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"The agreement between the United
States and Japan to begin moving toward opening the Japanese market
to U.S. beef is one," said Chris Hurt. "That market has been closed
to U.S. producers since Dec. 23, 2003.
"The second is the duty placed on
Canadian live hogs being shipped to the United States."
Hurt noted, however, that these
"price positive" benefits will be offset somewhat by higher numbers
of cattle on feed.
For the U.S.-Japanese agreement to
reopen beef shipments, the details still have to be worked out.
"In terms of market prices, 'the
devil is in the details,'" he noted. "U.S. sources have been
optimistic that beef could begin to flow in 'a few weeks.' Japanese
sources, however, are suggesting 'maybe in the spring of 2005.'
Regardless, Japan is a huge market. In 2003, Japan purchased 920
million pounds of beef, representing 36 percent of all U.S. beef
exports.
"In addition, when Japan and the
United States reach a final agreement, South Korea will most likely
join in as well. In 2003, South Korea was the third largest buyer of
U.S. beef, representing an additional 23 percent of beef exports."
In regard to the decision involving
Canadian live hog imports, Hurt said the duty approaches 15 percent
of the value of the hogs and will have the effect of keeping more
hogs in Canada for finishing and processing.
"This will tend to lower hog and
cattle prices in Canada but raise prices in the United States," said
Hurt. "The longer-run impacts are less clear. If the duty stays in
place, it may cause a shifting of finishing and processing of hogs
to Canada."
Adding to the mix of uncertainties
for cattle prices is the question of when the border might be opened
to Canadian live cattle and the specific terms and timing of such an
agreement. There has been a general feeling in the marketplace that
a restricted opening of the Canadian border would occur prior to the
opening of exports to Japan. For now, the timing and details of each
remain uncertain.
Hurt said that a final piece of new
information in the cattle market is the latest USDA quarterly
cattle-on-feed report, which showed on-feed numbers to be higher
than expected, up 3 percent. The number of steer calves on feed was
up 4 percent, but heifers on feed were up only 1 percent. The number
of cows and bulls on feed was down 7 percent.
"The smaller number of females on
feed reflects a growing interest in herd expansion as more cows are
being retained in the breeding herd and more heifers are being held
for potential breeding," said Hurt.
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Placements were down only 4 percent
and the number marketed in September was smaller than expected, down
11 percent. Placements of cattle weighing less than 800 pounds were
down a surprising 11 percent, reflecting the limited number of young
cattle available for feedlots.
"What does this mixed set of events
and numbers mean for beef supplies in the coming months?" Hurt
asked. "While the announcement that the United States and Japan will
open trade is initially positive, it is not likely to happen for
several months as details are worked out. This leaves the immediate
issue of higher than expected on-feed numbers. Added to larger
numbers will be much heavier market weights due to low feed prices
and abundant forage supplies."
In October, cattle weights have been
up over 4 percent, and these heavy weights will continue into the
winter, Hurt added. As a result, beef supplies will be higher by 2
percent to 4 percent in the last quarter of 2004 and the first
quarter of 2005.
"Finished cattle prices should move
seasonally higher, however, and may approach the $90 level by the
end of the year," he said. "Prices are expected to average in the
higher $80s in the first quarter of 2005 but to peak in the
late-March to early-April period in the low $90s. Prices are then
expected to move seasonally lower into the summer, with averages in
the low to mid-$80s."
But, he emphasized, uncertainties
continue to surround the trade issues.
"The issue is not just when trade
between the United States, Canada and Asia can be restored but the
terms of these potential agreements," he said. "Opening beef exports
to Asia could enhance finished cattle prices by $5 per live
hundredweight or more, while opening imports of live cattle from
Canada, in the absence of opening exports to Asia, could depress
prices by $2 or more," he said.
"Odds now seem to favor that mad cow
disease issues will be resolved in the next six months. This would
allow the establishment of a framework under which limited beef
trading between the United States, Canada and Asia can begin once
again."
[University
of Illinois news release]
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