US may expand cattle imports

Smaller cattle herds and strong consumer demand have caused beef prices to rise by as much as 15% during the past year. This steady rise occurred despite a slight drop in inflation and a drop in consumer confidence during the same period, according to the U.S. Department of Agriculture.

Higher prices have been good for cattle producers and not so good for consumers.

President Donald Trump said earlier this month a plan was being formulated to drive down beef prices. Part of the proposal involves expanding the tariff rate quota on Argentinian beef from 20,000 metric tons to 80,000 metric tons, said James Mitchell, extension economist for the University of Arkansas System Division of Agriculture.

This would quadruple the amount of Argentinian beef entering the U.S. market, but it would still be a minuscule portion of the overall U.S. beef market, he said. A September report from the U.S. Department of Agriculture forecast U.S. beef imports at 5.4 billion pounds, about 18% of total U.S. beef consumption.

Raising the Argentinian beef tariff quota is only one of several factors raising concerns for cattle producers, Mitchell said.

“There are also talks of easing feeder cattle import restrictions on Mexico, which were put in place because of the New World screwworm in Mexico,” Mitchell said. “Yesterday, news broke about discussions of easing tariffs on Brazil. Brazil has been a high market for U.S. beef imports the last few years as well.”

Feeder and live cattle futures fell significantly over the 12 days following the Argentinian tariff announcement. The Chicago Mercantile Exchange (CME) December live cattle futures contract, for example, fell from about $247 per hundredweight on Oct. 16 to about $224 on Oct. 27. During that same time frame, CME November feeder cattle futures fell from about $380 per hundredweight to below $339.

“That’s three proposals that markets are having to sort through,” Mitchell said. “This has significantly impacted the futures market, and these markets are all connected. The futures market is going to have an impact on cash prices, although it’s too early to tell how big an impact that will have, but a negative impact is expected.”

Market speculation is cutting into producers’ profitability, and it likely won’t cut into grocery prices, however, Mitchell said.

“We’re already importing quite a bit of beef, as a part of overall consumption,” he said. “But anything that moves the market is going to impact profitability in either direction. Part of the problem is that this is happening at a very bad time of year for our producers. Most of our cattle operations have cows that calve in the spring, and those operations are selling calves in the fall. To the extent that these events spill over into the cash market and impact those cattle prices negatively, that will impact profitability.”

Beef prices in the U.S. have risen in recent years largely as a result of shrinking supply and steady demand. The U.S. total beef cattle inventory is at its lowest since 1951, with about 94.2 million head. The declining herd size, Mitchell said, is partly due to ongoing drought conditions, which make it more expensive to maintain herds through the winter.

“Droughts that impact fall grazing are a big problem and could stall some herd expansion,” Mitchell said. “It impacts when you have to start feeding hay and decisions about heifer retention and how many cows to keep through the fall and winter…. It’s still going to be a record year for profitability. This isn’t going to turn balance sheets from black to red. The fundamentals are still there, but we all need to pay close attention as markets learn more.”