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The Journal Gazette

  • Walt and Alex Breitinger

Friday, January 11, 2019 1:35 pm

Column: Beef heads higher

WALT and ALEX BREITINGER | Breitinger & Sons LLC

Cattle prices are continuing to climb, reaching an 11-month high on Friday at more than $1.25 per pound.

Beef demand has been strong as the U.S. economy continues its steady expansion, giving consumers more confidence they can splurge on steaks.

Cattle prices jumped this week as Winter Storm Gia brought treacherous conditions across Kansas, threatening animals in the third-largest cattle-producing state.

Additionally, improving export outlooks are boosting prices after demand for U.S. livestock fell sharply last year amidst trade disputes with China, Canada and Mexico.

Since then, the renewed NAFTA deal diminished worries about Mexican and Canadian demand, a savior for ranchers as those two countries are major buyers of U.S. beef. This week, more headway was made with China on resolving the entrenched trade war, renewing hopes China's 1.4 billion diners could soon be eating more U.S. beef.

Meanwhile, exports to Japan and Taiwan have been strong recently, although details are unknown because of the ongoing government shutdown, which has left markets cut off from vital data from the U.S. Department of Agriculture.

Sugar rally crystallizing

Sugar prices appear to have bottomed out and have begun working on a rally, sparking investor demand.

The sweetener fell to a 10-year low at 9.83 cents per pound last year on expectations for a global glut of sugar and ultra-low crude oil prices.

Sugar and oil are linked because top-grower Brazil uses sugar to produce ethanol, much as U.S. farmers use corn to make biofuel. As oil prices rise and fall, so, too, does demand for the biofuel feedstocks.

The recent rally in oil from $42 per barrel at the end of 2018 to $52 on Friday has helped boost sugar prices, but so, too, have concerns about drought in Brazil reducing this year's sugarcane harvest.

A smaller crop could drop Brazil's exports to the lowest level in more than a decade, which is boosting prices globally, nearing 13 cents per pound this week.

For the average American, the recent 30 percent jump in the global market won't affect prices at the grocery store significantly.

Imported sugar is taxed heavily as part of a government effort to support American sugarcane and sugar beet farmers, leading to much higher U.S. prices. So while global sugar futures went from less than 10 cents last fall to nearly 13 cents this week, the corollary U.S. futures contract moved from a low of 24.94 cents to a high of 25.6 cents this week.

Walt and Alex Breitinger are commodity futures brokers in Valparaiso. They can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.