5/12/99 BOZEMAN -- U.S. beef prices have declined over the past 10 years because the productivity of our beef production system has increased more than demand, says a Montana State University study.
U.S. beef production in the 1990s has gone up even though U.S. cattle numbers have gone down -- along with prices, say Gary Brester and John Marsh, MSU Agricultural economists.
Increased productivity is the largest factor in current low beef prices, much more so than beef imports, say the two economists in a new MSU Trade Research Center publication. U.S. fed and feeder cattle prices declined throughout the 1990s as U.S. beef supply increased from 25 billion pounds to 28.5 billion pounds. However, imports accounted for only 0.5 billion pounds (14 percent) of the increase.
The total U.S. supply increase has occurred even though total cattle inventories have steadily declined since the mid-1970s. Productivity per beef cow has increased from an average of almost 600 pounds in 1972 to close to 750 pounds in 1997 because of such factors as improved genetics, management and feeding programs. Thus, U.S. beef production remained relatively high throughout the 1990s even as cattle and calf inventories declined.
U.S. cattle and beef imports from Canada have increased substantially since 1988. Canadian slaughtering capacity has not kept pace with the expansion of the Canadian cattle finishing industry. As the United States has excess slaughtering capacity and a larger consumer demand for high-quality and ground beef compared to Canada, fed cattle imports from Canada have increased.
While U.S. beef and cattle imports from Canada have expanded throughout the 1990s, total beef imports from all sources have increased only slightly. Canada’s share of U.S. beef supplies increased by just over 3 percent during the 1990s. As a consequence, of the $8/cwt decline in slaughter price during this period, only about $0.35/cwt was attributable to increased Canadian imports or about 4.4 percent of the price reduction. For a 1,200-pound fed steer, this reduction amounts to about $4.20 per head.
In 1998 cattle and beef net imports from Canada were similar to 1997 levels. Canadian beef and cattle exports to the United States certainly put downward pressure on cattle prices. But these exports were responsible for only a small portion of the 1998 decline in U.S. cattle prices. The combination of low feed prices, which encouraged unusually heavy average dressed weights, large supplies of competing meats, a flat market for high-quality U.S. beef exports, and a significant reduction in by-product values in Asian countries contributed to the 1998 price woes for beef.
"Eliminating beef imports from Canada would probably not increase U.S. fed cattle prices significantly as such an action would not alter the total supply of fed beef in North America – which is the world’s supplier of high quality beef products. In addition, it would certainly weaken the basis for Montana feeder calves" says Brester.
U.S. participation in trade agreements with Canada and Mexico through the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement mandate that live cattle and beef trade among Canada, Mexico and the United States be based upon competitive factors and include legal safeguards to deal with arbitrary trade restrictions.
U.S. beef producers have recently expressed concerns regarding the method in which the U.S. Department of Agriculture (USDA) reports U.S. beef production levels. Prior to the mid-1980s almost all U.S. live cattle imports were feeder cattle. The USDA's definition of U.S. beef production was reasonable given that most of the meat being added to imported feeder cattle was actually being produced in U.S. feedlots. However, because of increased fed cattle imports from Canada, Brester, an MSU agricultural economist says that it is important that analysts continue to recognize and account for USDA’s definitions of beef production and imports. Perhaps increased fed cattle imports provide a rationale for altering data reporting methods to more accurately account for imports. Nonetheless, the current reporting system does not prohibit appropriate analyses of the impacts of trade on U.S. cattle and beef prices.
U.S. cattle producers operate in a commodity marketing system that is highly competitive. Increased prices cause increased production from both domestic and foreign sources. Increased production eventually depresses prices. Because of supply responses, the beef industry will not sustain prices in excess of long-term average costs, including a "normal" rate of return. Therefore, beef industry participants must continue to expand both domestic and foreign markets, develop new products, improve product quality, and lower production and marketing costs.
U.S. beef production in the 1990s has gone up even though U.S. cattle numbers have gone down -- along with prices, say Gary Brester and John Marsh, MSU Agricultural economists.
Increased productivity is the largest factor in current low beef prices, much more so than beef imports, say the two economists in a new MSU Trade Research Center publication. U.S. fed and feeder cattle prices declined throughout the 1990s as U.S. beef supply increased from 25 billion pounds to 28.5 billion pounds. However, imports accounted for only 0.5 billion pounds (14 percent) of the increase.
The total U.S. supply increase has occurred even though total cattle inventories have steadily declined since the mid-1970s. Productivity per beef cow has increased from an average of almost 600 pounds in 1972 to close to 750 pounds in 1997 because of such factors as improved genetics, management and feeding programs. Thus, U.S. beef production remained relatively high throughout the 1990s even as cattle and calf inventories declined.
U.S. cattle and beef imports from Canada have increased substantially since 1988. Canadian slaughtering capacity has not kept pace with the expansion of the Canadian cattle finishing industry. As the United States has excess slaughtering capacity and a larger consumer demand for high-quality and ground beef compared to Canada, fed cattle imports from Canada have increased.
While U.S. beef and cattle imports from Canada have expanded throughout the 1990s, total beef imports from all sources have increased only slightly. Canada’s share of U.S. beef supplies increased by just over 3 percent during the 1990s. As a consequence, of the $8/cwt decline in slaughter price during this period, only about $0.35/cwt was attributable to increased Canadian imports or about 4.4 percent of the price reduction. For a 1,200-pound fed steer, this reduction amounts to about $4.20 per head.
In 1998 cattle and beef net imports from Canada were similar to 1997 levels. Canadian beef and cattle exports to the United States certainly put downward pressure on cattle prices. But these exports were responsible for only a small portion of the 1998 decline in U.S. cattle prices. The combination of low feed prices, which encouraged unusually heavy average dressed weights, large supplies of competing meats, a flat market for high-quality U.S. beef exports, and a significant reduction in by-product values in Asian countries contributed to the 1998 price woes for beef.
"Eliminating beef imports from Canada would probably not increase U.S. fed cattle prices significantly as such an action would not alter the total supply of fed beef in North America – which is the world’s supplier of high quality beef products. In addition, it would certainly weaken the basis for Montana feeder calves" says Brester.
U.S. participation in trade agreements with Canada and Mexico through the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement mandate that live cattle and beef trade among Canada, Mexico and the United States be based upon competitive factors and include legal safeguards to deal with arbitrary trade restrictions.
U.S. beef producers have recently expressed concerns regarding the method in which the U.S. Department of Agriculture (USDA) reports U.S. beef production levels. Prior to the mid-1980s almost all U.S. live cattle imports were feeder cattle. The USDA's definition of U.S. beef production was reasonable given that most of the meat being added to imported feeder cattle was actually being produced in U.S. feedlots. However, because of increased fed cattle imports from Canada, Brester, an MSU agricultural economist says that it is important that analysts continue to recognize and account for USDA’s definitions of beef production and imports. Perhaps increased fed cattle imports provide a rationale for altering data reporting methods to more accurately account for imports. Nonetheless, the current reporting system does not prohibit appropriate analyses of the impacts of trade on U.S. cattle and beef prices.
U.S. cattle producers operate in a commodity marketing system that is highly competitive. Increased prices cause increased production from both domestic and foreign sources. Increased production eventually depresses prices. Because of supply responses, the beef industry will not sustain prices in excess of long-term average costs, including a "normal" rate of return. Therefore, beef industry participants must continue to expand both domestic and foreign markets, develop new products, improve product quality, and lower production and marketing costs.