Stuart recently addressed the California and Nevada Cattlemen’s Association meetings in Reno, and said U.S. ranchers typically think in terms of the domestic beef market, as T-bone steaks, ground beef, pot roast and tri-tip, but globally, the protein market includes things like beef tongues (70 percent of exported tongues are sold in Japan for $4 to $5), chicken livers, tripe (beef stomach) and beef livers (80 percent of exported livers are eaten in Egypt). It also includes chicken feet, pig brains and Indian water buffalo.
Stuart said when he visited Tokyo for the first time several years ago, “I realized that if you want your calves to go for the highest possible price, then when that carcass is disassembled, you want the highest bidder to buy every cut. What that means is that your calf price is tied very closely to the global market. The global market has a much bigger impact than you realize on the price of your calves.”
Key factors to watch
Stuart said the complex, difficult business of global meat trade is a blend of politics, culture and economics – in that order – and beef doesn’t always flow based on price.
When watching global trends, Stuart recommended watching these key macro-factors:
Exchange rates
Currency exchange rates have a big impact on imports and exports. In 2014, a big shift occurred where currencies fell against the U.S. dollar, which strengthened our dollar.
Stuart said, for instance, Brazil took a big hit on their currency, and they’re a big beef exporter. When currency falls, all of the sudden, beef gets really cheap. So there was a huge rush of Brazilian beef on the market. However, by 2016, a lot of these foreign currencies had begun to correct. Looking forward, indications are that the U.S. dollar is going to strengthen, which means a bit of a negative impact on U.S. global meat exports. But currencies are only one piece of a complicated puzzle.
Interest rates
The U.S. Federal Reserve, Stuart said, “is just itching to raise interest rates, and we may see that in the near future; those will begin to creep up.” This makes the U.S. dollar a more attractive investment to overseas investors. If the U.S. economy outperforms Europe, Japan and some of the other big economies, there will be more investment into the U.S. economy.
Global economic growth
As citizens around the world make more money, especially in the less developed countries, they upgrade their diets. Stuart said they start with chicken, and increase their chicken consumption as their income increases. At the top of that protein ladder is beef, and at the top of the beef ladder is grain-fed beef. So economic growth is really what drives demand ultimately for U.S. beef overseas.
The OECD (Organization for Economic Cooperation and Development) recently said we’re on a “low growth trap.” Stuart said, “I would say the growth economy is a little wobbly right now. For eight years, the wealthier nations have had this 2 percent growth. And there isn’t growth from the lesser economies, either – they’re struggling.” He noted some countries have cut interest rates to zero and even below zero on deposits, meaning if citizens had money in savings, they were actually penalized by having interest deducted rather than paid, in an effort to force cash into the economy.
Commodity deflation
Humans are adding 78 million people a year to the planet. Stuart said, “That tells me that demand for food will grow steadily into the future. When crude oil prices fell and the dairy market fell in 2014, grains market fell; then eventually beef and poultry markets fell as well. Markets move up and down when you consider trend line analysis, but generally they correct or return to trend line. We will return to trend line, and likely move past it in maybe 2017 or 2018, but it will likely follow crude oil up, just the way it followed crude oil down. Crude oil price is a key factor to watch. If crude oil creeps up, commodity prices will creep up with it. This is the global economy picture ultimately tied to our U.S. beef production.”
Global beef production
For nine years, there has been no increase in global beef production, but, said Stuart, “remember we’re adding about 80 million people to the planet each year. That is what has supported demand, and we expect growth, but unless something major happens, the U.S. beef market will be fairly well supported in the global beef market.”
What about China?
China announced last month (for the fourth time) that it is “open” to U.S. beef. What does that mean? Stuart said this is the fourth time China has declared itself “open” to U.S. beef, yet in 13 years, the U.S. has never shipped a pound of beef into China. Is the announcement legitimate this time?
Stuart said the Chinese deal is “open barring technical discussions.” However, those “technical discussions” have kept the market closed for 13 years.
Stuart said it’s important to remember that China is open to every major beef country in the world except for two, and those two countries don’t have traceability – the U.S. and India. Traceability is a requirement the U.S. can’t meet today, as U.S. producers do not have a traceability system in place. This is one of those “technical discussions” of major interest to any trade with China. China has also put some restrictions on growth-promotants, which will create some challenges for U.S. beef producers.
Another point of consideration, Stuart said, is that offal (or stomach and organs) is probably not going to be included in any Chinese agreement. “That’s huge,” Stuart said, “because these have high value in China, and if we could sell them there, it would help pay for some of the traceability requirements. The problem is, if someone says they’ll only take four or five cuts of beef, then you have to have a much higher price for those cuts in order to offset the lost income from the other cuts. And China can’t pay the higher prices.”
Impact of the 2016 election
After the 2016 U.S. presidential election, Stuart said, “There is room for optimism” in U.S. beef exports. Financial markets were optimistic after the elections, and commodities are on the rise. There are early indications that President-elect Donald Trump will focus U.S. trade toward enforcement. Campaign rhetoric indicated he would “fix bad deals.”
Stuart said, “I don’t think Trump knows anything about agriculture or cares much about it, but he is absolutely passionate about manufacturing. And hopefully what he will learn fairly quickly – sooner rather than later – is U.S. ag is a major manufacturer, maybe the biggest manufacturer in the U.S.”
Stuart said, “His first 100 days, things are going to be changing pretty aggressively, hopefully for the better. There’s going to be some trade friction. I’m sure the Chinese are nervous; I think the Mexicans are a little nervous – I know the Canadians are.”
Stuart also addressed the North American Free Trade Agreement (NAFTA) and encouraged ranchers to remember that if repealed, it doesn't mean trade would stop, and it doesn’t mean Canada and Mexico would be closed to trade. It would add duties to these imports, rather than having them come in duty-free. He said, “Right now, only 3 percent of our total production actually goes to those nations. This isn’t the sky-is-falling scenario.”
Stuart said, “Our problem is that the last administration had no trade agenda. Of the last 100 trade agreements globally, which are going on all the time, the U.S. was party to only two. We’re on a train with an impending wreck ahead as countries reduce trade duties with other countries and the U.S. doesn’t keep pace. Due to an Australian-Japan free trade agreement, our beef won’t be competitive in Japan. Australian duties fall to 19 percent by 2032. U.S. beef duties in Japan will remain at 38.5 percent barring some new trade agreement. We must fix some of these trade deals to be more advantageous to U.S. beef.”
2017 beef export forecast
Stuart projects exports to be up 5 percent in 2017, largely dependent on Japan and South Korean markets. He noted China is a “big unknown” and added, “And we’re not well diversified in beef markets.”
2017 beef import forecast
Stuart said the beef imports are projected to be down about 3 percent in 2017, noting Mexico exports quite a bit of beef into the U.S. and Australia has been a big exporter, but their exports have been falling as they recover from drought and are currently rebuilding herds. 
Brett Stuart can be reached by email.
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Lynn Jaynes
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- Progressive Cattleman
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