Steer Drop Credit: Week ending April 6, 2018

1 Vol. 16, No. 69 / April 9, 2018 The proposed higher Chinese tariffs on US beef will have a minimal immediate impact since we export very li le beef into mainland China. There was a lot of hope about expanding those exports in the coming years and the higher tariffs could make that more difficult, especially considering strong compe on on value from South American markets. Addi onally, at this point it does not appear that China will impose a higher tariff on US ca le hides, at least following our reading of the second list. However, should the trade skirmish with China expand, it is possible that hides will be included in future lists. See link below for list (its in Chinese). China is the largest global buyer of US ca le hides and those purchases also represent a significant por on of US hide produc on. USDA reports hide exports both in terms of units sold ( whole hides) and the value of those sales. The latest data available is for February and it shows total hide sales for the month were 809,895 pieces, 5% less than a year ago.

2 The value of those hide sales was reported at $ million, which puts the average price per piece at around $56/hide, pre y close to USDA quoted prices. Total US bovine hide exports in February were 1,245,398 pieces, less than a year ago. In the first two months of this year China has accounted for about 63% of all the bovine hides that have gone into export markets. Please keep in mind this is for whole hides that meet weight specs. There are some addi onal hide exports but the volume is rela vely small. US bovine hide exports to China in 2017 were near million pieces, of all US exports. But accoun ng for a large share of exports may not mean much if those exports are a small share of domes c produc on. Leather markets are global and the US is a key supplier due to its quality and consistency. As the global economy con nues to expand, demand for leather goods, be this for consumer products or automobiles, has con nued to expand. The red line in the top chart shows the ra o of US hide exports to China vs.

3 Federally inspected slaughter. In other words, how many whole hides went to exports rela ve to the number of feedlot ca le that were slaughtered during that month. In the last five years the ra o has been around 33% while overall hide exports have accounted a li le over half of FI ca le slaughtered. The hide represented the single most valuable by-product that packers derive from animals they slaughter. USDA reports ca le by-product values (also called drop credit) every week. The chart to the right illustrates the breakdown of the various product rela ve to the contribu on of each item to the overall credit. According to USDA, for the week ending April 6 the drop credit was $ live. On a 1400 pound Steer this implies a total drop credit of $137. The value of whole bu branded hides was quoted at $58/piece, making up 44% of the en re by-product value. At this point it is specula ve as to the impact of a future Chinese tariff on hides. But consider that based on current values, a 25% drop in the value of hides would lower the derived value from the hide by about $ or about $1/cwt live basis.

4 Current fed ca le price is about $115/cwt live basis. Sponsored in part by The Daily Livestock Report is published by Steiner Consul ng Group, DLR Division, To subscribe, support or unsubscribe please visit The Daily Livestock Report is not owned, controlled, endorsed or sold by CME Group Inc. or its affiliates and CME Group Inc. and its affiliates disclaim any and all responsibility for the informa on contained herein. CME Group , CME and the Globe logo are trademarks of Chicago Mercan le Exchange, Inc. Disclaimer: The Daily Livestock Report is intended solely for informa on purposes and is not to be construed, under any circumstances, by implica on or otherwise, as an offer to sell or a solicita- on to buy or trade any commodi es or securi es whatsoever. Informa on is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projec ons of future condi ons are a empted. Futures trading is not suitable for all investors, and involves the risk of loss.

5 Past results are no indica on of future performance. Futures are a leveraged investment, and because only a percentage of a contract s value is require to trade, it is possible to lose more than the amount of money ini ally deposited for a futures posi on. Therefore, traders should only use funds that they can afford to lose without affec ng their lifestyle. And only a por on of those funds should be devoted to any one trade because a trader cannot expect to profit on every trade. The Daily Livestock Report is made possible with support from readers like you. If you enjoy this report, find it valuable and would like to sustain it going forward, consider becoming a contributor. Just go to to contribute by credit card or send your check to The Daily Livestock Report, Box 4872, Manchester, NH 03018 Thank you for your support! The full list of products that may be subjected to a 25% tariff as part of the second round of tariffs as published in Chinese government website: #4 Copyright 2018 Steiner Consul ng Group, DLR Division, Inc.

6 All rights reserved. Steer Drop Credit: Week ending April 6, 2018 Source: USDA-AMS. Calculations by Steiner. Assumes 1400 lb. Steer * Includes more than one item for this , $ , 44%Tallow*, $ , 14%Tongue, $ , 9%Cheek Mt., $ , 5%Head Mt., $ , 1%Oxtail, $ , 8%Heart, $ , 3%Lips, $ , 3%Liver, $ , 2%Tripe*, $ , 5%Bone Meal, $ , 4%Blood Meal, $ , 2%$137/steerChina Hide Purchases (pieces) as a % of Total Exports and % of Total Steer /Heifer SlaughterData Source: USDA-FAS. Calculations by Steiner0%10%20%30%40%50%60%70%80%2010201 12012201320142015201620172018 China as % of allexportsdata error ?China exportsas % FI cattle slaughterPage 2 Sponsored by The Daily Livestock Report is made possible with support from readers like you. If you enjoy reading this report and would like to sustain it going forward, consider becoming a contributor by going to our website: Thank you for your support! Vol. 16, No. 69 / April 9, 2018 PRODUCTION & WKLY AVG. PRICE SUMMARYWeek EndingSource: Various USDA Agricultural Marketing Service reports.

7 Some data are preliminary. Weekly Avg. PricesItemUnitsCurrent Week Last Week Pct. Change Last Year Pct. ChangeYTDY/Y % Change7-Apr-18 31-Mar-188-Apr-17 Total Beef, Pork, Chicken, Turkey mil lbs., cwe 1,834 1,837 1,804 25,011 SlaughterThou. Head615594 8,374 Cow Slaughter **Thou. Head120124 1,444 Dressed ProductionMillion 6,891 Fed Steer Price$ per Fed Steer Price$ per Steer (600-700 lbs) $ per Beef Cutout$ per $ per cwt, live Primal, Choice$ per Primal, Choice$ per Primal, Choice$ per , 50%$ per , 90%$ per SlaughterThou. Head2,335 2,391 2,318 33,240 Sow Slaughter **Thou. Dressed ProductionMillion 7,114 Minn.

8 BaseWtd. Base Carcass PriceWtd. Net Carcass PriceWtd. Cutout205 Primal$ per Primal$ per Primal$ per , 72%, Fresh$ per By-Product Value$ per cwt, live Chicken Slaughter *Million ,057 Weight (RTC) Chicken Production (RTC) Million 9,654 Set (19-state) 2,943 Placed (19-state)Million 2,360 Composite Whole Bird Breast, B/S$ Leg Quarters$ Turkey Slaughter *Million Weight (RTC) Production (RTC)Million ,352 Hen (8-12 lb)8-16 , Omaha$ per Grain, Chicago$ per , Kansas City (deliv.)

9 $ per , Cntrl IL$ per Meal 48%, Cntrl IL$ per * Chicken & turkey slaughter & production are 1 week earlier than the date at the top of this sheet.** Cow and sow slaughter reflect levels from two weeks ago due to reporting lag. YTD still references