Politics, lost baggage and other benefits of international travelPolitics, lost baggage and other benefits of international travel
Any potential purchase of U.S. pork with a Trump presidency would likely be the November-December window in front of inauguration.
October 21, 2024

I am just back from "the land down under." My body is back in Iowa while my internal clock is still stuck somewhere over the Pacific Ocean and our luggage was last seen in Los Angeles. Aside from the privilege of buying clothing at the Sydney airport as we awaited our bags, there is a lot to learn from different cultures and business approaches. The reason for this recent travel was pertaining to the beef sector, however there are a few things that we can learn and apply to our interests.
The United States produces about 5x the beef of Australia, they export about 70% of their production. The outlook for the beef market is impressive. Reduction of animal numbers in the U.S., Brazil, Europe and Australia almost guarantee higher prices and profits for the beef sector. While we do not tend to get too much cross-elasticity of demand in the beef/pork realm, pork should look like a bargain for the next three years or so on a global scale. This can’t hurt our fortunes.
While there (Brisbane) I was able to tour a harvest facility located in the middle of a town of 3 million people. It was clean, efficient, quiet and devoid of any scent. All of these things were intentional and viewed as necessary to maintain their social license to operate. Australia had a huge incident in 2011 called 4 Corners whereas the export of live cattle was banned after video footage of animal abuse (Indonesia) surfaced and, appropriately, caused public outrage. This heightened sense of awareness thrust their industry into panic and changes were necessary to retain the right to do business. We have not had a parallel crisis and generally operate unimpeded. It would behoove us to learn from the tragedy of others and behave in a manner that avoids the implementation of regulations.
Political turmoil is not confined to the U.S. Australia has an election coming up and the rhetoric in the news is just as vile as we experience. The writing style in their papers is reminiscent of British sarcasm and is probably more pointed than what we get, they just say it with a pleasant accent that is disarming. This brings me to commodity prices and the U.S. election cycle which I think has two cues that need attention. The first is the grain market that, in my opinion, is poised for a positive move regardless of who takes office for very different reasons. A Trump victory with his very vocal disdain of all things China would likely result in some immediate buying of all commodities, especially soybeans. The Chinese stem of January-forward buying is skinny and Brazil will be running on empty at that time, the U.S. will become nearly the only origination opportunity and I believe you could see a concerted effort on the part of China to get as much afloat as possible before inauguration and the potential implementation of more tariffs. Conversely, a Harris victory might not have the same immediate pop but would be a slower burn. Remember, the U.S. is going to be the primary originator so the sales will likely come our direction, the confidence of the Harris administration not emulating the Trump approach could lead to good sales into the first quarter of 2025 when South America would take back over the mantle. Similar story on pork. Any potential purchase of U.S. pork with a Trump presidency would likely be front-loaded right when we need it the most, the November-December window in front of inauguration.
Corn pricing is representing value in my opinion. Export interest from Europe and limited offers from Brazil are underpinning futures and spreads. I think we will have to get through the balance of harvest before you see any real fireworks in price, but we are setting the stage for a bounce once the parking lots are emptied of corn the farmer sees the big carries at spot prices that are below breakeven. He will sell what he has to up front, he will likely sit on as much as possible as the agronomic community is in a more cash-friendly position compared to their livestock brethren.
Finally, the weather situation is interesting. The warmth and lack of moisture that has made this harvest season so productive is expected to continue through the end of the year. More warmer and dryer than normal pattern is with us. The weak La Nina is anticipated to transition to a moderate El Nino sometime in the spring which, on the surface, could not be better for U.S. crop prospects. A dry spring to get the crop in the ground followed by a wetter and cooler summer could set us up for a “wow” harvest in 2025 if this forecast holds. Recall, we had the El Nino conditions early this year that let to some big floods in the NW Iowa and surrounding areas. If those rains are delayed by two months when the moisture needs of the crop are more demanding, imagine what type of yield numbers we might see. All subject to change, of course. The outlook as of this writing is very favorable.
Comments in this article are market commentary and are not to be construed as market advice. Trading is risky and not suitable for all individuals. Contact Kerns at [email protected].
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