The shrinking U.S. cattle herd and mandatory country-of-origin labeling (COOL) have claimed another packing plant casualty. Yet cow-calf producers appear to have little appetite for expanding their herds, and the impact of COOL on cattle imports is likely to continue for at least another year. Thus, the beef industry should brace itself for the closure of another sizeable plant this year.
National Beef Packing announced on Jan. 31 that it will close its Brawley, CA, beef processing plant on April 4. The plant has struggled with a declining supply of fed cattle and faces operating losses for the foreseeable future, says National’s majority owner, Leucadia National Corporation.
The declining cattle supply largely reflects the big reduction last year in imports of Mexican feeder cattle. The reduction was due to the impact of COOL and a recovery in pasture conditions in Mexico. Southwest feedlots have historically depended on a steady supply of Mexican cattle, so last year’s reduction tightened the overall cattle supply.
The closure will be a big blow to feedlots in the region, some of which joined forces to invest $78 million to build the plant in 2001. But the plant later lost money and the owners sold it to National in mid-2006. Cattle feeders will now have to send cattle to the JBS plant in Tolleson, AZ; to Cargill’s plant in Fresno, CA; or all the way to Texas.
Cargill idled its Plainview, TX, plant early last year, also because of shrinking cattle supplies. That plant had a processing capacity of 4,650 head/day, while the Brawley plant has a capacity of 2,000 head/day. That’s a big combined loss in capacity for the region.
National was perhaps prescient in believing there will be no relief in the region’s cattle supply this year. USDA’s annual Cattle Inventory report, released on Jan. 31, confirmed that the total cattle herd shrank again in 2013, by 1.570 million head, to its smallest total since 1951. Beef cow numbers in 2013 declined by 264,000 head, following a loss of 863,000 head in 2012.
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Perhaps the report’s most important number was beef cow replacements, which increased only 90,200 head from the year before; analysts had forecast a figure almost double that. A year ago, cow-calf producers reported their intentions to retain 100,000 more heifers than the year before, but sold them instead. Thus, the modest intended increase this year might end up meaning little or no herd expansion.
One contributing factor is drought, which continues to impact some major cow-calf states and all western states. California is in the grips of extreme drought that shows no sign of breaking, though some precipitation was received in early February. California’s beef cow numbers declined only 10,000 head last year, but will almost certainly decline more this year.
Meanwhile, the battle over COOL will most likely drag into 2015. Meat and livestock groups spent months trying to persuade the farm bill’s conferees and other legislators that the COOL rule needed to be amended to avoid retaliation from Canada and Mexico if and when they prevail at the World Trade Organization (WTO). But the farm bill’s authors crushed hopes that the bill would contain a COOL provision.
This failure means opponents must now wait for the WTO to determine whether the U.S. remains out of compliance with its WTO obligations. That’s assuming that the groups fail in their ongoing legal efforts to get the COOL rule suspended.
A WTO disputes panel was met Feb. 18-19 to hear continuing arguments from the U.S., Canada and Mexico. This process will continue the rest of the year, because one side or the other will appeal the panel’s final decision.
Canada and Mexico are widely expected to prevail, after which the WTO will allow them to apply $1.5 billion of retaliatory tariffs against a wide range of U.S. exports to both countries. That includes livestock and meat.
Steve Kay is editor and publisher of Cattle Buyers Weekly.
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