No single producer can sway entire nations to ease trade restrictions for U.S. beef exports. But, every producer can understand the economic imperative of encouraging international trade rather than shrink the industry into profitability.
Through September, beef exports were up 16% in volume and 27% in value – 766,791 metric tons valued at $2.9 billion, according to the U.S. Meat Export Federation. In September alone, beef export value jumped 30.2%, and volume 16.6%, compared to the previous year.
For perspective, beef exports in September equated to $151/steer and heifer slaughtered, and 11% of total U.S. production. It was $118.17/head in September 2009 when exports were 9.5% of total production. For the first nine months of 2010, the value of beef exports amounted to $145.07/head. That’s $8.60 more than in 2003, prior to the discovery of BSE in the U.S.
Basis a 12-weight steer, that’s the equivalent of $12.58/cwt. in September – $12.09/cwt. for the year through September – that has allowed packers and feedlots to bid more for cattle than they otherwise could.
With all due respect to higher calf and feeder prices this year compared to last, it’s not as if cow-calf profitability is skyrocketing. Continued national herd liquidation says so.
The value of exports grows when you consider the fragility of domestic beef demand. Through 2009, domestic consumer beef demand (all beef) lost ground 15 of 20 years, and will again this year (Table 1).
Beef consumption – not demand – continues south with the dwindling cowherd, of course. It’s been the same for hogs and pork.
Now, throw higher feed prices into the equation. Even if Congress foregoes extending the 45¢/gal. ethanol tax credit and 54¢/gal. ethanol import tariff – both expire Dec. 31 – feed prices promise to rise.
Bruce Babcock, director of Iowa State University’s Center for Agricultural and Rural Development, published a brief last month examining the likely outcome on feed prices of keeping the aforementioned ethanol incentives in place, in part, or not at all. Find it at www.card.iastate.edu/publications/DBS/PDFFiles/10pb3.pdf.
“Only if the mandate is waived in 2011 would corn prices fall significantly,” Babcock says. He adds that the livestock industry would still be faced with higher feed costs even if all ethanol subsidies were eliminated and the mandate waived. “Strong world demand for U.S. corn combined with a competitive ethanol industry would still increase 2011 feed costs. However, the magnitude of the cost increase would be much lower than if all ethanol programs were kept in place,” he says.
With the extension of the current ethanol policy, Babcock projects higher corn will add $24/cwt. to fed-cattle cost. He projects it at $20/cwt. if the mandated Renewable Fuels Standard (RFS) is left in place but the ethanol tax credit and import tariff expired. Without the ethanol incentives or RFS, Babcock projects the added cost in 2011 at $9/cwt.
Moreover, higher feed costs are only now catching up at the meat counter.
Cuss international markets or celebrate them. They appear the only reasonable opportunity the U.S. beef industry has to significantly boost beef demand and grow enough economic incentive to foster increased cow numbers over the long haul.