by: Wes Ishmael

Cow numbers may be dwindling but they're not nearly as light as they'd be if it wasn't for international demand for U.S. beef.

According to the U.S. Meat Export Federation (U.S. MEF), U.S. beef exports are on pace to set new export value records in 2011 and to eclipse the $5 billion mark for the first time ever.

July exports equated to 16.3 percent of total U.S. production with a value of $236.88 per head of fed slaughter. Compare that to 12 percent and $159.34 per head last July. For the year, beef exports equate to 14.2 percent of production with a value of $198.67 per head of fed slaughter.

“July was another outstanding month for red meat exports, as we continued to expand the presence of U.S. beef and pork throughout the world,” says U.S. MEF President and CEO Philip Seng. “This is a testament to the commitment U.S. producers and exporters have made to the international markets. Despite market access restrictions, high tariffs and other trade barriers, the investments we are making in foreign markets are paying tremendous dividends. And this success couldn't come at a better time, as it is adding jobs to the U.S. economy and delivering much-needed returns to our farmers and ranchers. Those producers are dealing with high operating costs, adverse weather and many other significant challenges, and the export markets are clearly the best thing they have going in terms of profitability.”

Here at home, you can plausibly argue that true U.S. beef demand has remained stronger than many expected through all of the financial mess. But the fact is there are lots more folks in this country eating lots less beef than they did a few decades ago.

For perspective, there were 46.9 million beef cows in this country at the beginning of 1975; there were 31.4 million head at the beginning of this year. As you know, beef production from 33 percent fewer cows has been record and near-record large. In the grand scheme of things, since 1980, beef production has been basically flat while total U.S. red meat and broiler production has increased significantly.

On the other side of the equation, there were 309 million people living in this country in 2010. There were about 226 million in 1980. So, U.S. population exploded about 37 percent while beef production remained flat.

Consequently, it would appear that future demand-based growth to the U.S. beef industry will depend largely on international markets.

It will Rain Again…

That's worth keeping in mind once it starts raining again and folks begin building cow numbers back, tightening calf supplies further. There's lots of reasons to think when that happens, all else being equal, and notwithstanding some other unforeseen economic calamity, heifer and cow prices will stagger the imagination.

In its recent mid-year baseline update, analysts with the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri (MU) project another half-million-head decline in cows to 30.4 million by the start of 2012. By 2016, they expect cow numbers to increase to 31.5 million head.

In the baseline, analysts say, “Beef supplies remain low as the cow herd rebuilds. Beef production declines by a billion pounds between 2011 and 2014. That leads to stronger prices the next four years. Fed cattle go from an average of $112/cwt. in 2011 to $120 in 2015. The baseline ends at 2016 with steers at $116/cwt.”

According to Pat Westhoff, director at MU FAPRI, “If consumer demand improves as expected during the next couple of years, beef and pork producers should endure higher input costs without further downsizing of herds.”

In the FAPRI baseline, corn prices increase on average from $5.25/bu. to $6.46 for the 2011-12 crop to be harvested this fall. Likewise, soybeans rise from a projected $11.25 this year to $13.53/bu. for 2011-12.

FAPRI assumes that provisions of the 2008 farm bill will continue, even though many are scheduled to expire. However, the ethanol tax credit and tariff are assumed to expire as scheduled at the end of 2011.

“Nationally, cull cow slaughter has been up nearly all year,” say analysts with the Livestock Marketing Information Center (LMIC). “Year-to-date total cow slaughter is 2 percent above 2010's, and 18 percent above the 2005-2009 average. Since January, U.S. dairy cow slaughter is 4 percent above 2010's and 18 percent over the 2005-2009 average. Beef cow slaughter is up less than 1 percent from 2010's, but is 18 percent higher than the five year average over the same time frame.”

Analysts there explain dairy cow culling drove increased slaughter earlier in the year. “…in recent months drought has caused U.S. beef cow slaughter to surge by 20 percent to 30 percent nationally compared to a year ago. As 2011 has progressed, regions affected by drought have sent more and more beef cows to slaughter.”

As for prices, the LMIC folks note they bounced back dramatically since the glut of the sell-off in July; they're currently about $7/cwt. more than a year ago. What's more, they say there may not be the typical seasonal decline in cull cow prices from August to November because of continued high demand for cow beef, strong fed cattle prices and the early culling in the South and Southwest.

“Annual average cull cow prices in 2011 will be record high,” LMIC analysts say. “Another record is expected in 2012 due to moderating cow slaughter, modest levels of imported beef, strong fed cattle prices, and continued strong consumer demand for hamburger.”

Help Customers, don't Hinder Them

When national cow herd growth does kick in, it will be based on demand, a demand that is growing more dependent on foreign consumers. In the meantime, everything the industry can do to become more user-friendly to international markets should pay exponential dividends down the road.

Product traceability, for instance. USDA recently published a rule for comment that outlines a mandatory Animal Disease Traceability (ADT) program for the interstate movement of livestock, including cattle, phased in over time. It would rely heavily on metal ID tags (think of those calfhood vaccinate tags). The comment period for the rule is open until November 9.

Given the economic straits of the U.S. budget, as well as the arm ‘rassling over the next Farm Bill that is just beginning to start in earnest, there's no telling if there will be funding for it.

Whether or not they agree with the proposed program or any of the specifics attached to it, most folks recognize the industry needs a means to identify and track cattle more efficiently in an age when the defacto national ID programs—disease eradication programs like the one for Bovine Brucellosis—are growing less reliable because success of the programs mean fewer cattle are identified.

Such traceability helps boost U.S. beef marketability. If you doubt that, consider the premium of $25-plus per head available at certain periods of the year for cattle that are source-verified and age-verified, enabling carcasses from those cattle to meet the requirement of specific export customers.

Never mind the growing vulnerability of the U.S. cattle industry to Foreign Animal Disease (FAD) that is introduced to this country, either intentionally or as the result of rotten luck. As the dog-eared refrain goes: I.D. and traceability don't prevent disease; they help mitigate the impacts of it; they help keep unaffected herds in the market that would otherwise be quarantined with all of the rest.

As expected though, before the ink was dry on the proposed ADT rule, some folks were fighting against it tooth and claw; they continue fighting against any sort of standardized national ID and trace-back program.

I don't know why. I've heard lots of excuses. Worries over the government's ability to track them down, this from folks coasting down the road with a GPS in their dash. Concerns that all of that added cost of maybe a couple of bucks per head will push small producers into bankruptcy. On and on…

But I've never heard cold, logical reasons for the opposition. I've yet to hear any solutions from those who rail against it, nor any ways to shore up the industry's defenses against the fall-out from a virulent FAD like Foot and Mouth. I never hear from that crowd the need for or means to add to cattle and beef marketability rather than detract from it.

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