The Market's Fine Print

What the Beef Industry Is Not Getting for Christmas

John Harrington
By  John Harrington , DTN Livestock Analyst
Trade Santa promised earlier this fall to bring the beef industry the gift of opening China to U.S. beef, but it doesn't look like he will be able to deliver on that promise. (Photo by Austin Kirk, CC BY 2.0)

Though holiday protocol varies from gift-grab to gift-grab, mid-December is often the time when tantalizingly small and large packages start to accumulate around the old Christmas tree. Some households with starry-eyed children or sentimental adults may insist that the yuletide skirt remains completely bare until Santa makes his midnight dump.

Whatever floats Blitzen's boat.

But my family has always favored this tradition of building suspense, one that invited plenty of vigorous shaking, compromised wrapping paper, and festive interrogation. I've religiously passed on my father's unique recipe for seasonal confusion and fun, periodically throwing a present on the pile without a nametag.

At our house, half the fun of Christmas morning is getting there.

Given the largely cheerless marketing year of 2016, I can imagine the beef industry nervously circling the tree while hopefully eying scattered boxes and bundles. My guess is that cattle feeding equity alone this year imploded by no less than $1.07 billion. With that kind of country need, the line to sit on Santa's lap starts in the next county.

Indeed, this marks the second consecutive Christmas of economic trauma for cattlemen. At least it may make shopping for that special someone a little easier. ("What to give the cowboy who has nothing?")

Since feedlot and ranch letters swallowed up several gigabytes on the North Pole server, the pre-Christmas guessing game could easily spin out of control. Was that tall cylinder wrapped in red and gold paper significantly higher fed prices in 2017? Could that large box with the big, red bow contain a sure hedging fix for basis and convergence? Did that small but heavy packet tied with colorful ribbon hold a dynamic yet inexpensive plan for new beef product development and promotion?

As such "what'd-I-get" speculation intensified, only one thing might help to narrow the wide range of possibility. Specifically, I have it from the best of elf sources that one extremely coveted item never made it into the sleigh: the opening of China to U.S. beef, certainly not by the end of the year and probably not within the foreseeable future.

Mr. Grinch, say it ain't so. You can have all the other booty back, if we can just have this one toy long begged for. Besides, Trade Santa promised.

At least that's what the September announcement sounded like.

Chinese Premier Li Keqiang clearly said in a New York speech earlier this fall that his country would "soon" allow imports of U.S. beef, fueling optimism among trade groups who had hoped the ban would be lifted by the end of the year. To be sure, both sides conceded that there were many details to be hammered out before cargo ships could be loaded. But, for the first time in 13 years (i.e., since China's embargo on North American beef because of the BSE crisis), China seemed to be seriously drawing up a chair to the negotiating table.

So what made Mr. Potter run over George Bailey with his wheelchair?

In a word, the November election and the victory of Donald J. Trump.

As a successful candidate for the presidency, Trump was anything but shy in expressing his objections to U.S. trade relations with China, blaming past administrations for not making better deals with the economic giant. Over the last month, he has done nothing to soften such general criticism and has actually sharpened direct challenges to China as president-elect.

Trump unleashed a storm of controversy when he took a call from Taiwan's leader, President Tsai Ing-wen, earlier this month. Chinese officials were furious over the first conversation in decades between a Taiwanese leader and a U.S. president or president-elect. Trump then slammed China in a series of tweets, which criticized China's currency policy and its military posturing in the South China Sea.

Trump's latest comments in an interview with Fox News suggested that he won't hesitate to anger China until the country comes to the bargaining table on trade and North Korea. China's response was measured but clear: Cooperation with the U.S. "would be out of the question" if Trump doesn't adhere to the "one China" policy, a cornerstone of bilateral relations since the establishment of diplomatic ties in the 1970s.

Now I'm not here to criticize Mr. Trump's controversial attempts at foreign policy. I'll leave that to someone with a higher pay grade and greater expertise. But you don't have to be a senior fellow at the Brookings Institute to tell when a Christmas party has gone bad.

Who knows how long the new Trump/China spitting match will last? But until it gets resolves, real progress in the beef trade seems extremely dubious.

By all means, don't let this discouraging news ruin your holiday. I'm sure it won't be the first time Santa shorted you a Christmas pony or two.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

(AG)

John Harrington