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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, says Derrell Peel, Oklahoma State University (OSU) Extension livestock marketing specialist.
June 11, 2010
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, says Derrell Peel, Oklahoma State University (OSU) Extension livestock marketing specialist. 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,” he says.
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’s 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 in 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. For instance, 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’s a fact that we’ll eat what we produce, so if we don’t 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 relates 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 don’t produce enough cull cow meat, so 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’s not very efficient to feed 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/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.
-- OSU Cow-Calf Corner
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