Meat Matters

Fewer Cattle Numbers & COOL Claim Another Packer

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The closure of the Brawley, CA, packing plant will be a big blow to feedlots in the region, some of which joined forces to invest $78 million to build the plant in 2001.

The shrinking U.S. cattle herd and mandatory country-of-origin labeling (COOL) have claimed another packing plant casualty. Yet cow-calf producers appear to have little appetite for expanding their herds, and the impact of COOL on cattle imports is likely to continue for at least another year. Thus, the beef industry should brace itself for the closure of another sizeable plant this year.

National Beef Packing announced on Jan. 31 that it will close its Brawley, CA, beef processing plant on April 4. The plant has struggled with a declining supply of fed cattle and faces operating losses for the foreseeable future, says National’s majority owner, Leucadia National Corporation.

The declining cattle supply largely reflects the big reduction last year in imports of Mexican feeder cattle. The reduction was due to the impact of COOL and a recovery in pasture conditions in Mexico. Southwest feedlots have historically depended on a steady supply of Mexican cattle, so last year’s reduction tightened the overall cattle supply.

The closure will be a big blow to feedlots in the region, some of which joined forces to invest $78 million to build the plant in 2001. But the plant later lost money and the owners sold it to National in mid-2006. Cattle feeders will now have to send cattle to the JBS plant in Tolleson, AZ; to Cargill’s plant in Fresno, CA; or all the way to Texas.

Cargill idled its Plainview, TX, plant early last year, also because of shrinking cattle supplies. That plant had a processing capacity of 4,650 head/day, while the Brawley plant has a capacity of 2,000 head/day. That’s a big combined loss in capacity for the region.

National was perhaps prescient in believing there will be no relief in the region’s cattle supply this year. USDA’s annual Cattle Inventory report, released on Jan. 31, confirmed that the total cattle herd shrank again in 2013, by 1.570 million head, to its smallest total since 1951. Beef cow numbers in 2013 declined by 264,000 head, following a loss of 863,000 head in 2012.

 

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Perhaps the report’s most important number was beef cow replacements, which increased only 90,200 head from the year before; analysts had forecast a figure almost double that. A year ago, cow-calf producers reported their intentions to retain 100,000 more heifers than the year before, but sold them instead. Thus, the modest intended increase this year might end up meaning little or no herd expansion.

One contributing factor is drought, which continues to impact some major cow-calf states and all western states. California is in the grips of extreme drought that shows no sign of breaking, though some precipitation was received in early February. California’s beef cow numbers declined only 10,000 head last year, but will almost certainly decline more this year.

Meanwhile, the battle over COOL will most likely drag into 2015. Meat and livestock groups spent months trying to persuade the farm bill’s conferees and other legislators that the COOL rule needed to be amended to avoid retaliation from Canada and Mexico if and when they prevail at the World Trade Organization (WTO). But the farm bill’s authors crushed hopes that the bill would contain a COOL provision.

This failure means opponents must now wait for the WTO to determine whether the U.S. remains out of compliance with its WTO obligations. That’s assuming that the groups fail in their ongoing legal efforts to get the COOL rule suspended.

A WTO disputes panel was met Feb. 18-19 to hear continuing arguments from the U.S., Canada and Mexico. This process will continue the rest of the year, because one side or the other will appeal the panel’s final decision.

Canada and Mexico are widely expected to prevail, after which the WTO will allow them to apply $1.5 billion of retaliatory tariffs against a wide range of U.S. exports to both countries. That includes livestock and meat.

Steve Kay is editor and publisher of Cattle Buyers Weekly.

 

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Discuss this Blog Entry 10

Anonymous (not verified)
on Feb 21, 2014

COOL?? Really?? You don't think the drought in the West, continuing herd reduction, and the fact that the drought in Mexico in the last couple of years which has lead to herd reduction to Mexico is not more of the factor than COOL? I sure would like to see the facts that point to COOL causing plant closures than just your speculation and bias toward a law supported by consumer and majority of cattle producers.

Anonymous (not verified)
on Feb 24, 2014

I completely agree. Its like none of the NCBA followers even understand what supply and demand are. They are just like the rest of the government pushing an agenda that is so far fetched and funded by people (goverment mandated) that dont agree with them. I dont believe there is one shred of truth to COOL causing the Brawley plant to close.

ricky ruffin (not verified)
on Feb 21, 2014

You never said how you thought cool caused the National plant in Brawley CA to close. As lax as the cool reg are now they sure don't have any stringent labeling requirements. It closed because of drought in the area and cattle numbers down because no new ranchers are going to invest is such a risky business for so little return on their investment.

Frank Schlichting (not verified)
on Feb 23, 2014

I can explain the effect of COOL on cattle imports to the USA. American packers pay $ 100-150 less for imported cattle to pay for the added expense of complying with COOL so they have a tough time competing with packers in Mexico and Canada.

I wonder why none of the packers close to Canada just stop processing American cattle. If they only processed Canadian cattle there wouldn't be any additional costs the segregate the product and they could take advantage of cheaper prices of cattle in Canada.

Charles R. phelps (not verified)
on Feb 27, 2014

I don't understand all the fuss about COOL. To me it is politically driven and the rich fat cats will not be able to capitalize on cheap imported beef. How could COOL hurt a small producer such as myself whom sells and supports USA beef. Am I wrong???

Ken Martin (not verified)
on Feb 27, 2014

Bottom line...................a this point in the cattle cycle I really could care less if Canada placed tariffs on exports on livestock or meat. My belief is Canada's importation of American product is neglible.

Charles R. phelps (not verified)
on Feb 27, 2014

Excellent point

D WALTED (not verified)
on Feb 27, 2014

If U factor in the UDA lifting the ban of Brazil live beef imports to the US, then wouldn't that increase cattle slaughter numbers too???

Ken Martin (not verified)
on Feb 27, 2014

IMO the problem with COOL is that it makes it more difficult for packers and retailers to leverage lower prices on the American livestock producer and increase their margins of profit. Plenty of smoke screens have been sent up about the difficulty of segregating livestock from Canada and Mexicio......yadda....yadda........Give the consumer the information and let them decide.

Leo McDonnell (not verified)
on Feb 27, 2014

I believe Mr Kaye’s comments help exemplify the inability of this industry to address the contraction in our cattle industry along with our failed policies. You cannot build or sustain a successful long term plan if your foundation for such decisions is faulty or biased.
Mr Kaye makes the lame statement that COOL has led to decline in Mexican cattle numbers into the US and thus is partially to blame for the Brawley plant shutdown. Interesting statement as Brawley has historically killed a vast majority of Holstein’s. Also Brawley was very dependent on key feeders annual commitments to provide finished cattle and one of those abandoned those commitments and went with a competing packer. Also, Brawley has had several other issues that have weighed heavy on their business.
The fact is, since COOL was implemented in 2009 Mexican imports have steadily increased with 2011 and 2012 being at or near record levels. It was not until 2013 that Mexican imports dropped significantly, and as USDA AMS reported “this dip in Mexican cattle import numbers finally comes as a reflection of inventory numbers in Mexico that have been down over the last few years”, which was due to severe droughts. Much the same phenomena as we see today in US as we try to rebuild.
Mr Kaye also states that Canada and Mexico are widely expected to prevail at the WTO hearings, after which the WTO will allow them to apply $1.5 billion of retaliatory tariffs. I believe Mr Kaye knows very well that such statements border on fraud and are in fact put out there as scare tactics to encourage faulty industry policy and support. I believe we all remember Mr Kaye saying COOL was going to cost well over a $billion to implement, when in fact it didn’t, and eneded up beong not even 5% of that. The retaliatory tariffs Mr Kayes threatens us with are no different, and they will not be decided by Canada and Mexico, but decided by a WTO process. To date neither country has provided compelling evidence to even substantiate 5% of such wild claims.
As an industry we will not solve our problems by using the same sources that led us into them.

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