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Taiwan Reimposes Partial Beef Ban
According to the Labor Department, U.S. employers slashed 85,000 jobs from their payrolls in December. The decline was small enough to hold the nation's unemployment rate steady at 10 percent, but analysts expected monthly job losses to be less than 10 percent of the actual tally.
Wall Street opened lower on the news, but the broader indices managed to claw their way back into positive territory by the end of the session Friday.
Earlier in the week, the government reported orders to U.S. factories rose 1.1 percent in November as strong demand for everything from steel, industrial machinery and computers offset weakness in automobile and truck sales.
The White House cited Friday's jobless report as the President began to push for another $5 billion to help create much-needed jobs in green energy and manufacturing. The Obama Administration also worked on damage control in the agricultural sector this week after the government of Taiwan announced a ban on imports of some U.S. beef products over concerns about mad cow disease.
USDA officials and U.S. beef producers have long argued U.S. beef is safe. The Office of the U.S. Trade Representative and USDA released a joint statement this week, expressing their disappointment stating, “The measures do not have a basis in science and constitute a unilateral violation of the bilateral agreement concluded in good faith by the United States with Taiwan a little over two months ago."
U.S. experts on Taiwan issues are concerned the recent move could hamper progress in bilateral economic and trade relations -- including the signing of a free trade agreement.
According to the United States Meat Export Federation -- the marketing arm for U.S. red meat funded by USDA -- the import of boneless and bone-in beef muscle cuts from animals under 30 months of age will continue.
According to USDA statistics, Taiwan purchased $128 million worth of beef products from the United States in 2008 making it the sixth largest market for U.S. beef.
The First Decade of the New Millenium
North Dakota officials issued a statewide travel alert Thursday, but cold was the bigger concern. Wind chills Thursday morning were as low as 52 degrees below zero in the northwest part of the state.
In Florida, record low temperatures prompted tourists to abandon bikinis for winter coats as citrus growers worked to protect their $9.3 billion industry from the tightening grip of "Old Man Winter."
While the first month of 2010 seems destined for the record books, it's not as if the previous decade was without its share of calamities -- both from Mother Nature and Uncle Sam. Andrew Batt looked back at the decade of the "oughts" and filed this report.
At the dawn of the new millennium, America was poised to continue the greatest economic expansion in history but a decade of unforeseen disasters would keep U.S. interests on their heels. The ups and downs were clearly evident in rural America and Washington where the aftermath of September 11th delayed the decade’s first farm bill.
By the time President Bush signed the 2002 farm bill, alongside then-Agriculture Secretary Ann Veneman, the omnibus spending package was hailed as a critical safety net for American farmers and ranchers. (May 17, 2002)
President Bush: “And that’s why I’m pleased to sign the Farm Security and Rural Investment Act of 2002.” (Bush Look Back, Jan 16, 2009)
Six years later, the President’s mood towards the latest farm bill was strikingly different. Bush exercised his seldom-used veto power to strike down the 2007 farm legislation. Despite the President’s disapproval, strong bi-partisan support in Congress was able to override his veto.
Rep. Rosa DeLauro, D-Connecticut - "A vote of 318 --it's very sweet!"
Rep. Randy Neugebauer, R-Texas - "This is a victory for America. It is important America has a strong agricultural economy."
Rep. Bob Goodlatte, R-Virginia - " We have not a 2-to-1 majority, but 3-to-1 majority vote. A 318-to-106 vote is very significant." (May 16, 2008)
Most agricultural legislation in the past decade took global markets into consideration. Foreign trade expansion remained a central goal for President Bush – an issue he took directly to the Heartland.
President Bush: “We need to open foreign markets to Iowa pork. I need the trade promotion authority.” (Bush Look Back, Jan 16, 2009)
Bush’s crown jewel of free trade would come in his 2nd term with the passage of the Central American Free Trade Agreement or CAFTA. CAFTA passed by a razor-thin one vote margin in a late night Congressional session. (Bush Look Back, Jan. 16, 2006)
The successful passage of CAFTA was matched by the lack of any binding trade agreement at World Trade Organization meetings. Following riots during the 1999 WTO meeting in Seattle, subsequent gatherings in Cancun and Hong Kong yielded few, if any, substantial breakthroughs for agricultural trade.
The somewhat tenuous nature of trade agreements between the U.S. and its domestic partners would be tested throughout the decade by an unforeseen discovery in the American livestock sector.
For America's cattle producers, 2003 was a year for the record books. Tight supplies coupled with blistering demand resulted in the highest prices in history, and analysts expected the trend to continue well into to 2004.
But all of that changed late in December, when the Agriculture Department confirmed that Mad Cow Disease had been discovered in a Washington State herd.
While the malady proved to be isolated to a single cow that originated in Canada, the event sent shockwaves through the industry. More than 50 foreign countries banned imports of American beef, and cattle prices plummeted as 90 percent of the U.S. beef export market vaporized.
Gregg Doud, Chief Economist, NCBA: Our primary concern has been in regard to consumer confidence, in that 90% of our product is consumed domestically. And we've been very heartened in the last week with all the reports and all the economic data coming back indicating that consumer demand for beef has been absolutely rock solid through all of this. And that has been very helpful to the marketplace. But now I think the realities of the loss of 90% of our export market are of extreme concern and it is our number one priority to get to work now immediately to get those export markets back up and on track as quickly as we can.
The road to recovery from America's brush with Mad Cow Disease was long and arduous. Exports to Japan, America's most lucrative beef export market, wouldn't fully resume for years.
Domestic markets were quicker to recover, but in the commodity pits traders were more focused on the fundamentals of supply and demand. And there were plenty of both in 2004.
Keith Collins, USDA Chief Economist: "We project farm exports at $59 billion this year and that nearly equals the all-time record high. Had it not been for the finding of BSE, and the lost U.S. beef exports, total U.S agricultural exports surely would have been a record of several billion dollars."
U.S. farmers reaped record harvests of corn, soybeans and cotton in 2004. Fortunately, the global appetite for grain and oilseeds was outstanding, and commodity prices soared to record highs. But it was only a preview of what was to come...
President George W. Bush: "America is addicted to oil." (January 2006)
Retail gasoline prices exceeded $3 per gallon late in 2005, en route to $4 per gallon in 2006. Washington responded by including a Renewable Fuels Standard, or RFS, in the 2005 Energy Bill. The RFS established a minimum ethanol production requirement of 4 billion gallons in 2006 ramping up to 7.5 billion gallons by 2012.
Just two years after the original RFS became law, Congress increased the production mandate to 36 billion gallons by 2022.
Since corn is the predominant feedstock of U.S. ethanol, the expansion also fueled an historic bull market in commodity prices. Corn futures prices contracts soared to record highs in 2007 on their way to an all-time high of 7.54 for the nearby July contract on June 27, 2008.
With much of the U.S. corn swallowed up for ethanol, other commodities also skyrocketed. Nearby soybeans closed at a record $16.58 on July 3, 2008.
But almost as quickly as it began, the renewable fuels bubble began to fall apart. Critics blamed high-priced corn for soaring food prices -- a charge dismissed by ethanol proponents who associated higher food prices with soaring energy costs.
(Grassley’s Corn Flakes)
Critics also said increased ethanol production could lead to rapid deforestation, which would release massive amounts of carbon and thereby exacerbate global climate change. Despite the fact that ethanol burns cleaner than gasoline, debate continues on its environmental merits.
While lawmakers and environmentalists linked energy legislation with climate change across the globe, rural Americans dealt with record breaking natural disasters.
In 2002, drought tore through the grain belt, wrecking havoc on crop yields and boosting disaster assistance payments from Washington.
Sen. Kent Conrad, D-ND: “Do we need disaster assistance?”
Crowd: “Yeah!”
Conrad: “Do we need it now?”
Crowd: “Yeah!”
Conrad: “Well, I think it’s loud and clear…”
(Senate Approves $6 Billion in Drought Aid, September 13, 2002)
Urban and rural citizens were walloped by Hurricane Katrina in 2005. The record-breaking storm killed thousands across Louisiana, Mississippi, and along the Gulf Coast. Crops along the storm’s path were also devastated. (Agricultural Cost of Katrina Mounts, September 23, 2005)
Only 15 years after a so-called100-year flood washed away the Upper Midwest in 1993, the floods of 2008 shattered previous records. Late winter snowfall and heavy spring rains put millions of acres of farmland underwater, drowned livestock, and destroyed homes throughout the grain belt. (Battle With Mother Nature Not Over, June 20, 2008)
Slug Obama Inauguration
2009 began with the inauguration of America's first black president, who quickly injected $787 billion dollars into stimulus projects in hopes of returning the U.S. economy from the brink of destruction.
While wars in Iraq and Afghanistan, health care reforms and other issues also were on his agenda the economy remains his top priority.
And America's farmers and ranchers begin the second decade of the new millennium in much the same fashion as it entered the first... emerging from recession, buffeted by the winds of government policy, and concerned about volatility in the commodity markets.
In fact, the only thing certain about the rural economic outlook -- is uncertainty. For Market to Market, I'm Andrew Batt
Market Analysis: Don Roose
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For the week, March wheat gained nearly 25 cents while the nearby corn contract advanced by almost 10 cents.
Soybeans however headed south as the January contract lost nearly 25 cents. And the nearby meal contract was almost $9.50 per ton lower.
In the softs, cotton fell below the $75 barrier this week as the March contract posted a loss of nearly $3.
In the dairy market, January Class III Milk futures were up 10 cents, and the deferred contract lost 18.
Over in livestock, February cattle gained 77 cents. Nearby feeders were up more than $2.75. And the February lean hog contract gained $1.63.
In other markets of interest, the Euro gained 82 basis points against the dollar. Crude oil rose more than $3.25 per barrel. Comex Gold advanced $46 per ounce. And the Goldman Sachs Commodity Index rose more than 16 points to close at 542.45.
Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Don Roose. Don, good to have you with us. We do have a big crop report coming out on Tuesday from the USDA. There’s a lot of interest in this. There’s a lot of variables floating around. There’s a lot of corn left out in the field. People are unsure how the government is going to treat that. See what kind of year we’ve wrapped up with a very wet corn product. Certainly a late harvest for soybeans impacting winter wheat. So a lot of factors out there. Give us your overall take on what you think we’re going to see come Tuesday morning.
Roose: Well, you know, usually the January report is really a report that doesn’t have a lot of interest but this one is going to be a little different. I think we’re going to look at the U.S. numbers, but we’re also going to look at the world numbers. When you look at the uncertainties, you know, first of all, we still have corn in the fields, so what are we really going to have for a yield? And right now I think we’re looking for somewhere probably 50 to 100 million bushels less on the crop on corn. At the same time, the soybean crop probably is going to grow somewhere in the area of 30 to upwards of 100 million bushels. So when you take that kind of range in soybeans, that’s absolutely huge and that’s a market difference and that’s a market maker.
Pearson: All right. A big interest, of course, on what’s happening in South America, and reports from their government down there look to be pretty good.
Roose: Yeah, almost on a weekly basis if not a daily basis, we come up with yields that seem to be getting bigger. Early harvest in Madagroso in northern Brazil, yields so far are really excellent. And the rest of the country looks like it’s going to follow.
Pearson: All right. Well, we’re going to see what happens on that front. Let’s talk about the financials for just a minute, Don. Gold was up this week. The dollar, as you look at that, we’ve had kind of a rally going since the late part of 2009. Have we seen a fundamental switch in currency trading as far as the dollar is concerned, or have we made just kind of a dead cat bounce here?
Roose: Well, I think what you really have is people really pushing the dollar very aggressively to the down side. And what you’re really seeing at the end of the year is we’re seeing some short covering and we’re starting to see some rebalancing. So that’s I think a big factor and that’s given us a bounce in the market overall.
Pearson: All right. Well, let’s see what happens going forward. Let’s get to some specifics. Let’s talk about the wheat market first. I talked to a buddy of mine down in northeast Oklahoma. Very cold conditions down there. A lot of concern about the wheat that was planted. A lot of wheat wasn’t planted because the soybeans were so late. What’s your take on this wheat market, Don?
Roose: Well, I think when you look at the wheat market we’re probably moving back up into some upper end of the territory from what we know from the fundamental standpoint. When you look at July wheat, it’s starting to zero in on $6.00. That’s a pretty lofty level. I know in the report that we’re going to have out, it’s going to be our first acre estimates and it’s going to be out on Tuesday. And it looks like we’re going to have acres down somewhere two to maybe three million acres. But at the same time, with the fundamentals where they’re at, that’s probably not enough to make a change in the overall fundamentals and really not a situation that can change us to a bullish market.
Pearson: So do we want to make some sales here as we approach $6.00?
Roose: Well, I think definitely. I think there are some areas – when you look at the world environment, we really haven’t been able to compete in the world market yet. So with that in mind I think most definitely – of course, the weather is going to be the key again as we go into spring. But at these current price levels, this kind of rally, knowing what we have around the world, I most definitely would do some catch up sales here.
Pearson: We talked earlier about corn. Corn still left out in the field may be shrinking the crop on that Tuesday report. Getting past that and looking down the road, the corn market seems to be staying relatively strong, Don, compared to everything else out there. Is this a good omen, do you think, going forward?
Roose: Well, the corn market is a little bit different. We still have to – our demand is just very large. We’ve got the ethanol. Our export has stalled a little bit but what I think we’re really saying is next year we probably have to buy another one to two million acres to have a balance table that looks adequate. So what I think what we have in the corn market is a market that wants to stay high enough long enough to buy those acres and, of course, we’re still a few months away from that.
Pearson: We’ve got a couple of issues that will get cleared up, I guess, from this January report about where the USDA says we are numbers wise. But we’re hearing reports the EPA may be upping E15 for ethanol from E10. Maybe some additional impact there. Some of these ethanol plants are coming back online. Oil prices are up, making the ethanol business work better. Those are some factors. But also, USDA has been increasing their feed demand going forward. Yet we don’t hear anything really good in terms of expansion as far as the beef, pork, poultry, or dairy industry is concerned. What do you think we’re going to see Tuesday?
Roose: Well, you’re exactly right. I think when you look at the overall feed demand, the livestock numbers were supposed to be in a contraction phase versus last year, and at the same time the government has our feed usage, you know, higher. I think we probably have equalized that a little bit here this winter because it’s been a very tough winter so far for the feed industry, particularly cattle. Feed efficiencies aren’t there but the bottom line, the government probably is going to leave those feed numbers lofty and keep them up here at the current time.
Pearson: What price do you want to start making some sales, and are you selling some 2010 corn yet?
Roose: Well, you know, I think when you’re approaching $4.50 a bushel, which we closed $4.49 on December corn, I mean, I think the question you ask is where do we go from here, what’s the upside potential. So most definitely I think these are some areas that you look at some sales. And if you put some carry in the market going into next year, you’re approaching $5.00 a bushel and those are good numbers and they’re profitable numbers in a year.
Pearson: I want to ask you about Friday, because there was a surge in the corn market late and some of the other commodities. Is this fund buying? What’s happening?
Roose: Yeah, most definitely. It’s been well advertised. But what we’re approaching is the rebalancing by the funds, and it started Friday and it’s going to continue for another four days. We expect in that fund balancing for energy to be sold. We expect corn to be bought, to a lesser degree wheat and soybeans. But, you know, that showed up late on Friday and really did push the corn market higher, so it was a real event.
Pearson: All right. So that’s kind of what people were wondering what happened on Friday. That’s what was driving it was some fund rebalancing. Let’s talk about soybeans and what you see happening on the soybean front. You mentioned South American crop looks pretty good. That’s got to be a negative for prices for beans, is it not?
Roose: Well, I think, you know, what we’ve had is kind of a market that’s been pushed up here not so much artificially but it’s been the Chinese buying, and it’s really been very aggressive. But the Chinese have purchased almost 90 percent of the total needs already, and they came out on Friday and did say that they’re going to start to look more aggressively from here on at South America’s crop as the production is starting there. So I think you have to be very careful that we may have seen the best of the U.S. prices and we may be looking at a market that tries to gradually sink lower. But, of course, we’ll have to see how the fundamentals go as we go forward. But overall supply demand balance table continues to get more bearish.
Pearson: Are you starting to make sales? Are you cleaning up old crop and making any new crop sales now on soybeans?
Roose: Well, you know, I think when you look at soybeans, you really have a six-month window. You have South America to compete with so you’re on the back burner of that right now. So old crop soybeans, realistically, you should be at a very manageable situation financially, as tight as you can be. New crop most definitely. When you’re at $10.00, $10,25 on new crop those are good values to be pretty aggressive at.
Pearson: We talk about this soybean demand. You mentioned China and the huge buying. Is it front loaded now? Is that the way you’re looking at this Chinese buying that’s occurred, maybe we’re not going to see as much going forward and, like you say, some of it switching to South America?
Roose: Yeah, and the big thing you have to be careful with the Chinese buying, because we’ve seen it before, is they do front load their purchases. And then if it looks like everything is turning fine in South America, you see some cancellations. So that’s the next step in a market if it stalls out up in here, that you see cancellations out of China. So, not yet but let’s be on the lookout.
Pearson: Let’s talk about livestock, Don, and what you see happening in – let’s talk about the fed cattle market first. We’ve been in a position – you said it very well, we have contractions going on in this livestock sector for a while. Very small cow herd out there. The fed cattle demand portion seems to be what’s lacking, is that right?
Roose: Yeah, I think to a certain degree. Although the export demand really has been picking up gradually since we’ve had our big BSE scare, so that’s on the rise. But I think it’s been part of the liquidation putting more beef into the market. The placements, we’re going to have big first quarter supplies that we’re going to have to deal with. And then I think it’s just really been due, partly due to the economy. The soft economy, the consumer looks at the cheapest protein available and he looks at beef as being a little bit expensive. So it’s been a little bit about the domestic demand. The export demand I think it picking up for us.
Pearson: All right. Price target wise, what are you looking for in fed cattle for 2010?
Roose: Well, I think a big range. And I think you can sum up the whole year. Probably we really don’t see cash cattle much over the 90 to 91. We think on the down side, as long as the economy stays fairly strong, we think the low side is going to be in the 80 to 82. So we think that’s the range that we’re going to be in, in the cattle for the whole year, with the front end supplies large right now.
Pearson: All right. Maybe tailing off on improvement towards the end of the year.
Roose: Yeah, most definitely. We think probably our best prices are going to be in the second quarter. And then we think as we hit the fall we take a little bit of a slump again.
Pearson: We’ve been in the grips of this terrible weather, and there’s the question it’s going to impact production. It’s going to impact feed efficiency, certainly. And, of course, it’s going to impact that cow calf guy. What about the feeder cattle producer out there? What’s your outlook for the cow calf producer?
Roose: Well, you know, I think the cow calf producer, he continues to move into a better position as the overall numbers continue to contract. We’ll see what happens in the semi-annual inventory report, but we expect more of the same. So I don’t think it’s a situation where the supply demand balance table is out of whack. I think it’s just a demand for the profitability on the other end.
Pearson: All right. The hog market. What do you see happening with pork?
Roose: Well, the hog market, we’ve got big premiums in the hog market in the summer months. I think the real key is can we earn those premiums. That’s going to center around can the demand stay with us at higher prices as we move higher. We know at lower prices we had terrific domestic demand. But as we step up the ladder moving to those higher produces, can we achieve those really excellent places for producers to make some sales.
Pearson: All right. So get aggressive on the pork sales. Better markets for beef maybe later in the year. Don Roose, as usual, we appreciate your insights very much. That is going to wrap up this edition of Market to Market. Now, if you’d like more information from Don on where these markets just may be headed, visit the Market Plus page at our Web site. Now, before we go, we want to remind you about our next rural economic summit. It will be in Madison, Wisconsin on January 20. It’s the second of four special road editions examining the rural economy. You’re invited to join the discussion by submitting your comments and questions at our Web site. To get the conversation going, we’re asking you the following question: How is the economic downturn affecting you and your community? Visit the Market to Market Web site and make your voice heard. So until next time, thanks for watching. I’m Mark Pearson. Have a great week.
Market to Market is a production of Iowa Public Television which is solely responsible for its content. Funding for Market to Market is provided by Pioneer Hi-Bred … working with growers to help put the right product in each field. Pioneer … science with service delivering success.
