Cattle Today

Cattle Today

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by: Wes Ishmael

“Twenty years from now this will be a history lesson on over-reaction in North America.” That's how Tom Field characterized the furor surrounding wonderments about the risk of bovine spongiform encephalopathy (BSE) posed by the resumption of live cattle trade with Canada, as proposed by USDA. Field, a professor of animal science at Colorado State University (CSU) was part of the fact-finding team sent to Canada at the behest of the National Cattlemen's Beef Association (NCBA) in January.

“Based on our observations and discussions it appears the Canadian feed industry is complying with the feed ban…From what we've seen, this is not a food safety concern,” explains Field.

Although it may not do much to soothe the jangled nerves of some U.S. cattle producers, the report from this team—comprised largely of U.S. cattle producers—served up facts that indicate resumed cattle trade with Canada poses no additional health risk to the U.S. cattle herd.

In fact, based on science, Field explains, “An epidemiologist at CSU says you would expect to find one BSE case in the United States out of the total fed cattle population here in the next 50 years. An epidemiologist will never say zero, but that's what he means.”

That might be one reason, barring last-minute legal maneuvering, Canadian feeder and fed cattle 30 months of age and younger will be allowed back into the country beginning March 7; beef from Canadian cattle 30 months and younger has continued to come into the country since September of 2003.

This despite folks like: the American Meat Institute, which believes both beef and cattle over 30 months should be allowed; groups who believe the border should remain closed until more research into Canada's most recent BSE cases is conducted; and those who don't care much as long the age rule is the same for both cattle and beef.

Of course, you also have another faction, including NCBA, who passed an 11-point directive, that calls for, among other things, tying the opening of the Canadian border to resumed beef export trade with Japan (more later).

Economic Impact May Be Less Than Some Think

When the border does finally open, the economic ramifications promise to be a mixed bag.

On one hand, according to NCBA's fact-finding team, based on tracking for more than 20 months, Can-Fax (a market analysis organization) estimates there are approximately 900,000 head of Canadian cattle available for export—600,000-700,000 fed cattle and 200,000-300,000 feeder cattle. That's significantly fewer than was estimated in USDA's economic analysis of the rule.

“USDA's economic analysis of the rule included estimates that were considerably higher, even when taking into account the Department's estimate reflects a 12-month period beginning March 7, while Can-Fax and other private-sector estimates are for the 2005 calendar year,” says the group report. “Can-Fax and Cattle-Fax believe the USDA fed cattle imports missed the mark because the Department did not fully account for the 22 percent increase in Canadian slaughter capacity between 2003 and 2004.”

Agriculture Secretary, Mike Johanns, told cattlemen last month the numbers represented in USDA's report were accurate when that analysis was conducted but has no problem believing the trade team's more recent snapshot could be more accurate.

On that front, Homer Buell, a team-member and cow-calf producer from Nebraska reports that Canadian slaughter capacity is expected to grow 18 percent this year, 4 percent in 2006 and 8 percent in 2007. That means Canada will have the harvest capacity to accommodate nearly all of the cattle it produces.

Furthermore, based on analysis and fly-overs of feedlots in Alberta where 71 percent of that nation's cattle are fed, Buell says feedlots are estimated to be at 65-70 percent of capacity. The mix of heifers is as high as 50 percent, and there's a low percentage of yearling cattle on feed. Combine that with the fact that Canadian harvest facilities continue to process cattle at optimum yield and quality grades, and Buell says. “We feel the cattle feeding industry (in Canada) is current.”

In sum, the group reports that Canada's increased slaughter capacity, lower cost of gain compared to the U.S., and the weakness of the U.S. dollar could contribute to fewer live cattle exports than otherwise expected.

Factors that could lead to increased live cattle imports, according to the group, include: stronger prices and a more certain market on this side of the border, and the logic that says if the current USDA rule remains unchanged (live cattle imports limited to cattle 30 months and younger, but no age restriction on cattle going into boxed beef eligible for export to the U.S.) there would be more incentive for Canadian packers to harvest more cows, thereby providing more incentive for producers to send additional cattle to the U.S. for fed cattle production.

As well, the Canadian government has proposed a rule that would ban all Specified Risk Materials (SRMs) from animal feed. If that rule goes into effect, there could be significant economic ramifications to the U.S. cattle business says the trade group.

According to the group, “It could create a situation in which Canadian fed cattle would be devalued due to a loss in drop credit based on the additional cost associated with SRM disposal. Under certain circumstances, this could result in more movement of Canadian cattle into the U.S. to recoup the lost value.

“Depending on how an SRM ban is defined, this issue could create a trade disparity in which beef export markets require this measure of all exporting countries. Given that the U.S. industry is 10 times larger than Canada's, banning SRMs from feed in the U.S. would present enormous economic and environmental (disposal) challenges with little to no benefit to ruminant animal health and no benefit to human health.”

Keeping the Issues Straight

Notice, even though NCBA membership passed the directive calling for resumed import trade with Canada to be tied to resumed export trade with Japan, the very group it assigned to evaluate the facts up North never mention such a condition. That's as it should be.

The fact is, despite recurrent hopefulness, no one has any idea when Japan will allow U.S. beef to enter the country again. That's true, even with USDA's announcement that Japan had agreed to accept carcass maturity (A40 for the cutoff) as a means of verifying age. Keep in mind, unless it's adjusted, and Japan does in fact buy into the carcass maturity grades, USDA's Beef Export Verification program for Japan currently calls for age verification traceable through production records, which require animal identification.

In the meantime, while it's popular to bash beef packers, the fact is three of the nation's largest four ceased operating shifts and entire plants for prolonged periods of time because the cost of what they were paying for fed cattle was too high relative to what retailers were willing to pay them. That doesn't necessarily mean there was no profit, but it does mean, agree with it or not, they found it more profitable not to operate at all.

The bottom line to this is that the market, while entrenched in a new and historically high price environment, is being adjusted down to bring price back into line with demand. So, ironic as it may seem, Canadian cattle imports—remember that Canadian boxed beef from cattle less than 30 months of age has still been coming into this country since September of 2003, at record levels—could actually help cushion the downward price adjustment by adding more cattle to the packer mix. At the very least, when cattle can come this direction, the above should dilute the negative impact of resumed imports.

As for Japan, the sooner the better, but with or without them, resumed Canadian imports holds as much positive as negative for the U.S. market.


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