African swine fever

Since the first case of African swine fever (ASF) was reported in August 2018, China has had to destroy half their hog herd. The gap in their pork supply has sparked a greater Chinese demand for protein. “As we start to think about protein prices for all three of the key proteins – beef, pork and poultry – the market is trying to position itself to create a signal across the marketplace that we need to create more protein,” Murphy said.

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Carrie Veselka
Editor / Progressive Cattle

The ASF epidemic has increased the demand for beef in China, but the U.S. hasn’t had much success in taking advantage of that market. In 2019, U.S. beef exports to China totaled about 30 million pounds. Comparatively, Argentina, Uruguay, Brazil and Australia each exported over 650 million pounds of beef into China. “There is clearly a demand out there for beef, and the market is trying to respond to that,” he says. 

Phase I China deal

Murphy said there are three main points regarding beef included in the new Phase I trade agreement. One, China is going to accept hormone products from the U.S. “That’s a huge change from where they’ve been on a policy standpoint,” he said. Two, they are going to accept U.S. traceability protocols, which is essentially utilizing the Food Safety Inspection Services that U.S. packing operations already use. The third item may not have an immediate effect but will be a benefit in the long run. China has agreed to do a risk assessment on ractopamine for both cattle and swine. “That’s not something we can expect in 2020, or even 2021, but it is something very positive that they are willing to sit down and really understand the science of that product and what it means to all of us in terms of impact and creating more production and being able to feed the world,” Murphy said.

Corn supply and demand

When the USDA’s annual report came out in January, the final numbers for the 2019 growing season were not as poor as they were estimated to be earlier in the year. Murphy said the higher numbers were also due in part to revising the supply numbers from a year ago. “We come to the balance sheet, and we end up with a stocks-to-use ratio of 13.4 percent. That’s a very comfortable supply,” he said. “As we look from a market standpoint into the spring, we are in a very comfortable supply situation, and there’s not going to be an effort to change that.” 

This year, there is a 4 million acre increase in acres of corn planting and a 7 million acre increase in soybean production. “These are significant increases, and this is going to set the tone for the 2020-2021 market year,” Murphy said. “With that big of an increase in acreage, that tone is that even with greater demand likely coming from China and that side of the world, supply is going to override that demand.” 

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Murphy also said to expect an increase in poultry and pork usage for corn in the coming market year. The cattle industry usage should stay consistent. The usage of corn for ethanol is expected to increase, and the demand for ethanol will likely increase from the export side as well. 

Murphy also predicted that corn prices will be relatively stable for the coming market year. As long as our stocks-to-use ratio stays between 12% and 16%, corn prices should stay between $3.50 and $4 a bushel. He said that, depending on this year’s harvest, prices could dip below $3.50, which could affect the value of feeder cattle, but barring interference from Mother Nature, corn prices should remain stable through 2020 and into 2021.

Soybeans

“Is there going to be a demand for soybeans? The answer is yes,” Murphy said. He said the global soybean stocks-to-use supply is currently around 32.5% and expected to drop to around 27%, which historically, is an adequate supply. A shift is expected to take place since China is expected to buy a lot of soybeans from the U.S.; the rest of the world will have to buy from somewhere else, specifically South America. “We will at least see an increase in demand domestically, but it’s not going to have a huge influence overall in terms of the market.”

PHOTO: Mike Murphy told NCBA attendees things look positive for the 2020 grain market. Photo by Cassidy Woolsey.

Carrie Veselka