May 20 and Aug. 8 of 2003 are well implanted in the minds of Canadian cattlemen. May 20 was the date the discovery of a single case of bovine spongiform encephalopathy (BSE) in Canada was announced. It's also the date the U.S. closed its border to Canadian beef in all forms.
Meanwhile, on Aug. 8, the U.S. government first announced the partial re-opening of its border to imports of Canadian de-boned beef from animals less than 30 months of age.
Before the BSE announcement, Canada was exporting more than half of its beef production. The U.S., Canada's largest customer, absorbed about 80% of those exports.
Immediately after the BSE announcement and the resulting U.S. border closure, the Canadian cattle market collapsed. The Canadian government came under severe pressure to implement a direct assistance program for cattlemen — particularly for cattle feeders, who had no market for their slaughter-ready cattle.
Early after the border closure, slaughter cattle prices in Canada dropped from $80 (US)/cwt. in early May to $30 (US)/cwt. after the announcement. Having lost its export outlet, Canada couldn't begin to utilize its beef production domestically. Contrary to other countries' experience, however, Canadian consumers rallied to the cause and domestic beef consumption actually rose significantly during the crisis. That fact alone probably saved the Canadian beef industry.
One Cow's Economic Impact
According to an economic analysis commissioned by the Canadian government, the Canadian beef industry has lost $2.5 billion (US) since the discovery of its single BSE case. The report says the discovery of BSE “represents the greatest threat and shock the Canadian Agricultural industry has ever experienced.”
Since ranchers typically don't sell cattle until fall, it was the feedlots that absorbed the summer-long financial hit. What do you do with market-ready slaughter cattle with no market? Even today, with the border partially re-opened, slaughter cattle in Canada are only bringing $58-$60 (US).
While feeder-cattle sales collapsed the day of the announcement, they recovered this fall and have remained reasonably strong (figure 1). During the week of Nov. 21, 500- to 600-lb. Canadian steer feeder calves averaged $89 (US), while 700- to 800-lb feeder steers averaged $79.
Canadian ranchers are employing two general marketing strategies with respect to their 2003 calves. One is to “own cattle when the border opens,” the idea being that they expect cattle prices will come back once the border re-opens. The risk, of course, is that the border won't open in time or at all.
The second strategy is to sell 2003 calves at a reduced price to get some bills paid. Time will tell which strategy was best.
The Cull-Cow Problem
Marketing cull cows has been the Canadian cattleman's nightmare for two reasons. Cull cows can't be marketed domestically due to a lack of harvesting capacity. Nor can they be exported because they're more than 30 months of age.
The cull-cow market has been around 10-15¢ (Cn)/lb. The Nov. 25 reported price was 8-17¢ (Cn)/ lb. A Canadian consulting firm estimates Canadian cull cow losses alone are $500 million (US).
Rather than give away their culls, many ranchers are feeding them through the winter hoping for one more calf while waiting for the border to re-open to cull cows. I expect, however, that the border will open very slowly to cull cows or any animal more than 30 months of age. It could even be years.
Considerable political pressure is being placed on the Canadian government to develop a cull-cow assistance program. In fact, a federal government assistance program for cull cows was about to be announced as this article was being written.
There's no short-run economic answer to Canada's cull-cow problem. There well may not be even an acceptable long-run solution. Meanwhile, Canada is frantically looking at ways to increase cow-slaughter capacity so it doesn't have to bury them.
The Aug. 8 Re-Opening
On Aug. 8, U.S. Ag Secretary Ann Veneman announced USDA would begin accepting applications for import permits for certain ruminant-derived products from Canada. The list included:
boneless sheep or goat meat from animals less than 12 months of age;
boneless bovine meat from cattle less than 30 months of age;
boneless veal (meat) from calves that were 36 weeks of age or younger at slaughter;
fresh or frozen bovine liver;
vaccines for veterinary medicine for non-ruminant use; and
pet products and feed ingredients that contained processed animal protein and tallow of non-ruminant sources when produced in facilities with dedicated manufacturing lines.
The U.S. started accepting boneless beef of cattle less than 30 months of age on Sept. 10. As of Nov. 14, a total of 134.78 million lbs., a 6% drop from 2002 (CanFax Weekly Summary, Nov. 21), had been shipped. Figure 2 depicts Canada's weekly exports for Oct. 3 to Nov. 14, compared to 2002.
The misleading aspect of these numbers is that, prior to the BSE announcement, Canada exported live animals to the U.S., as well as the “in the meat” trade reported above. In 2002, Canada exported 1.686 million live cattle to the U.S. and 1.090 billion lbs. carcass weight “in the meat.” The value of the latter was $1.1 billion.
So, what's the current status of live animal imports from Canada?
On Oct. 31, USDA issued a proposed rule to amend its BSE regulations to establish a new category of regions. The idea is to recognize particular areas that present a minimal risk of BSE introduction into the U.S. via the importation of certain low-risk live ruminants and ruminant products. The proposed rule would place Canada on a list of countries considered minimal risk for BSE, and make Canada eligible to export certain live ruminant and ruminant parts.
The comment period ends Jan. 5. By the time you read this, USDA likely will be assessing those comments and be close to a final decision.
Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or firstname.lastname@example.org.