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How the new tariffs affect the beef industry

published: August 10th 2018
by: Charley Martinez and David Anderson
source: Texas A&M AgriLife Extension Service
As the summer comes to an end, beef producers are thinking about breeding, planting, hay cutting, and prepping for the upcoming winter.  A person would have to be on an extremely deserted island to not have heard about tariffs, retaliatory tariffs and trade wars.  While not much can be done to change these market forces, we can develop marketing and management plans to put us in the best possible place given these broad market factors.  Price is influenced by many factors both domestically and abroad.  This article and accompanying graphs are meant to shed light on the impact of newly imposed tariffs and other factors that could influence the price that all sectors of the beef industry receive.
Beef tariffs
As of this writing, most of the first round of tariffs and counter-tariffs have been applied on various industries by the U.S. and our trading partners.  These tariffs include some directly applied to the beef industry, including those of Canada and China that took effect July 1st.  To better think about these beef tariffs let’s look at the export and import numbers for U.S. beef leading into the tariff period.
Total beef export volume has totaled 1.25 billion pounds thus far in 2018.   This 2018 total is up from 2017’s exports by 159 million pounds.  This total includes May’s exports which, at 273 million pounds, was the largest export month in the last 30 years.  The U.S.’s normal big six export partners have all imported more beef this year.  The U.S.’s big six markets are Japan, South Korea, Canada, Mexico, Hong Kong, and China.  While Hong Kong is part of China there are some different rules and the trade statistics are kept separately from the rest of China in USDA’s statistics. 
One of the interesting trade events this year is that while U.S. beef exports are growing, so are U.S. beef imports.   U.S. imports are up in 2018 compared to 2017, 1.23 billion pounds versus 1.21 billion pounds.  When comparing 2018 and 2017 numbers from our normal import partners, the U.S. is im-porting less from Mexico by about 40 million pounds.  But, the U.S. has found more beef from Canada, New Zealand and Nica-ragua. 
Why do we both export and import such large amounts of beef?  The key is that all beef is not the same.  We export high value and low value cuts of beef, steaks for example.  Most of our imports are trimmings to make more ground beef.  The industry doesn’t have enough cull cows and lean beef to make all the ground beef that consumers want to buy.  
On balance, net exports (exports minus imports) have totaled 20.6 million pounds in 2018 so far, which is a big improvement from 2017’s -121 million pounds during the same span. This big swing for the U.S. in the world market has been driven by South Korea. South Korea’s beef import from the U.S. is up by 69.5 million pounds in 2018 compared to 2017. 
The direct beef tariffs imposed at this writing are relatively small and have had little impact to date.  Of, perhaps, more importance to the beef industry at this point are the indirect effects of the tariffs on other products.
Pork tariffs matter
Retaliatory tariffs from China have targeted pork and soybeans, among a host of other goods.  The U.S. exports about 23 percent of its production.  And that pork production has been growing.  In 2018, pork production is expected to experience almost 4 percent year-over-year growth.  Hog prices are expected to show about a 9 percent decline in the fourth quarter alone.  
In the face of growing production, export growth becomes key to sustaining prices.  Net pork exports this year has totaled about 2.1 billion pounds, about a 200 million pound im-provement from 2017.  But, the tariffs have begun to cut into pork exports already.  Exports to China and Hong Kong are down about 40 percent.  Fortunately, other markets have taken up the slack, but at lower prices.  
If reduced exports have to stay in our domestic market, then that increase in meat supplies will result in lower pork prices and lower beef prices as these industries compete for retail sales.  
Feed costs
Soybeans are a key livestock feed ingredient around the world, including the U.S.  The abundant production in the U.S. has supplied the growing meat market in China.  The tariff announcements contributed to about a 20 percent decline in Midwestern soybean prices, along with expectations of a big crop.  Falling feed costs due to the tariff have provided a boost to livestock feeders bottom lines and created a hedging opportunity.  One thing we know, falling feed costs eventually result in more livestock and meat production, and lower calf prices.  An important overlooked impact of prolonged tariffs are some better net returns on the livestock side.
Exchange rates
Historically, agriculture has benefitted from a weaker dollar because that has made our products more competitive in the world market.  Recently, the U.S. dollar has strengthened compared to the currencies of most of our beef trading partners.  The value of the dollar has strengthened due to our growing economy and rising interest rates.  In spite of the strengthening dollar implying that our products have become more expensive overseas the U.S. has managed to export more beef.  The stronger dollar has likely boosted our beef imports too.  As the tariffs take effect, we need to stay aware that the exchange rates can often offset or exacerbate some of the tariff changes.

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