist at the University of Nebraska, Lincoln, in a Livestock Marketing Information Center letter to Extension agents called In The Cattle Markets.
President Trump signed a trade deal with China in which China committed to purchasing additional US exports in two phases, Dennis said. This significantly raised the total quantity and value of US beef exports to mainland China and strengthening US wholesale beef prices.
US/CHINA TRADE AGREEMENT
The trade agreement did five primary things for the US beef industry, allowing more US beef into China, he said.
One, it allowed for continued protocols for importing US beef and beef products into China.
Two, China eliminated the cattle age requirements for importing US beef and beef products.
Three, China recognized the US beef and beef products traceability system, acknowledged that there was a negligible risk of bovine disease and agreed to follow the OIE standards if the US health status would change.
Four, it allowed importation of beef and beef products that was inspected by the USDA’s Food Safety and Inspection Service.
Five, China adopted maximum residue limits for several hormones.
HISTORY
Only minimal amounts of beef entered directly into mainland China before the two-phase trade deal with no single month topping a million pounds, Dennis said. China now is the third largest quantity importer of US beef importing an average of 35 million pound a month in 2021.
Japan and South Korea remain the US’s largest trading partners with an average monthly quantity of 58 and 51 million pounds, respectively, he said. This brings their current market share to 17% of total US beef exports.
VULNERABILITY OF US BEEF TO CHINESE POLICIES
Some have expressed concern that US beef is more vulnerable to perceived subjective policies in China, Dennis said. One can test for this using a measure of market concentration.
Between 2010-2019, the average measure of concentration was 0.128 (0 is highly competitive and 1 is highly concentrated), he said. When China started buying US beef in 2020, the measure of concentration changed from 0.152 to 0.146 in 2020 and 2021, respectively.
Year to date, the measure of concentration is 0.149, Dennis said. The US beef export market has become more concentrated in recent years but is far less concentrated than it was in the 1990s when the measure of concentration was about 0.312. In other words, US beef exports are not as vulnerable as some industry participants currently claim.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $142.00 to $147.64 per cwt, compared with last week’s range of $142.85 to $149.00. FOB dressed steers, and heifers went for $220.22 to $224.36 per cwt, versus $215.08 to $225.57.
The USDA choice cutout Wednesday was up $0.03 per cwt at $262.83 while select was down $1.18 at $237.62. The choice/select spread widened to $25.21 from $24.00 with 85 loads of fabricated product and 36 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were steady at $2.40 to $2.50 a bushel over the Sep futures and for southwest Kansas were steady at $1.00 over Sep, which settled at $6.65 3/4, up $0.05 3/4.
No contracts were tendered for delivery against the Aug live cattle contract Wednesday.
The CME Feeder Cattle Index for the seven days ended Tuesday was $180.50 per cwt down $0.10. This compares with Wednesday’s Aug contract settlement of $181.22, up $0.32.