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COOL legislation had no benefit for the U.S. beef industry

Prime Cuts from the May 2015 issue of Canadian Cattlemen

It’s a coincidence that May heralded one of the last chapters in the long-running saga over country-of-origin labelling just as the spring grilling season begins. But it’s worth noting that COOL supporters claimed that COOL would improve demand for U.S. beef and that consumers would pay more for it.

What has happened since COOL was implemented has scotched these claims. Consumer surveys showed that only a small minority of consumers were even aware of COOL labels. Furthermore, COOL has provided absolutely no economic benefits to the U.S. beef industry. The bottom line remains: consumers put price at the top of their list of factors in buying beef.

As you know, the World Trade Organization’s Appellate Body circulated its ruling on the final U.S. appeal over COOL. WTO-authorized retaliation by Canada and Mexico might be authorized as soon as 60 days after that. Tariffs imposed by the two countries could amount to $1.5 billion annually. Export sales might be lost even before then, say the U.S. Chamber of Commerce and other groups.

They thus continue to urge Congress to move swiftly to approve legislation that would repeal the COOL requirements for muscle cuts. But there’s no chance of anything happening until after the WTO circulates its ruling. It might take the imminent introduction of retaliatory tariffs in July or August to force lawmakers to rescind part of what has turned out to be one of the most ill-advised laws ever forced on the North American meat and livestock industry.

The U.S. beef industry meanwhile is hoping that May will be warm and herald a much-needed boost in beef sales at retail and food-service. May always promises better demand, with the start of the grilling at the start of the month, Mother’s Day (on May 10 this year) and the big Memorial Day (May 25) holiday weekend.

Beef sales have been weaker so far this year than last, in part because of record-high retail beef prices and brutal winter weather in the Northeast, which saw record snowfalls in some cities. Beef sales were lost, particularly at the restaurant level, and the entire first quarter was a struggle for packers to come close to making money.

Operating margins for fed beef processors were negative by US$42.74 per head in the quarter, according to hedgersedge.com. It reported positive margins in only two weeks out of 13. While earnings reports by Tyson Foods and others will likely show better results than these, losses likely occurred similar to those in the fourth quarter (when Tyson Beef had an operating loss of $6 million).

Another yardstick by which to measure whether packers are making money or not is weekly slaughter levels, and in particular steer and heifer slaughter. In this regard, packers lost money. Total cattle slaughter in the quarter was down 7.1 per cent or an estimated 509,000 head on the year-earlier quarter. Total slaughter of 502,000 head the week ended April 11 was the smallest regular-week kill in many years. Steer and heifer slaughter that week at an estimated 394,000 head was the lowest of its kind for April since 1966.

May slaughter last year averaged 618,000 head per week and June slaughter averaged 612,000 head. But slaughter levels this year in these months will be far below that unless beef sales improve significantly and cattle feeders decide to get much more aggressive in their marketings. The industry is thus hoping that Americans grill a lot of steaks and hamburgers. But beef will have a lot of much-cheaper pork and chicken to contend with.

This article was originally published as “COOL and warmer weather” in the May 2015 issue of Canadian Cattlemen

About the author

Contributor

A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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