Economics: March 2004

Life in the United States changed after Sept. 11, 2001. Life as a beef producer changed after Dec. 23, 2003. Our lives will never be the same after the incidents that occurred on these two dates. Just as America emerged as a stronger nation with even greater resolve after 9-11, so will the U.S. beef industry emerge as a safer, more efficient supplier of beef to the United States and to the world.

None of us desire to go through times that challenge us to stretch beyond our realm of comfort. Many prefer the status quo with no surprises, no stress and no testing. However, without being pushed, for whatever reason, outside or beyond our comfort zone, we would never grow and mature as individuals, as a nation or as an industry. Adversity is a friend to no one, but without it, none of us would be where we are today, nor would the U.S. beef industry be where it is today.

I have personally visited beef processing plants in Mexico and Australia, as well as many in the United States. Based on my observations, there is no comparison in the amount of attention given to food safety between these two countries and the United States. Even though we think the U.S. beef industry produces the safest meat in the world, we must not be oblivious to trying to improve.

Immediately after U.S. Secretary of Agriculture Ann Veneman announced that a cow in the state of Washington had tested "presumptive positive" for bovine spongiform encephalopathy (BSE), many countries banned imports of beef from the United States. Exports accounted for approximately 9 percent of U.S. commercial beef production in 2002. Figure 1 shows the countries which imported the almost 2.5 billion pounds of U.S. beef in 2002. The United States Department of Agriculture (USDA) states that reopening foreign markets to U.S. beef is their number one concern. Many of the beef products imported by these countries do not have a market in the United States.

Since the announcement, several new regulations have been instituted by both the USDA and the U.S. Department of Health and Human Services (HHS). All these will not be listed in this article due to space, but the ones that will likely have a direct impact on the beef producers in the Noble Foundation service area follow.

• All "downer" animals will be banned from entering the human food supply.
• Age of slaughter animals will be measured. All ani- mals determined to be over 30 months of age will be processed differently. Packers will likely discount these animals because of increased cost of processing.
• No mammalian blood or blood products can be used as an ingredient in feed that is fed to ruminant animals as a protein source.
• Poultry litter is banned as a feed ingredient for ruminant animals.
• Feed manufacturers must now have separate dedicated production lines for ruminant and non-ruminant animals if they manufacture feed for non-ruminant animals that include protein that is prohibited in ruminant feed.

In visiting with one cooperator, he mentioned that a packer discounted animals he had sold them that were measured to be over 30 months to the tune of $200 per head. This is probably the exception rather than the rule, but it will be a significant hit if an animal is determined to be over 30 months of age at harvest. Discounts have been reported to be $4 to $10 per hundredweight (cwt) on a live basis. This calculates to be $50 to $125 per head. If you normally keep cattle on grass until they weigh 900 pounds or more, the cattle may be discounted at the auction barn or at the packer if you retain ownership through the feed yard. That’s something to keep in mind!

Many of you have already been reading about a national animal identification program. Although there have been no announcements on the details of the program, USDA has said publicly that they are working diligently to speed up the implementation of this program. For a long time, many in the beef industry have worked for creating or earning value for cattle that have known history and trusted estimates of future performance. The 30-month rule plus the domestic and export (it will come eventually) demand for high-quality beef could make certain cattle with records have more value. If you own cattle, I would encourage you to begin immediately to individually identify your cattle and record birth dates of calves being born. It could prove to be a very profitable investment for you.

The last thing I will mention is the outlook for cattle prices. In the period of time since Dec. 23, 2003, we have observed a $17/cwt decline in fed cattle prices and a recovery of $12 to $14/cwt, depending on where the cattle were sold. The only thing we can predict for sure is that prices will continue to be volatile — more so than has been the case in the recent past. It could be that you will need to consider the use of futures or options more in the future. With cattle inventory numbers low and the potential for substantial increases in price, it may be best to give serious thought to out-of-the-money put options. Earlier, I mentioned that the United States exported about 9 percent of the beef supply in 2002. When foreign countries banned U.S. beef imports, it basically increased our domestic supply by 9 percent. The U.S. border is still closed to Canadian live cattle imports. The market had anticipated the border opening in the first quarter of 2004. This will likely not happen since the BSE cow was found to be of Canadian origin. The lack of these animals should provide some support for U.S. cattle prices. More support for prices will be achieved when Japan, South Korea and Mexico open their borders to U.S. beef imports. It is believed that Mexico will open its border first. Some have voiced concern about the amount of beef the U.S. imports from other countries. Figure 2 shows the amount of beef we import and from whom. Decisions to close any border should be based on science and not on politics. Closing our door to imports may help in the short run but would be detrimental down the road. It is important for all of us to be strong proponents of our industry promoting the strengths we enjoy such as a very safe product and one that is tasty and good for us. Beef — it’s what’s for dinner.