I suspect a live cow pop on this coming Monday, May 10th, now that Trump has tweeted his shit. Here's the summary from this past Monday, May 3rd. My how things change...
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LIVING WITH MARKET INTERFERENCE and GOVERNMENT POLICY
Day to day changes in market prices is a fact of life in the beef business. In the best of times, those changes are critical to survival, and in the worst of times, can be terminal for some operations on the wrong side of the market. Frustrating to all participants are outside news events that roil the markets and leave participants feeling like puppets in a stage show. Too many times of recent, those events roil the market creating material harm to the value of inventories of cattle. Dealing with the daily fundamentals of supply/demand, drought, consumer attitudes, and operational cost is a handful but layered on top of that reality, the minute to minute announcements and tweets, is too much for any sense of peace of mind.
The administration is in pre-election mode and posturing for trade deals and immigration change, is part of the strategy for rallying the vote. The fall out of these announcements and tweets does little to mollify the offended parties in the ag sector with poorly defined promises of income replacement. Exactly who will qualify for economic harm and how it will be tested is unclear. Will fully hedged operations receive payments? What about partially hedged operators? Is there a per head or per hundred weight subsidy for beef producers in mind? Designing a restitution plan is probably more difficult than negotiating a trade agreement. One thing history has proven – the government never gets it right.
It seems obvious, from the rhetoric on both sides of the U.S./China trade war, that negotiations may go on for a long time in various forms. The problem with the current stance is once trade parties are forced to re-channel supply chain arrangements, new relationships are formed, and old ones forgotten. Establishing new trade partners requires burdensome paperwork, transportation and financing documentation to open the flow of goods and services. New communication channels are opened for the new relationships giving way to new order flow and delivery logistics. It is not always easy to toggle back to the old arrangements. China will have a large requirement for red meat imports in the near future and leaving out the U.S. meat producers will be a significant harm to future U.S. beef prices.
The newly announced Mexican tariffs that will graduate from 5% to 25% over a time defined period is crazy. This action threatens the entire Mexican/Canadian trade agreement recently negotiated and will have a severe impact on our largest trade partners for U.S. beef. The President took this action over the advice of all his trade advisors giving little thought to the logical implications. This action will likely be reversed in the coming week but in the meantime, the markets crash.
President Trump is too quick to act and tweet policy changes without consideration of the consequences. This results in confusion leaving the affected parties guessing about the impacts of the various policies. If the impacts are too severe then the President simple tweets another change, and the process repeats itself. Making a determination, about the consequences of an action, is rocket science and requires careful vetting.
The livestock markets need stability and reliance on the old standards of fundamental supply and demand. We need to expand our export markets, build the ID systems to accomplish this goal, and re-establish our position as the premium meat producing country in the world.
Living day to day on the latest trade news tweet is wrongheaded.
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And those cow guys saw the underlined, bolded bit coming. Fascinating.
