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News Roundup – for Aug. 10, 2009

GRADING

GRADING AGENCY BOARD REJECTS REGULATORY CHANGE

The inconsistant supply of AAA beef and computer vision grading were key topics at the Canadian Beef Grading Agency (CBGA) annual meeting recently.

CBGA is the private, non-profit corporation run by an industry-led board of directors that provides beef grading services to packing plants. Grade standards are set by the federal government based on recommendations from an industry-government consultative committee.

Claude Gravel, Costco Wholesales’ manager of fresh foods and the Canadian Council of Grocery Distributors representative on the CBGA board of directors, raised the AAA issue at the meeting. His concerns were reported in the February issue of CanadIan CattLeMen, but essentially Gravel is not happy with the consistency of the marbling in the carcasses he buys from Canadian packers for Costco’s AAA beef program.

While the volume of AAA has been growing, from 17 per cent of the beef supply 15 years ago to about 47 per cent today, he contends the growing number of branded beef programs is thinning out the top end of the AAA supply. Gravel has begun to question whether the industry is producing for the grade or the grade is producing for the industry.

To improve consistency he asked the agency board to support an amendment to the regulations to allow for both sides of a carcass to be graded separately. The degree of marbling varies from side to side and up and down a carcass but the current protocol is to grade only the best side.

In the end the board said no. While they agreed with Gravel’s concerns about consistency, CBGA general manager Cindy Delaloye says they weren’t prepared to start making changes to the grading regulations.

The fear is grading both sides would reduce the amount of Canada AAA in the system and packers need the current volume to meet orders, keeping in mind that it also brings the best prices for packers.

In 2008, 60.5 per cent of U.S. cattle graded Choice while only 49.9 per cent of Canadian graded Canada AAA even though Canada adopted the USDA marbling images as its standard in 1996.

“Even though the marbling required for Canada AAA is identical to that for USDA Choice, it must be kept in mind that the U.S. has been selecting for marbling since 1927,” says Delaloye. Canada only introduced marbling as a quality factor in 1992.

Another reason for the shortfall could be the lack of direct premiums for marbling. While there are grids available in Canada that account for marbling, the majority of cattle are sold on the rail (dressed) where yield and grade are the pricing factors. In the U.S., there are specs to meet and premiums are paid on marbling grades.

CBGA board member John Schooten is a feedlot operator from southern Alberta. In his operation cattle are managed by weight and breed so he can be sure they are sending the right cattle south. Economics always determines where they go.

“Having said this, our Canadian grade sheets always show a significant number of AAA carcasses,” Schooten adds. “It was very interesting to see Mr. Gravel’s findings and I feel the industry needs to be aware of this and find solutions in working with the sellers of our beef.”

Howard Kirbyson from the Canadian Food Inspection Agency which enforces grading regulations agrees “cherry picking” of the top two-thirds of the Canada AAA for certified brand programs does impact the amount of marbling in the remaining AAA cuts. One reason why the U.S. shows better may be that not all packers down there supply branded programs, so their Choice product would carry the full specturm of marbling within the grade.

Andre Roy, CBGA director from the Quebec federation of beef producers (FBPQ), suggested aggressive use of growth-promoting implants may have shifted the marbling distribution within a grade. Then again, U. S. feedlots are just as aggressive about implants as Canadian ones.

Delaloye wonders if the difference may be more a result of carcass chilling and presentation rather than grader assessment.

Roy says the FBPQ’s experience has shown that, because marbling is a judgment call, there is considerable difference in marbling assessments from facility to facility.

Canadian Cattlemen Association (CCA) executive vice-president Dennis Laycraft believes getting information back to producers in the production chain is a key element in addressing beef quality issues. To that end he says adopting instrument grading using cameras would resolve a lot of the problems with consistency.

The CBGA board has little problem with instrument grading. In fact, CFIA and CBGA established a protocol for adopting visual instrument grading several years ago. To date, no one has applied for a change in the regulation to get the ball rolling. It has already been approved in the U.S. to grade for yield and marbling.

The CCA and the Canadian Meat Council (CMC) have asked the federal minister of agriculture to accept the USDA marbling research that established the proposed thresholds for each marbling level programmed into the equipment. Laycraft says the U.S. validation of marbling by instrument grading systems can be adopted by Canada since Canada strives to apply marbling standards equivalent to the U.S.

Both organizations have asked for funding to install camera equipment in all plants to facilitate universal implementation of instrument grading. The instrument approval process would begin with an application by the manufacturer.

Roy is adamant that the role of the CBGA, as a service agency, is not to define grading parameters, but to ensure

that they are applied. It’s up to the CCA and CMC to propose policy changes.

Richard Robinson, CFIA national manager of traceability, grading and establishment registration, indicated that if industry stakeholders support a proposal and indicate that support to the government, it may be enough to initiate a regulatory amendment.

DISEASE BLUETONGUE TO DROP FROM REPORTABLE TO NOTIFIABLE DISEASE

Regulations that require any suspected cases of bluetongue in livestock to be reported to federal veterinary inspectors, even though Canada has lifted its bluetongue control measures on U.S. imports, are set to change as early as this month.

Amendments to the federal Health of Animals Regulations will downgrade the five common U. S. serotypes of bluetongue from a “reportable” disease — which makes it an offence not to report a suspected case — to “immediately notifiable.”

Under bluetongue’s current “reportable” designation, “this level of obligation and sanction is not consistent with the new import policy,” federal animal health officials said in their regulatory impact analysis statement.

“It would be more appropriate to allow the U.S. serotypes of bluetongue to be covered by a less severe reporting scheme, while maintaining the current status for exotic serotypes of bluetongue.”

The public had 30 days to comment on the proposed regulatory amendments from their date of publication July 4 in the Canada Gazette.

Generally, “immediately notifiable” diseases are considered to be exotic to Canada and “of less concern” than reportable diseases. Only laboratories are required to contact the Canadian Food Inspection Agency if they suspect or diagnose a case of an “immediately notifiable” disease.

Of the five bluetongue serotypes considered endemic in the U.S., the midge species that can transmit the virus is not considered present in Canada east of the Ontario-Manitoba border. The midge does exist in B.C.’s Okanagan Valley, and in Alberta, Saskatchewan and Manitoba south of 53 north latitude.

The Okanagan Valley is the only area in Canada where bluetongue has occurred and would arguably provide the most suitable climatic conditions for the spread of bluetongue of any area in Canada, CFIA said. But even then, significant clinical disease or death losses in sheep and white-tailed deer have only been reported once, in 1987-88.

Furthermore, CFIA said a 2004 study found that the midge species known to transmit bluetongue in the U.S. is at the “northernmost limit” of its range and has a “very poor capacity” to transmit bluetongue in Western Canada. And so far as is known, bluetongue virus can’t overwinter in Canada.

CFIA noted that a number of livestock associations and three provincial governments were “fully supportive” of lifting the “reportable” status for bluetongue and removing bluetongue import restrictions on U.S. livestock.

Alberta Beef Producers was quoted as saying “the risk bluetongue poses to Canada’s livestock industry is insignificant compared to the damages due to the restriction of normalized trade with the U.S.”

The Manitoba Cattle Producers Association, meanwhile, “believes that the CFIA’s research related to bluetongue — in addition to protecting the health of livestock — will also help to resolve some of the long-standing trade issues between Canada and the U.S.”

INSURANCE ALBERTANS STILL WAITING FOR PRICE INSURANCE

At press time Alberta producers were still waiting for the official launch of the province’s new cattle price insurance program (CPIP).

Agriculture Financial Services Corporation (AFSC) is administering the program, which is being developed by a working group that includes representatives from AFSC, Alberta Beef Producers, Alberta Agriculture and Rural Development, the Feeder Associations of Alberta and Gibson Capital Inc.

Two types of policies will be offered for fed cattle — price insurance and basis insurance. A similar program for feeder cattle is expected sometime in 2010. The program is not intended to insure production, the value of individual animals, nor purebred stock prices.

To be eligible to take out a CPIP policy, producers must be over the age of 18, operate a farm in Alberta, own the cattle on the policy and feed them in Alberta.

“CPIP is designed to be a simple, yet relevant risk management tool for Alberta cattle feeders,” explains CPIP fed cattle co-ordinator Jennifer Wood. “Premium rates and coverage levels will vary continuously based on market factors, so it will be important for producers to keep an eye on the program and utilize it according to their own risk tolerance.”

While some feedlots have the expertise to use futures, options and forward contracts to hedge part of their risk, the feedback from many operators was they

would be more comfortable with price insurance that has a fixed upfront cost.

Another issue with hedging risk on the Chicago Mercantile Exchange is that it operates on U.S. cattle prices. And producers are now well aware that weather events and trade issues can negatively impact Canadian cattle prices without affecting U.S. prices.

CPIP is a made-in-Alberta business management tool that will provide a predictable level of protection and a timely payout that’s easy to calculate.

Price insurance

The price insurance policy is intended to protect producers against a drop in Alberta fed cattle prices through a defined period. It bundles protection against all three pricing risks: U.S. cattle prices, the basis, and the U.S.-Canadian exchange rate on the dollar.

A producer can hold more than one policy at a time to cover more than one lot of cattle and may insure all or part of the anticipated marketings. Policies can be purchased any time during the year for four-week intervals ranging from 12 weeks through to 36 weeks.

CPIP offers from 75 per cent to 95 per cent coverage on the expected forward price in $2 per hundredweight increments. The size of the policy is specified in terms of hundredweight of finished cattle.

Generally, the longer the length of the policy and, or the higher the coverage level, the higher the premium will be because it’s more likely that the policy will end up with a payout.

Settlement is based on a weekly Alberta fed cattle index, which is an average of Alberta live and flat rail prices on heifers and steers as well as the spot price index. It’s not necessary to sell the cattle to make a claim.

According to the AFSC website: Claims can be made anytime during the last four weeks of the policy. If Alberta fed cattle prices stay flat or rise during the life of the policy, you won’t get a payout on the policy. In other words, your option will expire worthless. If fed cattle prices are below the coverage price at the time you make a claim, then there is a payout on the policy. A weekly provincial price index is used to settle all CPIP policies, not the actual price you receive when you sell your cattle. So, for example, if you have purchased coverage at $85/cwt, then you will only get a payout on the policy if the CPIP weekly index is below $85/cwt when you make your claim. The price you actually get when you sell your cattle has no impact whatsoever on your CPIP payout; however, the whole idea is that a significant drop in the price you receive in the cash market will also be reflected in the CPIP weekly index.

Basis insurance

Basis insurance functions in much the same way as price insurance, but is less expensive to purchase because the payout is linked to the basis risk rather than the full price.

The claim window is the last four weeks of the policy. Settlement is based on the difference between the weekly Alberta fed cattle index and the weekly average U. S. fed cattle cash price converted to Canadian dollars as reported by the USDA agricultural marketing service division.

A payout will be triggered if, at the time of claim, the basis is wider than the basis insurance level purchased. If the basis is narrower, there’s no payout.

would be more comfortable with price insurance that has a fixed upfront cost.

Another issue with hedging risk on the Chicago Mercantile Exchange is that it operates on U.S. cattle prices. And producers are now well aware that weather events and trade issues can negatively impact Canadian cattle prices without affecting U.S. prices.

CPIP is a made-in-Alberta business management tool that will provide a predictable level of protection and a timely payout that’s easy to calculate.

Price insurance

The price insurance policy is intended to protect producers against a drop in Alberta fed cattle prices through a defined period. It bundles protection against all three pricing risks: U.S. cattle prices, the basis, and the U.S.-Canadian exchange rate on the dollar.

A producer can hold more than one policy at a time to cover more than one lot of cattle and may insure all or part of the anticipated marketings. Policies can be purchased any time during the year for four-week intervals ranging from 12 weeks through to 36 weeks.

CPIP offers from 75 per cent to 95 per cent coverage on the expected forward price in $2 per hundredweight increments. The size of the policy is specified in terms of hundredweight of finished cattle.

Generally, the longer the length of the policy and, or the higher the coverage level, the higher the premium will be because it’s more likely that the policy will end up with a payout.

Settlement is based on a weekly Alberta fed cattle index, which is an average of Alberta live and flat rail prices on heifers and steers as well as the spot price index. It’s not necessary to sell the cattle to make a claim.

According to the AFSC website: Claims can be made anytime during the last four weeks of the policy. If Alberta fed cattle prices stay flat or rise during the life of the policy, you won’t get a payout on the policy. In other words, your option will expire worthless. If fed cattle prices are below the coverage price at the time you make a claim, then there is a payout on the policy. A weekly provincial price index is used to settle all CPIP policies, not the actual price you receive when you sell your cattle. So, for example, if you have purchased coverage at $85/cwt, then you will only get a payout on the policy if the CPIP weekly index is below $85/cwt when you make your claim. The price you actually get when you sell your cattle has no impact whatsoever on your CPIP payout; however, the whole idea is that a significant drop in the price you receive in the cash market will also be reflected in the CPIP weekly index.

Basis insurance

Basis insurance functions in much the same way as price insurance, but is less expensive to purchase because the payout is linked to the basis risk rather than the full price.

The claim window is the last four weeks of the policy. Settlement is based on the difference between the weekly Alberta fed cattle index and the weekly average U. S. fed cattle cash price converted to Canadian dollars as reported by the USDA agricultural marketing service division.

A payout will be triggered if, at the time of claim, the basis is wider than the basis insurance level purchased. If the basis is narrower, there’s no payout.

Examples of CPIP market summaries, sample premium charts, price and basis insurance scenarios and the historic trend of Alberta weekly price index are posted to the website at

Once official, CPIP policies will be available for purchase online and client support will be available at all AFSC regional offices or from the call centre at 1-888-786-7475. Jennifer Wood can be reached at 403-786-0459.

TRADE NEW OIE BSE STANDARD SEEN FAVOURING CANADA

Canada stands to gain from the World Organization for Animal Health (OIE) resolution to discard the 30-month age limit on boneless beef from the global body’s BSE-related safety standards for international beef trade.

The change to the BSE chapter of the OIE Terrestrial Animal Health Code was adopted at its general session in May. According to Ted Haney, president of the Canada Beef Export Federation, the new rule should help open 34 countries that still limit imports of Canadian boneless beef from animals of 30 months or younger.

In other words, says Haney, it should no longer matter if boneless beef comes from a country of unknown, controlled or negligible risk for BSE, or a country that has no ban on ruminant-to-ruminant feeding.

As long as specified risk materials (SRMs, the tissues known to harbour the proteins that cause BSE in infected animals) have been removed during slaughter and processing, boneless beef is safe to trade.

The OIE code already allows for trade in bone-in beef from animals of all ages from countries with a negligible or controlled risk status such as Canada that has specificertification requirements that specified risk materials are removed. The OIE’s latest decision “establishes a much more positive environment” for Canada to press for an end to bans by countries such as Japan, that has limited imports from Canada since 2005 to beef from cattle under just 20 months of age.

CBEF has had feedback that the new OIE ruling is likely to weaken South Korea’s case at the World Trade Organization. On July 9 Canada requested the establishment of a WTO dispute settlement panel on the issue of South Korea’s continuing ban on the importation of Canadian beef.

The UTM rule now observed by some countries did not originate at the OIE, Haney noted, adding that it was a benchmark imposed by the U.S. government and first applied to U.S. imports of Canadian beef in 2003.

The OIE didn’t have a UTM rule until it revised its own guidelines two years later, he said. The U.S. rule was the template, and “it’s taken the OIE to undo it.”

The OIE’s new resolution, he said, confirms that the U. S. UTM rule was not only detrimental to cross-border trade in the beef sector but was not based in science.

Calls for Japan to budge on its 20-month rule were also expected to gain traction from the OIE recent decision to grant “controlled risk” BSE status to Japan.

The OIE recognized Canada’s “controlled risk” status for BSE in May 2007, taking into account its ban on ruminant-to-ruminant feeding and enforced removal of SRMs at slaughter.

While some countries such as the U.S. have restored market access for Canadian beef and live cattle over time, Ottawa has made “ongoing” representations to Japan and other trading partners, asking that they resume trade in all beef and/or cattle based on Canada’s controlled-risk status.

According to the Canadian Cattlemen’s Association, Japan had been Canada’s third-largest market for beef before May 2003.

In 2002, the CCA said, Canada exported just over $81 million worth of beef to Japan, which the association described as “an important market for certain products that are difficult to sell in Canada.”

South Korea, meanwhile, had previously been Canada’s fourth-largest beef export market, with sales of $50 million in 2002.

Examples of CPIP market summaries, sample premium charts, price and basis insurance scenarios and the historic trend of Alberta weekly price index are posted to the website at

www.afsc.ca.

Once official, CPIP policies will be available for purchase online and client support will be available at all AFSC regional offices or from the call centre at 1-888-786-7475. Jennifer Wood can be reached at 403-786-0459.

TRADE NEW OIE BSE STANDARD SEEN FAVOURING CANADA

Canada stands to gain from the World Organization for Animal Health (OIE) resolution to discard the 30-month age limit on boneless beef from the global body’s BSE-related safety standards for international beef trade.

The change to the BSE chapter of the OIE Terrestrial Animal Health Code was adopted at its general session in May. According to Ted Haney, president of the Canada Beef Export Federation, the new rule should help open 34 countries that still limit imports of Canadian boneless beef from animals of 30 months or younger.

In other words, says Haney, it should no longer matter if boneless beef comes from a country of unknown, controlled or negligible risk for BSE, or a country that has no ban on ruminant-to-ruminant feeding.

As long as specified risk materials (SRMs, the tissues known to harbour the proteins that cause BSE in infected animals) have been removed during slaughter and processing, boneless beef is safe to trade.

The OIE code already allows for trade in bone-in beef from animals of all ages from countries with a negligible or controlled risk status such as Canada that has specificertification requirements that specified risk materials are removed. The OIE’s latest decision “establishes a much more positive environment” for Canada to press for an end to bans by countries such as Japan, that has limited imports from Canada since 2005 to beef from cattle under just 20 months of age.

CBEF has had feedback that the new OIE ruling is likely to weaken South Korea’s case at the World Trade Organization. On July 9 Canada requested the establishment of a WTO dispute settlement panel on the issue of South Korea’s continuing ban on the importation of Canadian beef.

The UTM rule now observed by some countries did not originate at the OIE, Haney noted, adding that it was a benchmark imposed by the U.S. government and first applied to U.S. imports of Canadian beef in 2003.

The OIE didn’t have a UTM rule until it revised its own guidelines two years later, he said. The U.S. rule was the template, and “it’s taken the OIE to undo it.”

The OIE’s new resolution, he said, confirms that the U. S. UTM rule was not only detrimental to cross-border trade in the beef sector but was not based in science.

Calls for Japan to budge on its 20-month rule were also expected to gain traction from the OIE recent decision to grant “controlled risk” BSE status to Japan.

The OIE recognized Canada’s “controlled risk” status for BSE in May 2007, taking into account its ban on ruminant-to-ruminant feeding and enforced removal of SRMs at slaughter.

While some countries such as the U.S. have restored market access for Canadian beef and live cattle over time, Ottawa has made “ongoing” representations to Japan and other trading partners, asking that they resume trade in all beef and/or cattle based on Canada’s controlled-risk status.

According to the Canadian Cattlemen’s Association, Japan had been Canada’s third-largest market for beef before May 2003.

In 2002, the CCA said, Canada exported just over $81 million worth of beef to Japan, which the association described as “an important market for certain products that are difficult to sell in Canada.”

South Korea, meanwhile, had previously been Canada’s fourth-largest beef export market, with sales of $50 million in 2002.

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