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MCOOL Cuts Crucial Cattle Flow

A North

American view of the meat industry.

Steve Kay is publisher and editor of Cattle Buyers Weekly

MCOOL’s damage won’t just be in reduced cattle imports and fewer feedlots or packing plants. Its larger damage will be to U. S. beef exports

How ironic that the U. S. cattle herd is shrinking just when mandatory country-of-origin labelling is reducing the number of Canadian and Mexican cattle entering the U. S. According to USDA’s annual inventory report, the U. S. herd declined by 1.544 million head in 2008. That’s the equivalent of the throughput of the largest beef packing plant in the country or the annual marketings of 10 to 15 large feedlots.

This decline and fewer cattle imports in 2009 will likely put numerous feedlots and possibly a packing plant or two out of business. But try telling that to the consequence-blind supporters of MCOOL. It will take several years to know how much damage this thoroughly flawed law did to the North American livestock industry. But the damage is already starting and yet supporters still want to make the rules governing the law more restrictive. It’s hard to think of another time in the industry’s history where narrow self-interest so outweighed common sense, and where jingoistic arguments worked so effectively against regional cooperation.

MCOOL’s damage won’t just be in reduced cattle imports and fewer feedlots or packing plants. Its larger damage will be to U. S. beef exports to its two most valuable markets, Mexico and Canada, who would be justified in saying “no” to U. S. beef. This is where MCOOL supporters have their eyes and ears tightly shut. They refuse to acknowledge the possible impact on U. S. cattle prices if U. S. beef exports to Canada and Mexico decline.

The U. S. now has its smallest herd in 50 years. The 2008 calf crop was the smallest in 57 years. So numbers will tighten into 2010 and might not increase until 2013 at the earliest. Even had they not declined, numerous feedlots were at risk of closure because of years of over-capacity and heavy feeding losses over the past 18 months. Dozens are said to be for sale but there are no buyers in the current negative environment. Feedlots for sale don’t even have asking prices because of the lack of a market.

Packers face reduced slaughter numbers in both fed and non-fed cattle. Fed steer and heifer numbers might decline by nearly two per cent in 2009 versus 2008. Slaughter cow numbers might also decline by two per cent, with more dairy but fewer beef and Canadian cows going to slaughter than in 2008. As noted, cattle feeders and packers won’t be able to rely on Canadian and Mexican cattle imports for more numbers. In fact, imports in 2008 declined 320,000 head from 2007 and will be smaller again in 2009, with nearly all the decline coming from Canada.

Commercial feedlots from 15,000 to 30,000 head of capacity are probably most vulnerable unless they are in just the right location (close to a packing plant and/or feeder cattle supplies, ideal climate and drainage for feeding cattle). The biggest issue is whether owners of mid-sized commercial feedlots can afford to own the cattle they feed. Larger feedlots have taken increasing ownership of cattle as the number of customers decline. These operations are mostly well capitalized and better placed to borrow money and carry the financial load of owning cattle and feed throughout the 150-plus days an animal spends on feed. Some of the largest feedlot operations say they now own 70 per cent of the cattle they feed, versus 10 per cent a few years ago. Multi-yard operations have also developed long-term alliances with packers. Some select feeder cattle of a certain specific quality to feed to a desired endpoint for food service or retail beef programs. More and more feedlots will have to seek such linkages if they are to survive the shrinking herd numbers of the next few years.

Cattle Buyers Weekly covers the North American meat and livestock industry. For subscription information, contact Steve Kay at P. O. Box 2533, Petaluma, CA 94953, or at 707-765-1725, or go to www.cattlebuyersweekly.com

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

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