– Glynn T. Tonsor, Professor, Department of Agricultural Economics, Kansas State University
This past week included several reports, announcements, and market updates of central interest to US cattle producers. The CME announcement of changes to their Live Cattle contracts warrants a separate discussion and will not be covered here. Similarly, ongoing declines in expected upcoming corn prices are supportive to cattle markets but will not be outlined in this article. Rather this week’s article is a synthesis comparison of changes in US-Brazil beef trade and employment in the US.
Last Monday an updated agreement to bilateral beef trade between Brazil and the US was announced. Going forward the trade deal terms may well change, exchange rates are bound to move over time, underlying supply and demand fundamentals are certain to adjust, and a wealth of additional research and discussion is sure to focus on updating and expanding understanding of animal health risks involved. What is easier to speak to is the shorter-term likely economic impacts.
While the US has been accepting beef from Brazil it has largely been confined to cooked or processed product, rather than fresh or frozen, due to past concerns regarding FMD (Foot and Mouth Disease) risks. The updated agreement will extend Brazil’s access by allowing fresh or frozen beef to be imported as part of the Other countries tariff rate quota (TRQ) currently available. What is most important from an aggregate economic impact perspective is that this Other countries TRQ currently amounts to about 15% of what is available to Australia. Coupling this with the observation of FSIS (Food Safety and Inspection Service) having yet to approve any Brazilian plants suggests the net economic impact under the current TRQ and broader economic situation will likely be rather minimal.
The flip side of the US-Brazil beef trade announcement is Brazil allowing imports of US beef for the first time since the BSE event of 2003. While any enhancement in ability to export beef is a positive for the US industry, on balance this likely will also have a small impact in the short term.
A report released later last week is arguably more important to the near term cattle market situation. The US jobs report indicates that 255,000 jobs were added in July which is a full 75,000 jobs above pre-report expectations. Coupled with an increase in base wages this is certainly a positive update for meat demand. Increases in employment and wages is beneficial to meat demand given protein is one of the more expensive food items. Going further, given the heavy reliance on domestic consumption this report is particularly good for the beef industry and increases the viability of ongoing production expansion while at least partially mitigating downward pressure on retail beef (and hence cattle) prices.
I’ll end by emphasizing it is important to appreciate the relative impact of US employment changes and the Brazil-US beef trade announcement. The increase in employment and wages is certainly supportive of beef and cattle prices while the Brazil-US beef trade announcement seems likely to have a much lower net economic impact in the near term.