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CURRENT STATE OF THE
UNITED STATES LIVE CATTLE INDUSTRY (Revised)

Presented at the 2002 Business Forum
of the
Free Trade Area of the Americas Agreement

Quito, Ecuador  

October 29-31, 2002

Prepared and presented by  

R-CALF United Stockgrowers of America (R-CALF USA)

P.O. Box 30715
Billings, MT 59107
Phone: 406-252-2516
Fax: 406-252-3176
r-calfusa@r-calfusa.com

R-CALF United Stockgrowers of America (R-CALF USA) is a national, non-profit cattle association representing over 6700 independent cow/calf producers, stockers, and feeders in 42 states, along with 32 state and local United States cattle and farm association affiliates.  

Introduction

The United States live cattle industry alone, not including the beef processing sector, is tremendously important to the economic health of America as a whole and Rural America in particular.  For over 40 years, the live cattle industry has been the single largest sector in United States agriculture.  There were 814,400 independent beef cattle operations in the United States in 2001.[1] Independent United States cattle producers have generated more than $30 billion in agricultural revenues annually for the last dozen years.[2]  As documented in this report, this vitally important sector of the American economy has been in a state of substantial economic crisis over the past decade, and remains so today.        

United States Cow/Calf Producers Have Incurred Substantial Losses Over Past Ten Years

According to the United States Department of Agriculture (USDA) data regarding United States cow/calf production cash costs and returns, the average gross value of production less cash expenses during the 10-year period of 1982-1991 was $25.51 per bred cow.[3]  During the following 10-year period, 1992-2001 the average return to United States cow/calf producers fell to -$30.40 per bred cow.[4]   During the period of 1992-2001, the average number of beef cows in the United States was approximately 34 million head.[5]  Applying the average loss per head to the average number of beef cows generates an industry-wide average cash operating loss of over $1 billion over the past 10 years for United States cow/calf producers.  As shown in Figure 1, actual losses to cow/calf producers were far greater when total production costs were factored, with significantly greater losses occurring during the period from 1996-2001.  Based on USDA’s total per head loss for 2001, and again using the 34 million head beef cattle herd size, losses for 2001 alone are estimated at over $15 billion dollars.[6]

Figure 1 - Data Source: USDA-ERS

United States Cattle Feeders Have Incurred Substantial Losses Over Past Ten Years

The United States cattle feeding sector is also suffering from a persistent economic cost-price squeeze.  Using Kansas State University data, Auburn University professor Robert Taylor determined that the average return for United States cattle feeders during the period 1980-1990 was $41.40 per head.  The average returns during the following period, 1991-2001, fell to -$14.60 per head.[7] 

The per head losses experienced by U.S. cattle producers since 1994 can be aggregated using USDA data as shown in Figure 2.  Based on the USDA Great Plains Cattle Feedlot Estimated Returns data, United States cattle producers have lost approximately $3 billion dollars just since March of 2001. 


Figure 2 - Data Source: USDA, Compiled by: Schieweterman, Inc., Garden City, KS

The Ongoing Crisis in the United States Live Cattle Industry Cannot Be Explained By the Historical Cattle Cycle

The U.S. live cattle industry has been historically characterized as a cyclical industry.  The cattle cycle refers to the rising and falling of cattle inventories that result from changes in live cattle prices.  It was the equivalent of an industry-wide self-management program, but the competitive market drove it, not an industry or government directive.

The cattle cycle historically occurred every 10-12 years, a function of the long biological cycle for cattle.  USDA reports it consists of about 6 to 7 years of expanding cattle numbers, followed by 1 to 2 years in which cattle numbers are consolidated, then 3 to 4 years of declining numbers before the next expansion begins again.[8]  USDA reported in 2001 that the cycle has been shortened over time.[9]  However, many in the industry believe the historical cycle may have ended.  USDA recently acknowledged “the last cycle was 9 years in duration; the present cycle is in its thirteenth year, with two more liquidations likely.”[10] This certainly does not reflect a shortened cattle cycle, and even granting USDA its prediction of two more years before the U.S. cattle industry begins rebuilding its production capacity, a 15-year cycle with 6-8 years of liquidation is well beyond the historical perimeters of a functioning cattle cycle.      

United States cattle inventories have been in a state of decline since 1996, with all cattle and calf inventories falling from 103.5 million head in 1996 to 97.3 million head in 2001.[11]  Beef cow inventories alone fell 1.9 million head during this period.  By January 1, 2003, the USDA expects the United States cattle herd to fall to 95.6 million head, its lowest level since 1959.[12]    The calf crop in 2001 was likely the smallest since the 1950s and the USDA predicts the calf crop for 2002 will likely be even smaller.[13] This ongoing cattle inventory liquidation in the United States has long transgressed USDA’s stated 3 to 4-year decline period, reflecting a radical paradigm shift that cannot be explained by the traditional cattle cycle.  

Evidence that historical indicators can no longer explain or predict what is happening within the United States cattle industry abounds.  As recently as October 1999, the USDA grossly miscalculated the cattle industry’s production trend by predicting that United States beef production would decline in 2000 by 4–7 percent below 1999 levels.[14]  United States production in 1999 was 26.4 billion.[15]  Thus, the USDA predicted 2000 production would fall by as much as 1.8 billion pounds.  However, production in 2000 reached an all time record high of 26.8 billion pounds.[16]  The USDA under-forecasted this short-term prediction (less than 14 months) by 2.2 billion pounds, the carcass weight equivalent of nearly 3 million head of live cattle.[17]

Persistent Industry Losses Are Causing a Decline in the Number of United States Cattle Operations

From 1999 to 2000, USDA data shows that 13,290 United States cattle operations exited the industry.[18]  The USDA National Agriculture Statistics Service (NASS) reports that United States beef cow operations have declined by approximately 200,000 operations since 1987, with the steepest decline occurring from 1996 through 2001.[19]  The total number of United States beef cow operations in 2001 was 814,400.[20]  As shown in Figure 3, approximately 27,000 United States cattle operations exited the industry as of January 1, 2002.


Figure 3 - Data Source: USDA-NASS

The United States Department of Agriculture is Projecting Further Losses For the Live Cattle Industry

The USDA expects livestock and livestock product values to fall $9.6 billion in 2002 with large supplies of animals for meat cited as a contributing factor to this decline.[21] USDA projects cash receipts for cattle and calves to decline by $200 million in 2002,[22] predicting a 23 percent decrease in average net cash income for producers of beef cattle below the average net cash income received during the period of 1997 through 2000.[23]  It also predicts that approximately 17 percent of U.S. cattle producers will experience debt repayment problems, representing an increase over 2001.[24]

The United States Live Cattle Industry is Highly Sensitive to Changes in Beef Volumes

Cattle industry analysts have historically emphasized the value relationship of United States imports and exports, arguing that the United States has a trade surplus in beef when measured on a value basis.  As a result of this emphasis, little attention was paid to the impacts of trade volumes on the United States cattle industry.  However, the year 2000 marked the last year the United States had a trade surplus in beef when measured on a value basis, with the United States experiencing an $82 million dollar beef trade deficit in 2001.[25]  This value-measured deficit appears to be growing rapidly in 2002, with the United States experiencing a $252 million beef trade deficit at the end of August 2002.[26]

Evaluating the cattle/beef trade in terms of value, however, ignores the impact that imported cattle and beef volumes have on the United States live cattle industry.  Particularly their impact on domestic cattle prices when the domestic market is saturated, e.g., when the United States cattle industry is in a liquidation phase, or when importers strategically time import arrivals to leverage down domestic cattle prices or to prevent price increases.[27]  The United States is now a net importer of cattle and beef regardless of whether trade flows are measured on a value or volume basis.        

The cattle industry is highly sensitive to changes in the volume of beef in the market, both domestic and imported, due to the disproportionate impact of changes in supply on prices.  According to Chuck Lambert, Chief Economist at the National Cattlemen’s Beef Association, “The rule of thumb is that a 10% increase in beef supply results in a 15% to 20% decrease in price.”[28]  Even small increases in supply – as little as 2 to 3 percent – can have significant downward effects on price.[29]  Thus, increased beef imports can significantly affect the price received by U.S. cattle producers.

Beef and live cattle imports have increased significantly in recent years, with beef imports increasing from 2.1 billion pounds in 1996 to 3.2 billion pounds in 2001.[30]  Live cattle imports increased from 2 million head to 2.4 million head during the same period.[31]  Combined, these imports caused the United States trade deficit (total imports minus exports) for cattle and beef to grow from 1.5 billion pounds in 1996 to 2.4 billion pounds in 2001.  Figure 4 shows the relationship between total imports and the United State’s ongoing trade deficit for cattle and beef following the 1996 outset of United States’ cattle liquidations.


Figure 4 - Data Source: USDA-ERS

The 2001 trade deficit for cattle and beef of 2.4 billion pounds represents an approximate 10 percent increase in supply over the United State’s 24 billion pounds of domestic production.[32]  Applying the aforementioned “rule of thumb” to the 2001 production year, prices received by United States cattle producers were negatively impacted between 15 to 20 percent.  This means fed cattle prices in 2001 would have likely been between $83.03 to $86.64 per cwt., rather than the $72.20 per cwt. actually received, if not for the increased import supplies.[33]  If this rule of thumb is accurate, United States producers lost between $130 to $173 per head on their 2001 production due to the ongoing United States trade deficit in cattle and beef.[34]

Figure 4 also shows that the United States reached record import volumes in 1999, 2000, and 2001, and that the United States trade deficit has increased during this period.  If the criteria the USDA foreign Agriculture Service uses to predict expanding imports can be universally applied, then the United States is expected to continue this record import growth.[35]

Both Total Cattle/Beef Imports and the Cattle/Beef Trade Deficit are Outpacing the Decline of the United States Cattle Herd 

Under present trade policies and practices, the United States is supplanting domestic production with imported beef and live cattle at an alarming pace.  As revealed by Figure 5, imports of beef and live cattle have steadily outpaced the decline of the United States cattle herd since 1996.  Figure 6 reveals that the United States trade deficit in cattle and beef is likewise outpacing the decline of the United States cattle herd.


Figure 5 - Data Source: USDA-ERS & NASS


Figure 6 - Data Source: USDA-ERS & NASS

The United States Department of Agriculture and the International Trade Commission Are Using Faulty Economic Models to Evaluate the Current State of the United States Live Cattle Industry

The United States General Accounting Office (GAO) released a report in March 2002 titled Economic Models of Cattle Prices:  How USDA Can Act to Improve Models to Explain Cattle Prices (GAO-02-246).   The GAO's report criticized both USDA's and the International Trade Commission's (ITC's) economic models, models commonly used by these agencies to evaluate the United States’ cattle and beef sector, and suggested revisions to them.  As a result of these faulty models, reports issued by both USDA and ITC likely understate the current economic difficulties being faced by United States cattle producers.[36] 

Conclusion

The United States live cattle industry, including both its production and feeding sectors, is in a severe economic crisis.  Beginning in 1996, the United States live cattle industry began liquidating its cattle herd under what was presumed to be a function of the historical cattle cycle.  However, the herd liquidation has proved to be far more drastic and is lasting far longer than any industry analyst predicted.   Cow/calf producers have been unable to recoup their cash/operating costs from their production over the past decade, let alone their total costs, which have remained unrecoverable for the past two decades, resulting in tremendous monetary and equity losses measuring in the billions. These losses are a contributing factor to the continued exodus of independent cattle producers from the industry.  The greatest losses began after 1996, the year in which the United States' herd liquidations began.  Losses to the feeding sector have been equally chronic.

The USDA is predicting even further industry losses, without factoring in the prospects of additional imports of beef and live cattle resulting from any new Free Trade Agreement.  However, USDA's past and present predictions have now been called into question based on its use of outdated economic models that are incapable of accurately evaluating the current structure of the industry along with the effects of present and future trade liberalization.  Further, models used by the ITC to evaluate the impact of new trade agreements on the U.S. live cattle and beef industry are also questionable and will be so until they are improved.  See U.S. General Accounting Office, Economic Models of Cattle Prices:  How USDA Can Act to Improve Models to Explain Cattle Prices, GAO-02-246, March 2002. 

While United States cattle producers continue liquidating to achieve a more favorable supply-demand relationship that will support higher domestic live cattle prices, record imports are far outpacing their domestic supply reductions, effectively nullifying their efforts.  Under current conditions, United States cattle producers are losing billions of dollars in both money and equity, thus depriving rural communities from all across America their needed and deserved economic stimuli.

Any trade agreements that do not address all market distortions, and that do not provide minimal protections for producers of live cattle are a clear threat to the future profitability of independent cattle producers in the United States and to the future sustainability of the rural communities they support.        


[1] Number of All Cattle and Beef Cow Operations, United States, 1987-2001, USDA-National Agricultural Statistics Service, Cattle Graphics, available at http://www.usda.gov/nass/aggraphs/acbc_ops.htm, obtained from the internet on October 17, 2002.

[2] Statistics of Cattle, Hogs, and Sheep, National Agricultural Statistics Service - USDA, Table 7-10, Cattle and calves, Production, Disposition, Cash Receipts, and Gross Income, United States, 1990-99, available at http://www.usda.gov/nass/pubs/agr01/01_ch7.pdf, obtained from the internet on October 17, 2002.

[3] U.S. Cow-Calf Production Cash Costs and Returns, 1982-89; 1990-95, Economic Research Service/USDA, available at http://www.ers.usda.gov/data/farmincome/CAR/DATA/Appendix/Cowcalf/US8289.xls and http://www.ers.usda.gov/data/farmincome/CAR/DATA/Appendix/Cowcalf/US9095.xls, obtained from the internet on October 18, 2002.

[4] U.S. Cow-Calf Production Cash Costs and Returns, 1990-95; 1996-99; 2000-2001, Economic Research Service/USDA, available at http://www.ers.usda.gov/data/farmincome/CAR/DATA/Appendix/Cowcalf/US9095.xls; http://www.ers.usda.gov/data/farmincome/CAR/DATA/History/CowCalf/US9699.xls; and http://www.ers.usda.gov/data/CostsAndReturns/data/current/C-Cowc.xls, retrieved from the internet on October 18, 2002.

[5] Statistics of Cattle, Hogs, and Sheep, National Agricultural Statistics Service – USDA, Table 7-2 – All cattle and calves:  Number by classes, United States, Jan. 1, 1992-2001, available at http://www.usda.gov/nass/pubs/agr01/01_ch7.pdf, obtained from the internet on October 23, 2002.

[6] U.S. Cow-Calf production Cash Costs and Returns, 2000-2001, Economic Research Service – USDA, available at http://www.ers.usda.gov/data/CostsAndReturns/data/current/C-Cowc.xls, retrieved from the internet on October 18, 2002, (Value of production less total costs listed for 2001 is -$467.06 per bred cow). 

[7] C. Robert Taylor, Effects of the Growing Imbalance of Economic Power, College of Agriculture, Auburn University, presentation delivered in Amarillo, Texas, July 25, 2002.

[8] Kenneth H. Mathews, Characteristics of Cattle Cycles, Economic Research Service/USDA, U.S. Beef Industry/TB-1874, November 2001.

[9] Id.

[10] Interagency Agricultural Projections Committee, USDA Agricultural Projections to 2011, Staff Report WAOB-2002-1, February 2002, available at http://www.ers.usda.gov/publications/waob021/waob20021.pdf, obtained from internet on October 17, 2002.

[11] Statistics of Cattle, Hogs, and Sheep, National Agricultural Statistics Service – USDA, Table 7-2 – All cattle and calves:  Number by classes, United States, Jan. 1, 1992-2001, available at http://www.usda.gov/nass/pubs/agr01/01_ch7.pdf, obtained from the internet on October 23, 2002.

[12] World Beef Trade Overview, Livestock and Poultry: World Markets and Trade, Foreign Agriculture Service – USDA, October 2002, available at http://www.fas.usda.gov/dlp/circular/2002/02-10LP/beefoverview.html, obtained from the internet on October 23, 2002.

[13] Meat & Poultry Production to Rise Slightly in 2002, Agricultural Outlook (U.S. Department Agriculture), June-July 2001, at 3.

[14] U.S. Beef Production to Drop from Record Level, Agricultural Outlook (October 1999), Economic Research Service – USDA.

[15] Livestock, Dairy, and Poultry Situation and Outlook, Economic Research Service – USDA, January 24, 2001.

[16] Id.

[17] Calculation based on a 740 pound carcass.

[18] Beef Cows:  Number of operations by size group, selected States and United States, 1999-2000, Statistics of Cattle Hogs, and Sheep, Table 7-23, available at http://www.usda.gov/nass/pubs/agr01/01_ch7.pdf, obtained from the internet on October 18, 2002.

[19] Number of All Cattle and Beef Cow Operations, United States, 1987-2001, National Agricultural Statistics Service - USDA, Cattle Graphics, available at http://www.usda.gov/nass/aggraphs/acbc_ops.htm, obtained from the internet on October 17, 2002.

[20] Id.

[21] Economic Research Service, USDA, Farm Income and Costs:  Farm Sector Income, 10 October 2002, available at http://www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm, retrieved from internet on October 17, 2002.

[22] Economic Research Service, USDA, Agricultural Income and Finance Outlook, September 2002, available at http://www.ers.usda.gov/publications/so/view.asp?f=economics/ais-bb/, retrieved from internet on October 18,2002.

[23] Id. at 16.

[24] Id. at 17-19.

[25] U.S. Trade Statistics, FAS Agriculture Export Commodity Aggregations, Foreign Agriculture Service – USDA, available at http://www.fas.usda.gove/ustrdcripts/USReport.exe, January-December, 2001, obtained from the internet on October 26, 2002, See also U.S. Trade Statistics, FAS Agriculture Import Commodity Aggregations, Foreign Agriculture Service – USDA, available at http://www.fas.usda.gov/ustrdscripts/USReport.exe, January –December, 2001, obtained from the internet on August October 26, 2002. 

[26] Id.

[27] U.S. International Trade Commission, Live Cattle from Canada, Pub. 3255, (Washington, D.C., November 1999), ITC Chairman Lynn M. Bragg said at page 50, “The concentration of packers increases the packers’ leverage relative to cattle producers, thus providing packers the ability to use imports to reduce domestic live cattle prices and/or price increases.”

[28] Chuck Lambert, Chief Economist, NCBA, Beef Today, (Sept. 1997).

[29] See Sparks Companies Inc., “Potential Impacts of the Proposed Ban on Packer Ownership and Feeding of Livestock”, A Special Study, (March 18, 2002) at 37 (“In general, prices decrease 1% for each 0.6% increase in beef production (consumption = production for beef)).”

[30] 1996 beef import volumes found at Table 44, Total U.S. Beef and Veal Imports, 1971-2000, Red Meat Yearbook, Economic Research Service – USDA, available at http://jan.mannlib.cornell.edu/data-sets/livestock/94006/usimports.xls, obtained from the internet on October 23, 2002.  2001 beef import volumes found at Leland Southard, Livestock, Dairy, and Poultry Outlook, Economic Research Service – USDA, July 23, 2002.

[31] Total U.S. Cattle Imports, Table-49, Bureau of Census, Department of Commerce.

[32] Leland Southard, Livestock, Dairy, and Poultry Outlook, Economic Research Service – USDA, July 23, 2002, (24 billion pounds of domestic production calculated by subtracting the carcass weight equivalent of imported live animals from total production.)

[33] Choice Beef Values and Spreads and the All-Fresh Retail Value, Economic Research Service – USDA, October 2002, available at http://www.ers.usda.gov/briefing/foodpricespreads/meatpricespreads/beef.xls, obtained from the internet on October 23, 2002. 

[34] Estimate based on 1200-pound fed steer.

[35] See World Beef Trade Review, Foreign Agriculture Service, FASonline, Foreign Agriculture Service – USDA, October 17, 2002, available at http://fas.usda.gov/dlp/circular/2002/02-10LP/beefoverview.html, obtained from the internet on October 23, 2002, “With high domestic beef prices and a declining herd, Korea’s beef imports are expected to expand.”  (The United States also has high domestic beef prices and a declining herd.)

[36] U.S. General Accounting Office, Economic Models of Cattle Prices:  How USDA Can Act to Improve Models to Explain Cattle Prices, GAO-02-246, March 2002.  

 


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