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Eight Issues For Cattlemen To Watch For In '08

Article-Eight Issues For Cattlemen To Watch For In '08

Here are eight issues that look to be top of mind for the U.S. beef industry in the coming 12 months.

Here are eight issues that look to be top of mind for the U.S. beef industry in the coming 12 months.

1. Food Safety. For much of 2007, consumer and political concerns over beef safety, particularly E. coli O157:H7, had nearly been crossed off the list of industry issues.

Then came the Topps recall, making E. coli and the beef industry once again the top food safety news story.

While Topps was an unusual case, in that the company ignored its own hazard analysis critical control point (HACCP) program and carried over raw material from one day to the next, it put even more pressure on USDA, and therefore on beef processors, to ratchet up their food-safety efforts. That effort will continue in 2008. But USDA will use a more sensitive E. coli test beginning this year, meaning it's likely that federal inspectors will find more positive cases.

The political potential of the Topps recall wasn't lost on politicians. Immediately after the October recall, several food-safety bills were introduced. Look for more political effort this year relating to food safety, particularly beef safety, as we wind our way toward the November elections.

In addition, expect to hear more buzz about irradiation of ground beef. In the wake of the spate of late-2007 ground-beef recalls, consumer media, including the Washington Post, have been beating the drum for a wider role for this well-proven, food-safety technology.

2. Drought. If you believe in omens, 2008 may be the wrong year to grow dryland corn in the Midwest, says Elwynn Taylor, Iowa State University Extension climatologist. He cites three indicators:

  • A La NiƱa weather pattern is building in the Pacific Ocean's equatorial region, which indicates a 70% chance corn will yield below trend in the U.S. Corn Belt.
  • History indicates the average time span between major droughts in the Midwest is about 19 years. The last major drought was 1988 -- 19 years ago.
  • Drought is ongoing in states like South Carolina, Georgia, Alabama and North Carolina. Of the 17 major droughts in the Midwest in the past 100 years, 16 were preceded by a major drought in the Southeast.
Even more ominous, however, is that all three indicators will converge ahead of this year's corn crop. "We have no scientific evidence to think that all three factors will gang up on us this year to create a major drought, but these are certainly all factors that will put people on edge," Taylor says.

Ample soil-moisture levels, however, are a silver lining for dryland corn farmers come spring, he adds. The only question is its staying power in a summer that may turn hotter than normal.

Meanwhile, forecasters with the National Oceanic and Atmospheric Administration (NOAA) -- in the winter outlook released in October -- called for above-average temperatures over most of the country and a continuation of drier-than-average conditions across already drought-stricken parts of the Southwest and Southeast. Michael Halpert, head of forecast operations and acting deputy director of NOAA's Climate Prediction Center (CPC), says the big concern this winter may be the persistence of drought across large parts of the parched South.

3. The Economy. While the media continue to paint a picture of economic doom and gloom despite a national economy that is still growing, most Americans are optimistic about their personal financial situation. Still, two issues are playing high on the national conscience.
  • The collapse of the housing market, which had been skipping ahead by a rate of 10-15% annually, is one, but that newfound wealth existed on paper for most folks.
  • The second is the spiraling cost of energy, which is something everyone feels painfully each time they swipe a credit card at the gasoline pump or watch as costs inch up for everyday goods and services.
The housing crunch, while certainly serious for those ensnared in the sub-prime lending debacle, exerts mostly a psychological drain on the consumer at large. The energy issue, however, is real and its effects increasingly gnaw on purchasing power and fuel consumer anxiety.

Which is a bad thing for premium products such as beef. Thus far, however, demand for beef in the U.S. has remained relatively healthy, as the industry has developed thousands of convenience products to fit modern U.S. lifestyles.

The real opportunity exists outside the U.S., however, where 95% of the world's population resides. For instance, the current middle class in China exceeds 300 million people, more than the total population of the U.S., says John Chrosniak, a senior economic planner for DuPont. Such people want to drive cars and eat more meat, he adds.

4. Ethanol. It's been described as one of the most profound trends in modern agricultural history, and its effects on cattlemen will continue for some time to come.

It, of course, is ethanol and it will remain one of cattlemen's biggest concerns in 2008.

While those concerns are many, one of the biggest is the effect ethanol demand has on corn prices. That concern will continue in '08 as analysts suggest that rising soybean prices may "buy" some corn acres back into beans this year, reducing corn production.

And given the number of ethanol plants under construction, expansion or in the planning stages, demand for corn will continue to rage in '08. Analysts say 2.2 billion bu. of corn were used for ethanol production in the 2006-2007 marketing year. For the 2007-2008 marketing year, expect that number to increase to 3.2 to 3.5 billion bu., putting tremendous pressure on corn prices.

The outlook for '08: Feed prices will continue to remain high and volatile.

5. Energy Costs. If practice makes perfect, cattlemen should be getting pretty good at managing around high gasoline and diesel prices. And if the outlook for 2008 holds true, you'll get even more practice in perfecting your management skills.

Global oil markets, driven by ongoing world political uncertainty, tight supplies and refinery bottlenecks, will likely remain stretched in 2008 as increasing domestic and world demand tests global ability to boost production enough to keep up.

And as cattlemen know very well, in a commodity market, tight supplies and growing demand mean high prices.

The Energy Information Administration says West Texas Intermediate crude prices are projected to increase from an average of $71.36/barrel in 2007 to nearly $87/barrel in 2008. That means wholesale and retail gas and diesel prices will stay high as well. The best bet for '08: Continue to look for ways to add efficiencies into your energy use in an effort to manage costs.

6. Elections. Somewhat like the bluster that precedes a street scuffle, a government evenly split between Democrats and Republicans is largely content to posture and await the results of the 2008 elections.

Democrats won narrow control of both houses of Congress in 2006 and are licking their chops at the prospect of extending those advantages come November, as well as adding control of the White House to their bag.

All 435 House seats and 33 Senate seats are up for election. Of the 33 Senate seats, 21 are held by Republicans and only 12 by Democrats. Thus, the GOP would appear to be at a decided disadvantage to regain the control it lost of both houses of Congress in 2006.

But the GOP was able to maintain control of two congressional seats that were up for grabs in special elections in December 2007. Meanwhile, Democrats seem to have lost their 2006 momentum, as job-approval ratings for the Democrat-controlled Congress have sagged mostly below 30% since May 2007, and hit 18% in August.

Traditionally, Democrats have been caricatured for tax-and-spend policies that tend to hurt small business. But a growing federal deficit and yawning trade deficit under the Bush Administration may help blunt that characterization.

7. Farm Bill. The 2002 farm bill expired Sept. 30, 2007, but the hope of a new farm bill by the end of 2007 was on life support at Thanksgiving time. But Senate leaders breathed new life into the prospect in early December when a bipartisan agreement broke an impasse over amendments to the measure that threatened to delay action until 2008.

The compromise limited both parties to offer a maximum of 20 amendments each to the farm bill, which is considerably less than the 280 amendments that would have been offered under the Senate's open debate rules.

Regardless of the prospects for progress, hanging over the eventual bill was the threat of a Presidential veto due to the measure's costs and "budgetary gimmicks."

In addition, the farm bill has increasingly become a battleground for non-agricultural interests. As BEEF Contributing Editor Troy Marshall pointed out recently, depending on how various aspects are classified, less than 25% of the farm bill has anything to do with those engaged in producing food and fiber in the U.S. Nutrition assistance, conservation and the like have usurped the driver's position.

Nonetheless, as Congress picks its way through to the eventual final bill, the items to watch are market-control measures such as those that would limit packer ownership of livestock, country-of-origin labeling, an increase in the renewable-fuels mandate, eminent domain, and new restrictions on commodity-program payments and Environmental Quality Incentives Program eligibility, to name a few.

8. COOL. One of the most controversial issues to occupy cattlemen's time, thoughts and discussions the past few years has been mandatory country-of-origin (COOL) labeling. Ever since it was included as part of the 2002 farm bill, mandatory COOL has raised the passions of cattlemen on both sides of the fight.

In its version of the 2007 farm bill, the U.S. House passed a COOL provision that, while not perfect, is much more workable than the original mandate, in the opinion of many in the cattle business. But the 2007 farm bill, bogged down in Washington and facing a threatened Presidential veto, has an uncertain future.

The outlook for '08, Washington insiders say, is for the various groups that supported the House version of COOL to look for another vehicle for attaching the measure in order to get it passed before September 2008, when the 2002 version of mandatory COOL becomes effective. Given the broad-based support of the House COOL measure, chances are good that the beef industry will have some sort of workable COOL legislation this year.

While much about the program is still up for grabs, Bruce Knight, USDA Undersecretary for Marketing, recommends producers be "keeping copious records." As a rancher himself, he also said: "I'd be thinking about making sure I had good ID in my calves this fall."