Feed Lot

NOV 2018

Feedlots and cow/calf operations in the beef industry who feed 500 or more has annually on grains and concentrates; maintain 500 or more beef cows; backgrounder, stocker/grower, preconditioner; veterinarian, nutritionist, consultant

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8 FEED•LOT November 2018 15 cents down, but if I were you, I'd be thinking about taking coverage, probably into the first or second quarter of next year." As the Southern Hemisphere's corn stocks decline, combined with the drought across Europe and the Black Sea, the U.S. is expected to be the residual supplier. "I'm looking for U.S. corn ex- ports this year to be record large, 2.6 billion bushels, (200 million above USDA's estimate). U.S. cat- tlemen need to get ahead of this a little bit," Basse said, urging the buy, "Not caught up in the tailwind when U.S. farmers get the harvest in and you're competing with the export demand." Beef producers need their own export deal with China if they hope to take the market's bull by the horns. "Beef demand has been good, export demand has been outstand- ing, but I really need the Trump administration to lock down this Chinese demand," Basse said. "If we don't have that Chinese demand, I can't really sustain the bull market in agriculture as we see it today." He drove the point home: "It's so important that the Trump adminis- tration get a trade deal with China because, without it, I don't have growth for our balance sheets as USDA would forecast for another 7 to 10 years." That's not to say domestic de- mand is poor. "If you look at beef by itself, you can see we're at our best level this year in terms of per-capita consumption, going back to 2008," he said, noting expanding demand. U.S. beef demand will remain strong to close out 2018, Basse said, modifying "how far the futures or cash markets drop." "You all in the market need to be paying very close attention to these opportunities for hedging going forward," he said. FL soon. Basse explained the Trump administration has applied tariffs to agricultural commodities and other products to pressure the Chinese to negotiate intellectual property disputes. The tactics have yet to cause much Chinese angst because the country holds 50% of the world's wheat stocks. "They could feed only wheat all year long and still have enough supply available," he said. Mean- while, their hunt for alternatives to American soybeans could find them looking far to the south. "If this trade war continues for a long period of time – by that I mean a couple of years, and that's possi- ble – the Chinese will run to Africa," Basse said, "because they see the opportunity of Africa ultimately being an agricultural producer." Another reason China feels little pressure to strike a deal has to do with U.S. farm debt, currently approaching the 1980s record. Net farm income has dropped 50% since 2012 and is projected to remain flat, so the Chinese know U.S. farmers need foreign customers. Basse said he worries about banks, particu- larly smaller institutions, running out of opportunity capital. In fact, combined with rising interest rates, bankers may soon charge more for loans already outstanding. "What I call this is, not so much debt going up, but an operational crisis," Basse said. The most-highly leveraged in- dustries will be the most at risk should the "trade purgatory" con- tinue, he warned. The silver lining for beef producers is they are less leveraged than poultry, cotton, dairy and pork producers. When it comes to corn, Basse is no bear. "There may be another dime or MARKETING BY NICOLE LANE ERCEG T he one thing certain in com- modity markets is ambiguity. Ag Resource Company president Dan Basse, however, provided a bit of clarity and foresight at the Cer- tified Angus Beef ® (CAB ® ) brand's Feeding Quality Forum earlier this year in Sioux City, Iowa. In a chaotic political climate that leaves much up in the air for trade policy, Basse offered comfort. "We believe the markets are go- ing to endure heightened financial risk and volatility, even our cattle markets," he said. "When you think about demand for agricultural prod- ucts globally, the world economic situation looks relatively good." The coming months hold con- cerns though, because unlike the stock market, commodities have seen little or no upswing. Basse suggested what to monitor. There are two key ways he said agriculture could see a bull market again: a trade deal with China or a 20% value drop in the U.S. dollar. Nei- ther look likely in the near future. A longer term opportunity Basse noted is Chinese and Indian de- mand for better food going into 2026, along with increased buying power. China alone is forecast to add more than 150 million house- holds with annual incomes greater than $20,000. "If you want to solve America's agricultural woes, you want to fo- cus on both of those countries," he told the crowd. "Accordingly, Gregg Doud (chief agricultural negotiator for the U.S. Trade Representative Office) is looking at China and In- dia being the two linchpins of U.S. agricultural policy going forward." The challenges? India taxes nearly all imported commodities and the Chinese aren't rushing to the negotiating table anytime China key to cattle market prospects

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