Undoubtedly, the flow will increase, but when the border finally opened to live Canadian cattle (younger than 30 months of age) July 14, there was less hoopla and dust than lots of folks expected, especially those who opposed to the move.
By the end of the first week that the border was open, USDA's Agricultural Marketing Service reported about 1,000 head of Canadian fed cattle moving across the border to U.S. packers, and no significant numbers of feeder steers and heifers were reported. Judging by the futures markets, which didn't react much on a net basis, there's no expectation of dramatic market disruptions here.
For perspective, Darrell Mark, an agricultural economist at the University of Nebraska calculated in a recent analysis that fed cattle Canadian imports to the U.S. for 2000-2002 averaged about 16,000 head per week. That represented about three percent of the U.S. slaughter production for those months. According to Mark, feeder cattle imports for the same months in 2000-2002 averaged about 4,800 head per week, but he also points out those numbers are inflated with atypically large import volume in 2002 spawned by the Canadian drought at the time.
Still, you'd think if there were a backlog of cattle that Canadian producers were desperate to peddle, a convoy would have been on the road.
What If You Threw a Party and No One Came?
Fact is there's less economic incentive for Canadian producers to ship cattle South than there once was. Though live cattle imports from Canada had been prohibited for better than two years, fed beef has continued to come across in the box, meaning that producers there have maintained some semblance of a U.S. market since September of 2003 (the border was shut when BSE was discovered in Canada in May of that year).
Further, the Canadian dollar has grown stronger, relative to the U.S., and freight costs have increased. At the same time, Canada has expanded its own slaughter capacity and ability to compete in the international export market, while America's own overbuilt packing industry remains locked out of a majority of the export markets it previously enjoyed, at a time when keeping blood on the floor has gotten tougher as fed cattle supplies have narrowed with the cattle cycle.
On the other end, while domestic consumer beef demand isn't heading south, most analysts agree that it has flattened, meaning the industry cannot simply expect increasing beef prices to compensate for the economic pressure created by underutilized packer and feeding capacity.
Even if there was a bubble of Canadian cattle looking for a U.S. address, apparently wishing them across the border is not the same as moving them across.
First, according to sources on both sides of the border, the trucking infrastructure that existed before the border was closed has contracted mightily, meaning it's not necessarily easy to find a ride for cattle.
Second, it's not as if Canadian cattle can move freely across the border. There's a host of new regulations in play that increase the time and effort required to send cattle to the U.S.
As an example, each import animal must be identified individually with an official Canadian ear tag, arrive at the port of entry as a sealed shipment with the requisite health certification papers. The seal can only be broken at the final destination, and then only by USDA personnel, certified veterinarians or designees.
Keep in mind, the border has been opened only to non-breeding cattle younger than 30 months of age, and only to single destinations. Fed cattle coming across must go straight to the slaughter facility. Feeder cattle must move directly to a feedlot, which in turn can be the only feedlot of residence prior to harvest.
There's also a slug of special import forms and protocols that must be followed. For complete details: http://www.aphis.usda.gov/lpa/issues/bse/bse.html.
With all of this said, any market disruption at the hands of resumed Canadian live cattle trade will occur at precisely the time of year the majority of U.S. cattle producers are marketing their own calves. This, opposed to getting any market shocks out of the way last spring. As you likely know, the rule was set to go into effect March 7. That was before R-CALF hijacked the decision from producers and placed it in the hands of the court. The reason the border is open now is that an appeals court lifted the temporary injunction that had been issued by a district court in Montana. Following the decision of the appeals court to lift the temporary injunction, the district court cancelled the hearing it had scheduled for July 27. On June 25, the appeals court issued its opinion for the reason it overturned the temporary injunction. In that lengthy opinion, the appeals court refutes the assertions brought by R-CALF in the original complaint, and it rejects all of the grounds the district court based its temporary injunction upon. The bottom line expectation of many is that this effectively neuters the R-CALF complaint.
If you'll remember, R-CALF brought the complaint, arguing in part, that USDA's proposed minimum-risk rule threatened the safety of the U.S. cattle herd and beef supply. On March 3, the district court in Montana issued the temporary injunction, saying in part, "The serious irreparable harm that will occur when Canadian cattle and meat enter the U.S. and commingle with the U.S. meat supply justifies the issuance of a preliminary injunction preventing the expansion of imports allowed under the final rule pending a review on the merits," No science, no proof, just this dubious conclusion that the appellate court recently refuted.
The Loss That Keeps Giving
It's impossible to know the ultimate economic impact the added delay will have on the U.S. industry.
Using Mark's fed cattle averages presented earlier, he calculates a negative price impact of 4.0-4.5 percent on fed cattle prices would be expected with trader resumption, or about $3.50/cwt. on an $80/cwt. fed market. He believes the impact is likely to be less than that for a number of reasons, however. The minimum risk rule should push more older cattle to slaughter in Canada, which in effect means less beef available for export to the U.S. Plus, a larger proportion of Canadian cattle will likely be staying at home to service that nation's increased harvest capacity.
Anecdotally, there's no question that the U.S. packing industry has come under more economic pressure for a longer period of time that it otherwise would have, and that the Canadian packing industry has had more time to build capacity and competitive advantage. On both counts, logic says that means the U.S. has likely lost some of its packing capacity in the long-run, which means less competition, which in turn makes for a less robust marketplace.
According to the American Meat Institute (AMI), the protracted embargo on Canadian cattle and beef has cost the U.S. packing industry nearly 8,000 jobs, has set in motion a fundamental restructuring of the North American beef industry and has driven beef prices paid by consumers to the highest levels since 1979.
Arguably, key U.S. beef export markets have been able to utilize the unresolved U.S.-Canadian border issue as a key strategy in their stalemate with the U.S. Every day that goes by without fully recovered beef export trade is another day that U.S. fed cattle bring about $10/cwt. less than they would if all pre-BSE markets were open. Especially now, as feedlot losses mount, the extra money would provide cushion for feeder cattle and feeder calf bids.
“The court's expeditious ruling is a vindication of the U.S. Department of Agriculture's thoughtful, science-based rulemaking process that would have lifted the embargo in March had a lower court not granted a preliminary injunction against the rule,” explains J. Patrick Boyle, AMI president. “U.S. and Canadian beef are safe. U.S. and Canadian cattle are healthy. The North American beef industry should be permitted to trade in cattle and beef, unimpeded by the selfish efforts of protectionistic groups like R-CALF, who aim to block imports of cattle and beef so they can maintain high profits.”
What has the U.S. cattle industry received in return for the delay imposed by some of the industry's own producers? There's been no change to the rule established by USDA to this point—if the district court sides with the appellate decision there won't be—nor from a safety standpoint does it appear there needed to be any. The market has eroded from its point in March, which would have happened anyway, but perhaps not as much as it has with the added delay. Animosity has increased with Canada and its producers. The list of negatives goes on. Try to find a positive, though.
Jim McAdams, NCBA president summed it up this way, soon after the border opening was announced: “Because our trade issues landed in the courts, we now have a court ruling coming during the peak of our marketing. I for one am hoping we can put these court battles behind us so producers can regain control over the decisions that impact their profitability. We have too much yet to get done to distract ourselves with judicial panels and trial lawyers.”