Tariffs & Beef - Part X
For the second consecutive week President Trump has signed an executive order rescinding tariffs in an effort to reduce consumer food prices. The latest executive order, signed last Thursday, rescinds the additional 40% tariff put in place in July on food items imported from Brazil, including beef, coffee, and fruits. Beef imports from Brazil operate under a tariff rate-quota system. The annual quota for Brazil, which is under the “Other Countries” classification, is 65,000 metric tons (MT). Shipments above the quota are subject to a 26.4% tariff. The additional 40% tariff raised the over quota rate to 76.4%. Beef imports from Brazil had already exceeded the quota for the year before the additional tariff was implemented. Shipments for the first half of the year more than doubled last year’s shipments for the same period. The additional tariff did slow Brazilian beef imports. According to the Daily Livestock Report, August shipments of Brazilian beef totaled 6,396 MT, 57% lower than last year, and September shipments were 7,852 MT, 62% lower than a year ago.
The on-and-off again policy changes and commentary regarding beef prices have caught cattle producers in a whipsaw. Dennis Smith, a commentator on beef and cattle markets, said last week that since President Trump made his comment that ranchers need to lower their prices, “December live cattle has declined $33.00 from the contract high ($248.30) that was established on October 16.” And “January feeder cattle futures have declined $70.15 from the contract high established on October 16 ($380.20).” Fundamentally, nothing has changed in the cattle markets regarding supply and demand conditions, and the outlook remains bullish for prices. Just how long it takes for fundamentals to again drive the market is the question.
The latest move resets U.S. tariff policy on Brazilian beef imports to what was in place prior to President Trump’s tariffs. President Trump in July had indicated the additional tariff on Brazilian imports was in response to the treatment of his friend, former Brazilian President Jair Bolsonaro, by the Brazilian Supreme Court. The tariffs didn’t appear to have helped his friend. Instead, they have brought grief to both U.S. consumers and cattle producers. Hopefully, it is a lesson learned.
Figure 1. December Live Cattle Futures Prices
Figure 2. November Feeder Cattle Futures Prices
