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Out to Pasture

RSS By: Steve Cornett, Beef Today

Read the latest blog from Steve Cornett.

Better Markets Mean More Risk

Aug 08, 2011

It sounds like The U.S. Senate might finally move forward with the Korean Free Trade Agreement when they return to work next month. That should give beef exports a boost, and another boost will be more of a good thing.

Yes, yes. There are those out there who think exports don’t matter, who think we should shut the borders to imports and accept any trade retaliation happily. But those are wrong folks. We’ve got beef priced about as high as U.S. citizens are willing to pay already, and we’re going to need more in the future. Until U.S. demand picks back up, we’ve got to count on the export markets—the vast export markets—to justify even our shrunken cattle herd.

We are, again, exporting more beef than we import. It was a long, slow, climb back from the BSE cow that slaughtered export demand in 1993. But between—the weak dollar; increased worldwide protein demand; ongoing (if seemingly moslassassy slow) efforts by our trade negotiators; lower production by some export competitors; and the world’s increased awareness of just how over-done the BSE scare was—exports have grown every year.

They were up 27% over year ago levels at the end of May and a Cattle-Fax analyst told a attendees at the Texas A&M Beef Cattle Short Course in Texas last week that they should run between 21 and 25% higher than 2010.

They will set a new record this year. Joe Schuele at the U.S. Meat Export Federation says there are a lot of ways to calculate the value of those exports, but using the simplest—just dividing the value of exports into the number of fed cattle—indicates $209 per head.

That is a bunch of help and much—most, if you follow (usually negative) cattle feeding returns—of that $200 goes into the pockets of cow-calf producers. (Well, them and their bankers.) With the U.S. economy teetering on the brink of another recession, those growing markets in the developing world are more important.              

Exports are great. They allow a larger market than we would have. They let packers sell parts of your cows that most Americans won’t buy. But the more we export, the more dependent we become on those markets. You do recall, don’t you, how bad things were after the BSE cow, when the industry lost 10% of its market overnight? We’re going to see a larger and larger share of U.S. beef going to foreign markets. And those can be fickle.

There’s the risk of another health scare providing importers and their inhouse farm lobbies with an excuse to say “no.” But there is also in the back of my mind a fear about what happened to Argentina four or five years ago—when they stopped exporting beef because it was getting too expensive for their domestic consumers.

Maybe that’s just my worry bone working overtime.  But those of us who remember President Nixon’s price freeze and what it did to cattle prices and President Carter’s Russian grain embargo and what it did to grain prices can’t help but borrow trouble from the future, you know?

I’ve seen no sign of any unrest in this country over beef prices. In fact, it’s all the vogue among the New York Times crowd to think they’re too cheap. But it’s something besides the drought to worry about if you ask me and I hope the Issues Management folks at NCBA are watching carefully for any repeat of that housewife boycott that got the Nixon mess started. I know how easy it is to forget history and let it repeat on you.

Next year is an election year. And we do have a president who wants to help. And we do have an incredibly short fuse on public attitude. It would be much easier to get those hamburger-hungry housewives marching in today’s twitter world than it was 40 years ago.

So exports are going to be necessary to keep us profitable in the inflated cost/weak beef demand future we face. Fortunately, it looks like export demand will grow faster in the future and take an ever larger share of production. That’s all great. But it means we’ll have ever more eggs in that one basket.

That amounts to more risk. The future looks bright for cow-calf producers (those of you who get rain, anyhow) but it would serve everybody well to remember the cliffs over which we fell in years past.

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