Economic Perspective
Canadian Cattle Should Help Market
Though the headline above might sound like heresy to some, the fact is that short of a new surge in consumer demand, fed cattle prices may be difficult to sustain with or without Canadian cattle.
When cattle trade does resume with Canada, the economic implications seem straightforward enough, at least in the short term. More supply, relative to the same demand, means lower prices.
USDA, for instance, in its weighty analysis of the economic impact of its proposed rule, says fed cattle prices are expected to decline 3.2% and feeder prices 1.3% in 2005. By 2009, compared to a market without those cattle, fed prices are expected to be 1.3% lower and feeder prices 0.6% less.
If that is the case, USDA's analysis claims the net welfare benefit -- the difference between consumers' willingness to pay for commodities beyond their actual price and changes in producers' revenue beyond their variable costs -- will be positive to the tune of $66.3-$74.6 million in 2005. In other words, consumers save more on beef purchases than what producers sacrifice.
You can find other economic analyses that will come up with slightly different numbers. You can argue how fast Canadians will actually be able to move product south when the border does open, given a reportedly depleted trucking industry and the requirements for shipping them to the U.S. The essence in all of it is the same, though.
Keep in mind, this is based on trade resumption with the current USDA rule: continuing imports of boxed beef from cattle younger than 30 months, while also allowing boxed beef from cattle older than 30 months, and opening the border to live cattle younger than 30 months of age for feeding at one destination lot and/or slaughter.
The wild card is, delayed or not, whether the rule is altered. As an example, if the rule was modified so animals older than 30 months of age were allowed in, which seems doubtful, the expectation that Canadian production will shift toward exporting more cow beef to the U.S. rather than fed beef would be altered, likely pressuring cull prices harder here in the U.S. On the other hand, if beef imports were held to the same age standard as live cattle, there would be less total beef tonnage that could find a home here.
How ever it shakes out, though, resumed Canadian trade --increased cattle and beef supplies -- should allow the market to find its equilibrium more naturally. As it is, three of the nation's top four packers are finding it more profitable to limit production at least in part because of the dearth of cattle and the high price of fed cattle, relative to retail demand. In other words, with or without Canadian cattle ,you can argue strongly that prices must shift downward.
Likewise, with or without resumed beef exports to Japan when the Canadian border opens, those cattle from up north offer cushion for market volatility. When numbers are as tight as they are currently -- and will grow even more scant as more heifers are retained for herd expansion -- the smallest ripple can cause a major wave.
I'm just posting what I see so don;t shoot the messenger
dun
Canadian Cattle Should Help Market
Though the headline above might sound like heresy to some, the fact is that short of a new surge in consumer demand, fed cattle prices may be difficult to sustain with or without Canadian cattle.
When cattle trade does resume with Canada, the economic implications seem straightforward enough, at least in the short term. More supply, relative to the same demand, means lower prices.
USDA, for instance, in its weighty analysis of the economic impact of its proposed rule, says fed cattle prices are expected to decline 3.2% and feeder prices 1.3% in 2005. By 2009, compared to a market without those cattle, fed prices are expected to be 1.3% lower and feeder prices 0.6% less.
If that is the case, USDA's analysis claims the net welfare benefit -- the difference between consumers' willingness to pay for commodities beyond their actual price and changes in producers' revenue beyond their variable costs -- will be positive to the tune of $66.3-$74.6 million in 2005. In other words, consumers save more on beef purchases than what producers sacrifice.
You can find other economic analyses that will come up with slightly different numbers. You can argue how fast Canadians will actually be able to move product south when the border does open, given a reportedly depleted trucking industry and the requirements for shipping them to the U.S. The essence in all of it is the same, though.
Keep in mind, this is based on trade resumption with the current USDA rule: continuing imports of boxed beef from cattle younger than 30 months, while also allowing boxed beef from cattle older than 30 months, and opening the border to live cattle younger than 30 months of age for feeding at one destination lot and/or slaughter.
The wild card is, delayed or not, whether the rule is altered. As an example, if the rule was modified so animals older than 30 months of age were allowed in, which seems doubtful, the expectation that Canadian production will shift toward exporting more cow beef to the U.S. rather than fed beef would be altered, likely pressuring cull prices harder here in the U.S. On the other hand, if beef imports were held to the same age standard as live cattle, there would be less total beef tonnage that could find a home here.
How ever it shakes out, though, resumed Canadian trade --increased cattle and beef supplies -- should allow the market to find its equilibrium more naturally. As it is, three of the nation's top four packers are finding it more profitable to limit production at least in part because of the dearth of cattle and the high price of fed cattle, relative to retail demand. In other words, with or without Canadian cattle ,you can argue strongly that prices must shift downward.
Likewise, with or without resumed beef exports to Japan when the Canadian border opens, those cattle from up north offer cushion for market volatility. When numbers are as tight as they are currently -- and will grow even more scant as more heifers are retained for herd expansion -- the smallest ripple can cause a major wave.
I'm just posting what I see so don;t shoot the messenger
dun
