R-CALF USA Overview of International Trade and the U.S. Cattle and - PDF document

1 R-CALF USA Overview of International Trade and the U.S. Cattle and Beef Industries CEO, R-CALF USA July 30, 2009 Presented by Bill Bullard

The Entire U.S. Livestock Industry Is in a Severe State of Crisis! Loss of U.S. Livestock Operations 1980-2008 1,300,000 1,200,000 1,100,000 1,000,000 Number of U.S. livestock Operations 900,000 53% Loss 800,000 700,000 600,000 500,000 400,000 300,000 90% Loss 200,000 80% Loss 31% Loss 100,000 0 Beef Cattle Swine Diary Sheep 1980 1,272,960 667,000 335,270 120,000 2008 757,000 64,760 67,000 82,330 73,000 14,150 16,000 6,175 >100 Hd Type of Livestock Operations Source: USDA-NASS R-CALF USA 2

I. Trade Policy Must Distinguish the U.S. Cattle Industry From the U.S. Beef Industry 3

First, What is the U.S. Cattle Industry? • Single Largest Segment of American Agriculture until 2008. • 12 states each generate over $1 billion annually in the sale of cattle and calves, with these 12 states generating over $36 billion (2008). • Only a portion of the $50 billion in annual cattle sales is sold to the U.S. beef industry. • In 2008, consisted of 956,500 cattle operations (including dairy) in all 50 states that raise and sell live cattle. 757,000 are beef cattle operations and fewer than 73,000 beef cattle operations have a herd size of over 100 head. • Consists of seed stock producers who raise and sell breeding stock, cow/calf producers who raise and sell calves, backgrounders and feeders who grow calves until they are ready for feeding, and feedlot operators who feed cattle until ready for slaughter. • The cattle industry is highly sensitive to supply increases. • Fundamentally wrong to view the beef industry as a representative of the interests of the “cattle industry.” 4

Cattle Industry Was Largest Sector of U.S. Agriculture Until 2008 TOP 12 U.S. AGRICULTURE COMMODITIES 60.0 2007 2008 50.0 40.0 Billions of Dollars 30.0 20.0 10.0 0.0 s y n s s s s y s s s s r e r r g p p r n e t g e i o e u v a g o o a l o C b s l e l n d r r i e H a o a r c c u c b d l d r t l e n r l B y n d A n e i O g o a n a h d S e t n a y V s o a t r i e t l u l l l e u A t r t F s o a u P C o h n e e r G Source: USDA-Economic Research Service, Farm Income Commodity R-CALF USA 5

12 States Each Generate Over $1 Billion in Cattle and Calf Sales • Nebraska $7.1 • California $1.8 • Texas $6.9 • S. Dakota $1.7 • Kansas $6.2 • Missouri $1.2 • Colorado $3.0 • Idaho $1.2 • Iowa $2.9 • Minnesota $1.1 • Oklahoma $2.4 • Montana $1.0 • 2008 Total: $36.5 6

Beef Industry Purchases Only a Portion of Annual Cattle Marketings Sources of Cattle Industry Income 60,000,000 50,000,000 Other Marketings 1 9.2 Million Head $1 4.1 Billion Income 40,000,000 30,000,000 Marketings for Slaughter 35 million head 20,000,000 $36.1 billion Income 10,000,000 0 7 2007 S ales of Cat t le and Calves R-CALF USA Source: USDA-NASS

U.S. Cattle Markets Have Been Broken for Past Two Decades Black: Cattle Prices Red: Retail Beef Prices Source: Dr. Robert Taylor, Auburn University R-CALF USA 8

U.S. Cattle Industry is Shrinking: Industry Participants 956,500 757,000 9 Source: USDA-NASS R-CALF USA

10 The Size of the U.S. Cattle Herd is Shrinking Source: USDA-NASS

Domestic Beef Production is Stagnant Note: The volume of beef produced from imported cattle (No. of imported cattle x each year’s 11 average carcass weight) is excluded from these data.

Domestic Beef Production v. Total U.S. Beef Production Explained • USDA currently includes all beef produced at U.S.-based packing plants as domestic beef production. • However, this is inaccurate because millions of imported cattle are slaughtered in U.S. packing plants each year, including animals imported for immediate slaughter. • R-CALF USA subtracted the annual production of beef derived from imported cattle from USDA’s annual production estimates to arrive at a more accurate estimate of “domestic beef production,” i.e., beef produced from animals exclusively born, raised, and slaughtered in the USA. (R-CALF USA multiplied the number of annual cattle imports by the average annual carcass weight to determine the volume of beef produced annually from imported cattle, and then subtracted this amount from USDA’s annual production estimates.) 12

Today’s U.S. Cattle Industry Slaughtered 34.4 Million 4 Beef Packers Slaughter Cattle in 2008, Including 1-2 Approx. 88 % of All Fed Million Imports Cattle in the U.S. 2,170 Feedlots Fed Approx. 90 % of All Fed Cattle in the U.S. in 2008 80,000 Farmer Feeders in 2008 (Reduced from 85,000 in 2007) Fed Approx. 10 % of All Fed Cattle in the U.S Produced 36 Million Cattle (calves) in 2008 956,500 Remaining Total Cattle Operations in 2008, including 757,000 Beef Cattle Operations U.S. Cattle Operations have been Exiting the Industry at a Rate of 19,000 Per Year Since 1996 13 R-CALF USA

A. U.S. Cattle Industry is Highly Sensitive to Changes in Imported Cattle Supplies • The U.S. International Trade Commission (USITC) has confirmed that the U.S. live cattle industry is highly sensitive to even slight changes in increased imports of live cattle. • The staff at the ITC found that the farm level elasticity of demand for slaughter-ready cattle is such that: “[E]ach 1 percent increase in fed cattle numbers would be expected to decrease fed cattle prices by 2 percent.” U.S.-Australia Free Trade Agreement: Potential Economywide and Selected Sectoral Effects, United States International Trade Commission (Publication 3697; May 2004) at 44, fn 26, available at http://hotdocs.usitc.gov/docs/pubs/2104f/pub3697.pdf. 14

Long-Run Price Depression Coincides with Increased Cattle Imports RELATIONSHIP BETWEEN CATTLE IMPORTS AND FED CATTLE PRICES 3,000,000 $100.00 Record Live Cattle BSE Detected Imports from Mexico in Canada 2,500,000 $90.00 2,000,000 $80.00 Fed Cattle Prices (per cwt.) Number of Cattle Imports Canada-U.S. Free Trade Agreement Effective Date of NAFTA 1,500,000 $70.00 1,000,000 $60.00 500,000 $50.00 0 $40.00 Source: 5 6 7 8 1 2 3 4 5 6 7 8 9 4 5 6 7 8 9 0 0 1 2 3 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 USDA-ERS R-CALF USA 15

B. The U.S. Beef Industry’s Focus Is On Exports What is the U.S. Beef Industry? • The U.S. beef industry consists of beef packers and beef processors that are classified under the 2007 North American Industry Classification System (NAICS) as Food Manufacturers. • As manufacturers, the economic interests of the beef industry are distinct from the economic interests of the U.S. cattle industry. • The beef industry buys slaughter-ready cattle; the cattle industry sells slaughter-ready cattle. 16

The Beef Industry is Excessively Concentrated • In 2001, Oklahoma State University Economist Clement Ward found that the concentration levels in the U.S. meatpacking industry were already among the highest of any industry in the United States, “and well above levels generally considered to elicit non-competitive behavior and result in adverse economic performance.” [1] At that time, the four largest meatpackers controlled over 80 percent of U.S. steer and heifer slaughter. • Notwithstanding the fact that this conclusion strongly suggests that no additional concentration should have been allowed, in October 2008 the U.S. Department of Justice allowed the 3rd largest U.S. beef packer – Brazilian-owned JBS, to acquire the nation’s 5th largest beef packer – Smithfield Beef Group, which raised the four-firm concentration ratio to an unprecedented level of approximately 88 percent. • [1] A Review of Causes for and Consequences of Economic Concentration in the U.S. Meatpacking Industry, Clement E. Ward, Current Agriculture Food and Resource Issues, 2001, at 1. 17