When supply goes up, prices go down. When supply goes down, prices go up. It's that simple, even when you consider Canadian trade.

Increase production by 6% and you'll have something greater than a 6% price drop. Decrease production by 6% and you'll see price go up more than 6%. It's my contention that the major problem in today's beef market is that something has to be done to fundamentally reduce the supply of most agricultural products - dairy is the current exception.

The U.S. meat complex is in high gear and is projected to break another record in 1998. This year, beef production is projected at 25.5 billion pounds, which if realized will almost match the 1976 record of 25.7 billion pounds.

Pork production in 1998 is projected to be at an all-time high - up 8% from last year. Poultry production is projected up 2-3%, once again setting a record.

The increased meat production in 1998 has pressured cattle, hog and turkey prices. The national average prices received for these commodities in July were lower than last year: 7% lower for cattle; 39% for hogs; and 9% for turkeys. All is not bad for consumers, however, as U.S. per-capita meat consumption is projected to set an all-time record at 211.1 lbs. (retail weight).

Fewer, But Bigger Cattle In 1997, the U.S. slaughtered 36.318 million cattle, down 266,000 head (1%) from 1996. The U.S. cattle slaughter during the first seven months of 1998 totaled 20.715 million head, down 666,000 head (3.1%) from the same time period in 1997. Why is 1998 projected to be a record U.S. beef production year when the U.S. all-cattle number has been decreasing since Jan. 1, 1996?

Total pounds slaughtered is comprised of the number of head slaughtered and the average slaughter weight per animal. Compounding the problem is the fact that average year-to-date slaughter weight has averaged 27 lbs. per animal larger in 1998, for a net gain of 3.9% more pounds per animal.

While total feeder numbers may be going down, we are adding more heifers to the slaughter mix and thus slowing down the drop in slaughter numbers. The decision was to feed them rather than breed them. In 1997 alone we added 785,000 heifers to the slaughter mix - a 7.5% increase compared to heifer slaughter in 1996. In summary, a 3.1% drop in slaughter cattle numbers and a 3.9% increase in slaughter weight nets out to increased beef production.

The number representing total animals slaughtered comprises domestic animal slaughter and imported animals slaughtered. Domestic animal slaughter is affected by the cattle cycle, how many heifers are fed instead of bred and the number of cull cows slaughtered.

In 1997, the U.S. imported 2.046 million live cattle from all countries, representing 3.43% of the cattle marketed. In 1997, the U.S. also exported 282,300 cattle to all countries representing less than 0.5% of cattle marketed. Net imports - imports minus exports - was 1.764 million head, or 4.8% of total cattle slaughter.

Mexico and Canada are our primary live-cattle trading partners, as virtually all of the live cattle imported into the U.S. come from these two coun tries. At the same time, more than 90% of all cattle exported from the U.S. goes to these two countries.

Canada has increased the number of cattle exported to the U.S. in the last 10 years. In 1998, Canada sent 487,500 head of cattle to the U.S. By 1996, this Canadian number had increased to 1.51 million head, and then it backed off to 1.38 million head in 1997. Contrast this with U.S. exports to Canada. In 1988, U.S. live exports to Canada totaled 15,300 head. The number rose to 92,400 head in 1994 and then declined to 41,200 head in 1997.

Net-live animals (imports minus exports) from Canada rose from 472,200 head in 1988 to 1.47 million head in 1996 before declining to 1.34 million head in 1997. If Canadian imports would have been totally eliminated, U.S. commercial slaughter numbers would have been reduced by 1.4% in 1988 and 4.1% in 1996.

Add Meat To The Equation Live-cattle numbers, however, are not the total picture. Imports and exports of livestock products take many forms. Live animals is one form of product, but meat, by-products, manufactured goods, etc. are other forms. The two products that most directly affect livestock producers are live animals and meat.

The problem with getting an accurate picture of how much of the market live animal and meat imports represent stems from the fact that they are not marketed on a uniform basis.

Live animals come into the country on a per-head basis and come in the form of breeding livestock, feeder calves, cull cows and slaughter animals. Meat comes into the country on a product-weight (tonnage) basis without a corresponding head-count number.

So, to get a picture of how much Canadian beef trade contributes to the total U.S. market, either live animals have to be converted to meat-equivalent basis or meat has to be converted to a live-animal-equivalent basis. I felt that a conversion to live animals would appeal to livestock producers, so I've converted meat to live animal equivalents. The term "animal equivalents" is used here as a representation of slaughter weight cattle.

Canada is both a major destination of U.S. beef in the East and a major foreign supplier of beef in the West. During the last 10 years, U.S. imports of beef and veal from Canada grew from 243,564 animal equivalents in 1988 to 1.018 million animal equivalents in 1997. Canadian net imports (imports minus exports) beef and veal have ranged from a negative 51,200 animal equivalents in 1991 to a positive 614,500 animal equivalents in 1997.

Combining live-animal trade with meat trade illustrates that the U.S. total imports from Canada have risen in the last decade while U.S. total beef exports to Canada rose in the early part of the decade and since then have remained rather stable.

Without Canadian Imports If Canadian imports had been eliminated, total U.S. beef supplies would have been 2.1% smaller in 1988 and 6.6% smaller in 1997. On the other hand, if U.S. imports plus exports to Canada were eliminated in 1998, total U.S. beef supplies would have been about 1.9% smaller. Without Canadian beef trade in either direction in 1997, U.S. beef supplies would have been 5.6% smaller.

Using a crude 1.6% price flexibility, a 5.6% drop in U.S. beef supplies could result in a 9% increase in U.S. beef prices. For $60/cwt. slaughter cattle, 9% would be $5.40/cwt. or $65 per 1,200-lb. slaughter animal. If Canada were to sell meat on the world market, we probably would see U.S. exports to other countries go down, reducing our beef prices back toward today's $60 cattle.

In my judgment, banning Canadian imports would not solve the current price problem brought on by the record meat (beef, pork and poultry) supplies. The answer to the record North American beef production, and the resulting current low prices, is some form of supply reduction. I believe that is exactly what the market is currently doing. Beef supply is on its way down in 1999, and beef prices will be on their way up. The beef price cycle of the 1990s is alive and well.