Why Does the U.S. Both Import and Export Beef? Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist

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1 Louisiana Cattle Market Update Friday, September 17 th, 2010 Ross Pruitt, Department of Agricultural Economics and Agribusiness Louisiana State University AgCenter Why Does the U.S. Both Import and Export Beef? Derrell S. Peel, Oklahoma State University Extension Livestock Marketing Specialist The job of markets is to seek out the highest value for products produced and encourage the most efficient use of resources to facilitate that production. Keeping this in mind helps explain current production and trade relationships in the U.S. beef industry. The U.S. is the largest producer, the largest consumer, the third largest exporter and the largest importer of beef in the world. I get many questions about U.S. beef trade and particularly why we need to import beef. The role of beef exports is obvious, on the one hand, in that it represents an addition to domestic beef demand and thus expands the total size of the market for U.S. beef. However, beef exports play a more subtle role that is often not well understood. One of many complexities that make the beef industry so challenging is the fact that the set of animals processed into meat results a vast array of different products of different qualities. The set of products produced does not, in general, exactly match the preferences of domestic consumers. U.S. beef demand largely consists of demand for ground beef and steaks. Ground beef can, of course, be made from a wide variety of qualities of lean but steak demand is mostly oriented towards high quality middle meat cuts. It is a fact that we will eat what we produce so if we do not produce exactly what we prefer, the total value that consumers will offer the industry will be adjusted down as prices are reduced in order to entice consumers to purchase what we have, as opposed to what they really prefer. This makes the role of exports, particularly exports of lower valued products, especially important because it allows the industry to adjust the product mix to more closely fit the demands of the domestic market. Thus the export of things like Select Chucks and Rounds to Mexico is very complimentary to the U.S. market. The import side seems harder to understand but it mostly related to the hamburger market. Ground beef production requires much additional lean to mix with the trim resulting from steer and heifer slaughter in order to make ground beef. Of course, most any quality of lean is suitable and we utilize our cull cows and bulls for this purpose. We do not produce enough cull cow meat and additional lean must be added to the mix. We could (and do) use some of the Chucks and Rounds that have relatively low demand to grind back into hamburger. However, this is relatively expensive product since we have paid to feed it in the feedlot. It is not very efficient to fed cattle to higher quality and then grind the meat back into hamburger. This is particularly true when we can sell the meat in an export market. Even at a relatively low value as a muscle cut, these products have a higher value for export than for grinding. Not only that but there are sources of additional lean that are cheaper and support the extremely competitive fast food industry in the U.S. It is at the hamburger market level where the beef industry competes most intensively with pork and poultry and even a fraction of a cent per pound change in cost for ground beef affects competitiveness of the industry. Lean beef imports sourced from Australian range beef, New Zealand dairy beef or Canadian cull cows are mixed with steer and heifer trim thereby providing competitively priced ground beef and a way to utilize trim product that would have almost no value otherwise.

2 September Cattle on Feed Report summary: Pre Report Estimates 1,000 head % of 2009 Avg. Range Placed in August 2, Marketed in August 1, On Feed September 1 10, The latest Cattle on Feed brings more bearish news to the cattle markets at a time when corn is approaching $5 per bushel and boxed beef demand is weakening following Labor Day. The number of marketings is a bright spot in the report, but can largely be explained through one extra marketing day in August 2010 relative to Carcass weights were approximately ten pounds heavier this August relative to last year. With placements and total on feed falling outside of the range of pre report estimates, live and feeder cattle futures should see a decline at the beginning of next week. 6.0 Estimated U.S. Cattle on Feed Over 120 Days Lots Over 1,000 Head Million Head Average Source: USDA NASS Month LSU AgCenter Dept. of AgEcon & Agribusiness A new USDA disaster assistance bill will provide assistance to poultry producers in this state who were impacted by the bankruptcy of Pilgrim s Pride and have been unable to obtain another growing contract. Growers must have lost their contract with Pilgrim s between May 1, 2008 and July 1, 2010 to be eligible. Receipts from the most recent 12 month production period will be used and adjusted to ensure that no producer receives more than 95% of their previous 12 month payments. There will be payment limitations associated with this grant and more information will be available in the next few weeks. Corn futures were sharply higher this week stemming from tighter supplies and spillover support from the wheat market. A recent reduction by USDA in projected corn production has aided the upward momentum, but this year s crop is still projected to be one of the largest on record. Ratings for corn maturity and harvest for this week (52% and 11%, respectively) are ahead of the 5 year averages (32% and 6%, respectively). Live and feeder cattle futures were also higher this week. Live cattle were aided by stronger cash prices this week even though boxed beef prices were lower leading to decreased packer margins. Feeder cattle futures followed live cattle higher despite the gains in the corn market.

3 Live cattle trade occurred on Thursday with sales a $1 higher on cash basis with dressed sales $0.50 to $1.50 higher depending on the region. Cash trading occurred at $97 to $98.50 across the major feeding regions with dressed prices $154 to $ Feeder steer prices from selected markets will replace Louisiana cattle prices until price reporting within Louisiana is re started. Cull cow prices from Mississippi are the same weight and percent lean designations as when reported from Louisiana sales. $120 Feeder Steer Prices* $115 $/Cwt $110 $105 $100 OKC Joplin, MO MS OKC Joplin, MO $ lbs lbs OKC $ $ Joplin, MO $ $ MS $ $ MS *Prices are for Medium and Large 1 2 Steers Mississippi prices are for midpoint of and steers Source: USDA AMS $/Cwt Mississippi Cull Cow Prices $56 $54 $52 $50 This Week $48 Last Week $46 Breaking Boning Lean Source: USDA AMS

4 Table 1. Futures Prices Live Feeder Month Cattle Change* Cattle Change* Corn Change* Sept $ Oct $ $ Nov $ Dec $ /4 35 Jan $ Feb $ Mar $ /4 34 1/2 Apr $ $ May $ /4 36 Jun $ Jul 533 1/4 35 3/4 Aug $ $ Source: DTN * Change is from the previous Friday s close

5 Table 2. State and National Market Information Commodity This Week Last Week Last Year 5 Area Fed Steer Price Live $ $ $ Dressed $ $ $ Oklahoma City Feeder Cattle Prices cwt Med and Large #1 $ N/A $ cwt Med and Large #1 $ N/A $ Boxed Beef Cutout Values (weekly average) lb Choice cutout $ $ $ lb Select cutout $ $ $ U.S. Pork Cutout Value $ $ $ Georgia Dock Broilers $ $ $ Georgia B/S Breasts $ $ $ Georgia Leg Quarters $ $ $ Meat production (million lbs) Beef Pork Slaughter (1,000 head) Cattle Hogs 2,164 1,911 2,311 Broilers/Fryers 172, , ,578 Average Dressed Weight Cattle Hogs /11/2010 9/4/2010 9/12/2009 Poultry Placements (in thousands) 1 LA Broiler Egg Sets 3,394 3,409 3,394 US Broiler Egg Sets 203, , ,228 LA Broiler Chick Placements 2,927 2,978 3,016 US Broiler Chick Placements 170, , ,413 Source: USDA Agricultural Marketing Service, USDA National Agricultural Statistics Service and Livestock Marketing Information Center 1 Note the placements numbers are lagged by one week prior to publishing.