Industry Hot Topics

With summer's approach come key dates in molding the beef industry's direction. Decisions on hot-button issues like the beef checkoff, Canadian border closure, the National Animal Identification System (NAIS), and the opening of U.S. beef export markets loom in the next few months.

The next hearing on the Canadian border dispute is July 27, while the U.S. Supreme Court decision on the beef checkoff's constitutionality likely will be announced by the time you read this article. (See “Go Time For The Checkoff,” page 34.)

In early May, USDA released its strategic draft of NAIS, including a timeline for program implementation. (See “Mandatory NAIS date revealed.”)

Officials also are still working to reopen Japanese and South Korean beef markets, the top U.S. beef export destinations in 2003. Lynn Heinze, U.S. Meat Export Federation (USMEF) vice president of information services, says the 2004 lockout of those markets cost U.S. producers $150/head in 2004.

The export fight

The U.S. has regained about 40% of the export markets it lost in the aftermath of a single BSE case 18 months ago. Newly opened markets include Egypt, Vietnam, Oman and Taiwan.

Taiwan is the most significant as it imported almost 200,000 metric tons of U.S. beef and beef variety meats in 2003, totaling $76.3 million. Boneless beef, now eligible for exports, accounted for 74% of the total U.S. beef exports to Taiwan.

The first products landed in Taiwan in late April, and were well received, Heinze says. The big promotional push to get U.S. beef back on menus and in retail outlets began with reopening ceremonies in May.

While Japan and South Korea remain closed, progress is being made. Negotiations are underway in South Korea, Heinze says, and a Korean trade team visits the U.S. in June. South Korea says Japan must accept U.S. beef before it will consider importing U.S. product again.

But Heinze says USMEF patience is wearing thin as Japan's process drags on.

“We've made much progress in Japan, but Japan's government put itself in a position where it convinced the public 100% testing meant 100% safety,” Heinze says.

Backing off that position — enacted following the discovery of Japan's first case of BSE in fall 2001 — to adopt the internationally recognized science-based standards has been difficult, Henize adds. But significant progress was logged in early May when an independent Japanese safety panel recommended Japan's government exempt from its 100% testing requirement cattle less than 21 months of age. This opens the way for Japan to begin importing U.S. beef under 21 months after approval of U.S.-proposed age-verification methods.

“If you're an optimist, it may be another 4-8 weeks [as of early May], and if you're a pessimist it may be the beginning of 2006. As a realist, it's somewhere in that window,” Heinze adds.

Border war

The lost markets has been a blow to the U.S. beef industry, but the U.S. beef infrastructure is also smarting from the protracted closure of the U.S. border to Canadian live cattle.

The U.S. border was set to open March 7 to imports of Canadian cattle less than 30 months of age. But on March 3, U.S. District Court Judge Richard Cebull, ruling on a suit filed by R-CALF, enjoined it, writing that Canadian product posed a “genuine risk of death to U.S. consumers.” He'll revisit the decision July 27.

A study, published in December 2004 by Kansas State University economists, studied the closed border's impact on the U.S. industry. It estimated decreased production caused by reduced cattle supplies cost up to 5,000 jobs at U.S. harvest facilities and trimmed U.S. income by $282 million/year.

The report, entitled “Impacts on U.S. Beef Packers, Workers and the Restricted Cattle Trade Between Canada and the U.S.,” also states Canadian cattle prices have been discounted by as much as $20/cwt. relative to the U.S. as Canada faced an oversupply of slaughter cattle relative to its harvest capabilities.

“These events are strongly encouraging the development of plans and investment strategies to expand Canadian beef slaughtering and processing capacity,” the report states.

Canada is working on a long-range plan for reopening international markets and building harvest capacity, says John Masswohl, Canadian Cattlemen's Association (CCA) director of international relations. Harvest capacity has increased nearly 20% and beef production has increased more than 30% since the border closed, and expansion continues. Meanwhile, U.S. plants have been idling plants and cutting shifts.

“Our harvest capacity is somewhere around 86,000 head/week currently. By early summer, we'll be around 90,000 head,” Masswohl says. “We think we need to get to about 110,000 head/week.”

Cargill and Tyson have both invested considerable amounts into expanding harvest facilities in Canada, the latest being Cargill-Canada's purchase of a Better Beef Ltd. beef processing facility in Ontario.

But, Masswohl believes good relations with the U.S. cattle industry will be important, especially as competition from South America heats up.

“We want to work more closely with producer groups in Uruguay, Brazil and Argentina to learn their 3-, 5- or 10-year plan,” Masswohl says. “How is their industry changing? How are we going to adapt and change our industry in North America to compete globally with them?”

But, he makes no bones about Canada's ambition to unshackle itself from its traditional dependence on the U.S. market.

“We aren't holding our breath for live-cattle access into the U.S.,” he adds. “We have a plan to control our own destiny.”

Renewable fuels boosted

The House of Representatives passed the Energy Policy Act of 2005, which contains a renewable fuels standard (RFS) that provides for 8 billion gals. of renewable fuels to be blended into the nation's fuel supply by 2012. The bill also includes a provision to extend Daylight Savings Time by two months and open Alaska's Artic National Wildlife Refuge to oil and gas development. At press time, the RFS bill was in the Senate.

Labeling imported beef

Rep. Denny Rehberg (R-MT) introduced legislation to require the U.S. Treasury Department to “mark livestock” imported into the U.S. He says federal law requires imports be “branded or marked with their country of origin, but the Treasury Department has for years exempted livestock under its so-called ‘J list’ of imports that are excluded from the branding provisions of the Tariff Act of 1930.” The proposed legislation would prevent Treasury from exempting livestock.

Packer ban reintroduced

Sen. Chuck Grassley (R-IA) introduced S. 818, which would prohibit a packer from owning, feeding or controlling livestock for slaughter. Grassley introduced similar legislation in the last Congress. Other co-sponsors include Sens. Mark Dayton (D-MN), Byron Dorgan (D-ND), Mike Enzi (R-WY), Tom Harkin (D-IA), Tim Johnson (D-SD), Ken Salazar (D-CO), and John Thune (R-SD).

Book Corner

“Virginia's Cattle Story: The First Four Centuries” chronicles the footprints and contributions of cattle in Virginia, from early Jamestown to today. Commissioned by the Virginia Cattlemen's Foundation and the Dairy Foundation of Virginia, the 350-page, full-color, coffee table-style book is available for $50, with proceeds going to agricultural scholarships for Virginia youth. To order, call the Virginia Cattleman's Association at 540/992-1009, or go to: www.vacattlemen.org/Foundation/OrderForm.pdf.

“RFID: Applications, Security and Privacy,” answers many questions from how RFID works to privacy concerns associated with its use. BEEF senior editor Clint Peck contributed to the book by writing chapter 15 “Tracking Livestock with RFID.”

This indispensable primer for anyone involved or interested in RFID is available July 8 for $49.49 from Addison-Wesley Professional. Visit www.awprofessional.com, or call 515/284-6761 to learn more or to order.

Educational programs

Merial's new education program is designed to communicate the advantages of animal husbandry inititatives with the cattle industry. The Merial Veterinary Professional Services (VPS) Strategic Husbandry and Research Education (SHARE) program consists of producer and veterinary meetings, instructional newsletters and educational tools designed to highlight animal husbandry topics.
(Circle Reply Card No. 101)

Estrus management

Pfizer Animal Health's estroPLAN can be used for estrus synchronization, and treatment of unobserved estrus, pyometra or chronic endometris. It's a synthetic prostaglandin used in the induction of luteolysis in dairy and beef cattle. estroPLAN is administered intramuscularly in 2-mL doses.
(Circle Reply Card No. 102)

Grapple rakes

The Split-top Grapple Rake, Worksaver's next Grapple Rake Series generation, features dual independent upper grapples for holding uneven-sized loads. Grapple Rakes are designed to pick up brush and other debris. The Split-top is designed to fit skid steers or tractor front loaders, and is available in 62- and 77-in. widths.
(Circle Reply Card No. 103)

Mandatory ID, but how?

If the wheels of national ID turn any slower, the industry will be back to using mud and berry juice or whatever was used to ID cattle before fire made hot-iron branding possible.

The industry has been pressing USDA for answers about its National Animal Identification System (NAIS) since former Secretary of Agriculture Ann Veneman announced in January 2004, USDA's priority to build a national animal ID system.

Every time the industry presses for answers, an “imminent” report, budget or meeting is promised to add clarity. These steps take months, and when they finally do turn up, they under-deliver on what logical minds expected.

USDA's Draft Strategic Plan and Program Standards (www.usda.gov/nais) released May 5 are no exception.

Sure, USDA finally goes on record about its mandatory intent for NAIS — premises registration and animal ID by 2008; mandatory reporting of movement in commerce in 2009 — but that's not news. Even folks opposed to a mandatory program are less rankled by its necessity than how USDA has backed into it.

The timelines described above are interesting, much as a weather forecast is, but there are yet no rules on the books to make it so. Even if there were, there's no way to predict whether enough of the industry will be on the NAIS bandwagon by that time to make it plausible.

The only thing more irksome than USDA's transparent approach to making a mandate the industry's idea is that USDA substantiates its need with the opinions of 47 producers who shared their thoughts at one of USDA's listening sessions last summer. Perhaps as damning is only that many producers expressed an opinion.

These latest documents aptly rehash key concerns cattle producers have about NAIS — the mandatory issue, what it will cost and who will pay, and the confidentiality of producer data collected. But it offers no solutions.

For instance, on cost, William Hawks, USDA Undersecretary of Marketing and Regulatory Programs, explains, “I would like to point out the fact with the $18.8 [million] we (USDA) committed last year, the $33 million that is in our '05 budget and $33 million in the President's budget for '06, it's a pretty good commitment on our part.”

Compared to what? Figure 40 million head of cattle born each year at $2/tag, that's $80 million (less, since cattle only need to be identified once they enter commerce, but you get the gist). That's just cattle and tags.

What about other species? What about the infrastructure to house and transfer data, or costs of reporting movement data? Neither document mentions specific cost, just money USDA's already committed.

Of course, money committed is no commitment for the future. The document doesn't hint at a total estimated cost or what percentage USDA might pick up.

Nor does it offer guidance on how USDA will weld the system together so — once every head of stock or lifetime production group carries official NAIS ID, and every livestock premises is officially registered — the goal of tracing stock to all previous locations within 48 hours can be achieved.

Presumably, USDA expects to find such answers in the 29 projects it funded with states and tribes last year. Reports on those results are due in November.

Supposedly, USDA wants to find the solution through producer input, too. Ag Secretary Mike Johanns said, “We're proposing answers to some of the key questions about how we envision this system moving forward. Now, I'm eager to hear from farmers and ranchers so we can develop a final plan.”

That's swell, Mr. Secretary. After all the foot dragging though, by releasing the documents May 5 and demanding public comment by June 6, how bad do you want it?

The industry needs a mandatory national animal ID program. It needed it years ago, rather than by 2008 or some date beyond it. But the industry needs a system administered in such a way that meaningful answers can be uncovered in less time than it takes to find Noah's Ark.

That's why, even though USDA has offered such a narrow period for public comment, every producer should take the opportunity.

During the teleconference held as the documents were released, a reporter asked: “I wonder, gentlemen, have you reached the stage where you're just starting all over again on animal ID?”

How's that for clarity.

They haven't gone back to the beginning, but you don't have to look hard to see it.

To comment on USDA's strategic plan and standards, go to www.usda.gov/nais to submit comments electronically, or send an original and three copies of comments to: Docket No. 050-15-1, Regulatory Analysis and Development, PPD, APHIS, Station 3C71, 4700 River Rd., Unit 118, Riverdale, MD 20737-1238.

Seven therapy myths

When it comes to treating sick cattle, are we moving forward, or do some of the same old practices remain? I refer to practices I can't find any data to support. Many have become part of the lore of treating cattle based on trying them on individual cattle or different groups of cattle and attributing responses solely to the therapeutic strategy used.

Evaluate yourself on the following practices, and ask your veterinarian's opinion, too.

  1. Two antibiotics work twice as well as one. A derivative of the “more is better” theory, practitioners hope for a synergistic interaction between two, sometimes three, antibiotics given at the same time.

    If data exist showing superior efficacy for multiple antibiotics against diseases such as bovine respiratory disease (BRD) or footrot, I've missed it. There are data showing one of the newer antibiotics outperfoms a variety of combination antimicrobial therapies, though.

    We know we add cost, time and possibly injection sites by using more than one antibiotic at a time. And I believe some combinations impede the activity of at least one of the antibiotics.

  2. You must give an IV at the same time as a long-acting antibiotic to get a quick response. Another derivative of the “more is better” theory, this errant concept must be based on the assumption it takes a very long time for long-acting antibiotics to hit therapeutic concentrations.

    Most of these antibiotics will be at or near peak concentrations in the serum and tissue within 4-6 hours of injection, with significant concentrations often reached in 1-2 hours. If the disease process is advanced enough that these time frames are critical to survival, there's probably a more important issue concerning early disease recognition.

  3. If they haven't responded to the first antibiotic for BRD, switch to another. Somehow, we've locked into expecting a uniform return to normal in 3-5 days. Some animals do respond this quickly; some take longer. A critical illusion to overcome is that all cattle responding to the first treatment actually relied on the antibiotic to recover.

    I ascribe to the theory that, if you're using a reasonably effective antimicrobial and are getting good response in most of the cattle, the cattle still in need of therapy at the conclusion of the first regimen are in need of continued therapy, not necessarily different therapy.

  4. Aggressive is good. If they don't look better in 24 hours, add the next drug in the rotation to the first treatment. In environments where cattle get only a set number of regimens before treatment is discontinued, moving to the next treatment ahead of schedule shortens the overall time of therapy. Pick effective antibiotics and stick with the treatment schedules.

  5. The hotter they are, the sicker they are, so make drug choices based on rectal temperature for BRD. Data confirm that case fatality rate (number that die divided by number treated) rises with rectal temperature at the time of initial treatment. Some interpret this to mean hotter cattle are more ill.

    I disagree. I interpret this to mean our accuracy of diagnosis increases as rectal temperature rises at the time of initial therapy. In other words, the proportion of cattle with a 106° F rectal temperature that are truly sick is greater than the proportion of those with a 104° F temperature.

    It's not a case of how sick they are but how many we're treating actually are sick, where an antibiotic will make a difference in response.

    The difference in efficacy between a lower and a higher efficacy drug will be diluted in the lower temperature populations due to more cattle responding on their own or not actually being sick in the first place. However, don't assume that truly sick cattle in the lower temperature range require a “lesser” therapy. Maybe we need to re-evaluate the temperature at which we consider therapy.

  6. Adding an ancillary drug to the antibiotic regimen for BRD will improve response. Data exist to support the contention that steroids and non-steroidal anti-inflammatory drugs either are ineffective or harmful to clinical response.

    Fever should disappear when the body is ready for it to disappear, not when we want cattle to appear to have responded to therapy. When did fever in a sick animal become a bad thing? It's part of the body's defense against disease pathogens.

    There are some elaborate ancillary treatment regimens out there. The only data I've seen to convince me that a treatment makes a difference relate to antibiotics.

  7. Vaccination at time of BRD treatment improves response. Two studies presented at the Academy of Veterinary Consultants show adding a modified-live IBR vaccination to the therapy of BRD-diagnosed yearlings made no difference in treatment response. Does this also apply to calves? No data suggests it does.

I hope I've challenged your thinking on treating cattle. Discuss these topics with your veterinarian. A fair question in any conversation is “what is the evidence?”

Mike Apley, DVM, PhD, is an associate professor of beef production medicine at Iowa State University in Ames.

Go Time For The BEEF

It may be of little eventual consequence to the beef industry what the Supreme Court decides to do with the mandatory beef checkoff, says a key player in checkoff programs through the years.

With 73% of beef producers supporting the checkoff in a recent poll, “the question isn't whether there will be a checkoff, but what form the checkoff will take,” says John Huston, who served as National Live Stock and Meat Board president for 16 years prior to its merger with the National Cattlemen's Association in 1996.

Huston says the only real question, should the current program be found unconstitutional, is how long will it take the industry to make necessary adjustments and get the research, promotion and information programs going again?

“I don't think a voluntary program would be devastating to the industry,” Huston says. “I think it would be more devastating for the industry to have no checkoff at all.” He notes there was a voluntary program from 1922 until the mandatory program was implemented in 1986.

Huston, who was executive vice president of marketing for the National Cattlemen's Beef Association (NCBA) before retiring in 2000, says beef producers have made strides in many areas as a result of the mandatory checkoff. He points to recent Centers for Disease Control and Prevention data showing the industry is five years ahead of schedule in reducing incidence of E. coli O157:H7. Producers have invested more than $20 million in checkoff funds in dealing with the potentially deadly pathogen.

In addition, Huston says, checkoff-funded new-product development efforts helped create a need for such products, and helped get them in the market more quickly. It's also repositioned beef as a nutritious product, highlighting for dietitians and consumers the significant nutrients beef provides to the diet.

“Whatever happens, the industry needs to forget what's behind us and focus on the positives, not the negatives,” Huston says. “Those are the things that can bring the industry back together.”

Healing needed

And bringing the industry back together will be important. “Like any dispute, there does have to be a healing period,” he says.

Should the checkoff be found constitutional, it will be important for those charged with managing it to reach out to producers who feel disenfranchised, welcome their participation and seek their support. “The checkoff should be a program to unite the industry, not divide it,” Huston says.

It will also be even more important to put policy issues outside the checkoff debate.

“The checkoff has been confused in that mix,” Huston says. Programs meant to build demand have been perceived as mingled with policy programs that have no checkoff involvement. “When we start mixing those, that's when we get into trouble,” he says.

Eventually, producers directing a checkoff program will need to determine if additional steps — such as a refund provision or periodic continuance votes — will need to be added to further bring current detractors into the fold.

Ultimately, Huston thinks a refund provision would be less costly than a divided industry. He says requests for a refund during the 18-month period after introduction of the current program and prior to the referendum in 1988 were running less than 10%.

Furthermore, twice yearly surveys show producer support for the beef checkoff hasn't dropped below 60% since the program began.

A ruling that finds the checkoff unconstitutional will, Huston says, merely mean an interruption in keeping wanted programs going.

“There is high awareness of the resources the checkoff provides the industry,” he says. “Regardless of what the Supreme Court decides, there will still be a checkoff.”

Walt Barnhart is president of Carnivore Communications LLC, Denver, CO, and a former communications director of the National Cattlemen's Beef Association.

Ante Up

“I'm bullish on the outlook for the industry, but that doesn't mean there will be less risk or everyone will make money,” says Bill Helming, of Helming Consulting Services, a leading agricultural economic analyst and consultant.

That summarizes both edges of current financial risk in the beef industry. One edge carves out new profit opportunities, while the other slices away mismanaged equity, sealing the fate of long-standing players.

Fact is, Helming says, there's more risk — financial risk, uncertainty and price volatility — today than he's seen in 40 years of owning cattle and trying to help others make sense of the industry's economic landscape. Keep in mind he was the first chief economist for the old National Cattlemen's Association and Cattle-Fax's first general manger.

Everything's up — good and bad

In terms of inherent financial risk, Helming explains, “You're having to put more capital at risk, both equity and borrowed capital, for profit prospects that are not a lot different than they have been historically.”

To be sure, all industry segments have enjoyed unprecedented profitability the past two years as prices established a higher level. But that means the stake has increased in existing assets, let alone expanded ones.

Barry Dunn, King Ranch Institute for Ranch Management executive director, says, “If you're increasing investment, you're increasing risk.” Dunn says that increased investment broadens the exposure to risk.

For investment perspective, if you were going to retain ownership in or feed a set of feeder cattle a couple of years ago, you needed $100-$135/head equity (20% of the value). Today's prices mean that requirement has increased 75% to $175-$200/head.

The same trend applies to replacement heifers and breeding cows, too. But, the flipside is that profit expectations continue to be at or slightly above breakeven over the longterm.

Helming cautions producers to remember why cattle prices reached their historic zenith. Increased consumer demand fueled a rare alignment of fundamentals in which the lowest cattle supply level since the 1950s coincided with increased demand. But competition for the tight supplies was driven in large part by a force that could prove net-negative in the long-term — excess cattle feeding and packing capacity.

Historically, Helming estimates utilization of feeding capacity has run 75-85%. Today, he pegs it at 60-75%. With every percentage point of decreased utilization, costs increase exponentially. Though the specific numbers would be different on the packing side, he says the magnitude of decreased utilization is similar.

“The trend of the past 10-15 years is we significantly increased cattle feeding capacity and liquidated cattle inventory. That won't change much in the next 4-5 years,” he adds.

Plus, more cattle feeders must own more of the cattle they feed because the large and once-deep pool of investor customers has all but dried up, he says.

“By definition, they're taking on more financial exposure. I think the number of cattle feeding customers will be even fewer over the next 5-10 years, so feeders will have even more risk than today,” he says.

All this adds up to the fact that despite extraordinary profits in each production segment the past two years, it's unrealistic to expect it to continue. So, profit prospects are not proportional to additional investment required and risk involved, he says.

In fact, pricing patterns are returning to normal, says Jim Robb, Livestock Market Information Center (LMIC) director. Fed cattle prices reached a cycle peak in fourth quarter 2003. Feeder prices (700-800 lbs.) reached their cycle high in August 2004. Calf prices were peaking this spring, all shattering previous price records.

With this return to seasonal normalcy, Robb expects the lowest calf prices of this year in the fourth quarter. He suggests to cow-calf producers, “Look at pricing cattle for fall delivery sooner this year than later.”

Clouds of uncertainty

Now, toss in the reworking of North American beef production taking place as Canada expands packing capacity, while a ban on exports of Canadian live cattle continues to threaten existing U.S. packing capacity. Consider the portion of former U.S. export market share Canada may be able to capture, and the prospects are even spookier just a couple years up the road.

In other words, uncertainty, which adds to risk, continues to grow. BSE and its many unknowns serve as a daunting example. When will the Canada border open and how fast will cattle move? When will U.S. beef exports resume to the Pacific Rim? How much lost market share can the U.S. regain and how fast? Will export limits on competing proteins throw beef prices into another spin?

For that matter, Helming explains the speed and degree cow-calf producers build the herd during the recently begun cattle cycle will drive their risk higher during the next 3-5 years.

Though the cow-calf segment has arguably been the primary benefactor of supply and demand fundamentals the past few years, Helming adds, “The cost of running a cow-calf operation is high and continues to increase. Even if they're faring well today, they may not be faring as well as some think due to the rising cost structure.”

Every time a market shock zaps the industry — or even threatens to, in some instances — LMIC's Robb says it takes the market 3-4 months to normalize.

With heightened capital investment requirements in mind, Robb says producers should exploit their recent profitability to build a pool of cash. This allows them the position to borrow if they need to hold calves longer to avoid market adjustments.

The need to position for management and marketing flexibility is underscored by the cliff's-edge price volatility that's entered the market the past 24 months.

“Any given week, it's not unusual to see prices of live cattle change $2-$5/cwt., or boxed beef cutout values to change $4-$7/cwt. in a week,” Helming says.

Old and new strategies

Bottom line, Helming believes supply and demand fundamentals will keep commodity cattle business margins tight and modest, just as in the past. So producers wishing to continue the commodity game must rely on the risk strategies they always have, from hedging to cost reduction.

“As time goes on, I'm less convinced there's a straightforward approach to risk management. It's more of a toolbox approach, year-to-year pulling out the tool you need,” Robb says.

For instance, though many would argue the futures markets for live and fed cattle hasn't offered the opportunity to adequately offset risk as prices entered a new frontier, Dunn says using the board to protect the input side is fairly predictable. Away from the futures, inputs such as feed, interest rates, fertilizer and fuel are all candidates for locking in prices.

Likewise, while many producers don't view it in this light, Dunn says, “Drought management is a risk management strategy in the two-thirds of the nation where there are cyclical droughts.”

Helming adds the ability to stay in the game long-term, “is doing a lot of things that will be a little different that gives each segment an edge or series of edges.”

He's talking about things each segment can do in concert, via coordination, to exploit value-added opportunities, be it increasing capacity utilization or the final value of the product, or slicing costs.

“The future is value-added. That doesn't mean we'll be completely integrated. It means the industry will be much more closely coordinated to make it possible for each segment to be a value-added participant,” Helming believes.

“To me, one major risk management tool few producers view as such — but which offers lots of opportunity — is figuring how to add value. A cow-calf producer can do that only through retained ownership. It offers the largest opportunity for cow-calf producers over the next 5-10 years,” he says.

That's an edge. And, Helming believes, “If you don't know specifically what your edge is, you don't have one.”