The U.S. beef trade and the Restricted Feeder Cattle Program offer an example.
Since the early 1990s, U.S. live cattle and beef imports and exports have received considerable attention, particularly as they affect cattle prices. Although producers have welcomed increased exports, they've been less enthusiastic about increased imports, particularly in live cattle.
The fundamental principle is, however, that international effects on U.S. cattle prices are determined by net trade.
Focusing exclusively on either imports or exports ignores important economic information. For example, net balances (import quantities less export quantities or values) account for complete information. This includes such items as foreign and domestic demands and supplies, international beef prices and production costs, beef quality, exchange rates, transportation costs and international trade barriers.
The U.S. has always been a net importer of cattle and beef (combined), but this net position has decreased even though imports have increased. For example, U.S. net imports of cattle and beef in 1988 were 2.1 billion lbs. (about 8% of total beef supplies). In 1999, these same net imports were 1.4 billion lbs., or 5% of total beef supplies.
Meanwhile, net export value of beef and live cattle (value of exports minus value of imports) decreased from -$1.34 billion in 1988 to -$22.40 million in 1999. At the same time, imports of cattle and beef increased from 3 billion to 3.9 billion lbs. Based on average slaughter prices for the 1988-1999 period, this improvement in trade supported fed steer prices by $2.53/cwt. and feeder steer prices by $3.87/cwt.
Similarly, we can compare the cattle price effects from the Restricted Feeder Cattle Program (RFCP), formerly the Northwest Pilot Project. U.S. feeder cattle exports to Canada substantially increased during the marketing periods of October 1998 to March 1999 and October 1999 to March 2000 (i.e., a 253% increase from 51,009 head to 180,300 head).
Table 1 shows exports of the later period for the six participating states. Increased exports under the RFCP program reflect increased Canadian demand due to expanding Canadian cattle feeding and meat packing capacities, more feedlot participation due to reduced animal identification costs, and increased U.S. supply due to decreased health and certification costs.
The initial reaction would be that U.S. feeder cattle exports would be offset by imports of Canadian meat, thus, no effect on cattle prices. However, statistical results don't support this.
As shown in Table 2, net imports between the marketing periods decreased from 0.64 billion lbs. to 0.53 billion lbs. or from 4.6% of total supplies to 3.6% of total supplies. The improvement implied a 92›/cwt. support for fed cattle price and $1.4l/cwt. support for feeder cattle price (based on average prices of these periods).
Where did the support come from? Decreased slaughter cattle imports from Canada, increased cattle exports to Canada and Mexico, and increased U.S. beef exports to Canada and Mexico more than offset increased feeder imports from Mexico and increased beef imports from Canada.
The RFCP's price effects are shown in the blue-tinted portion of Table 2. Analysis indicates that if there had been no increase in RFCP exports from October 1998-March 1999 to October 1999-March 2000, the price support for fed steers still would have been 59›/cwt.
Thus, the slaughter price advantage exclusively from the program was 33›/cwt., and the feeder price advantage was 51›/cwt. These impacts are small, but reflect a small increase in export demand. Some producers have also benefited from lower transportation costs to Canadian feedlots because of feeder back hauls after trucking in fed cattle.
In conclusion, the U.S. net trade position in cattle and beef has improved, and from the producer's vantage, pursuing markets and trade policies that improve the net position are economically beneficial.