Of Border Closings and BSE:North American Beef/Cattle Market

Integration

Presentation for theSAEA Organized Symposium:The Impacts of Globalization

on Southern Agriculture

Darren Hudson, Parr Rosson, and Flynn Adcock, Mississippi State University and

Texas A&M University

Prepared for the SAEA Annual MeetingsMobile, AL February 5, 2007

Overview

The Growing Integration of the North American Beef and Cattle

BSE – Canada and the United States

Summary and Implications

Market Integration

Harmonization of Border Regulations & Stability of Investment Rules

Increased TradeIncreased InvestmentLeads to Price Convergence (NAFTA)

– Hogs/Pork, .86– Beef/Cattle, .60– Chicken, .26

Regulatory Integration (including SPS) Facilitates Market Integration

ERS, USDA

The Evolving North American Beef Supply Chain

CUSTA and NAFTA Have Led to Greater N.A. Trade in Beef and Cattle

Mexico Supplier of Feeders to U.S., U.S. Returns Beef

Canada Supplier of Cattle and Beef to U.S. – “No Difference in U.S. or Canadian Steer”

Greater Integration of Other Resources (Capital, Technology, Grains) Has Also Occurred

A North American Beef Complex Resulted

Integration in the North American Cattle and Beef Industry, 2002

$301 Million, 816,000 Head of Beef Cattle

$23 Million, 6,000 Metric Tons of Beef

$283 Million, 76,000 Met. Tons of Beef

$75 Million, 105,000 Head of Beef Cattle$592 Million, 206,000 Metric Tons of Beef

$50 Million, 134,000 Head of Beef Cattle$218 Million, 67,000 Metric Tons of Beef

$1.1 Billion, 1.7 Million Head of Beef Cattle$1.1 Billion, 392,000 Metric Tons of Beef

BSE and the North American Beef Supply Chain

BSE Discovered in Canada in June 2003 and in the United States in December 2003

Canada’s Industry Highly Export Dependent and Severely Hurt when U.S. Closed Border

U.S. Industry Less Export Dependent and Suffered Brief Downward Price Impact

2 Year Prohibition of Canadian Live Cattle Shipments Led to Upward Price Pressure in U.S.

Mexico Speedy Resumption of Beef Imports from U.S. and Increase in Feeder Exports to U.S.

The North American Beef Supply Chain: Comments

BSE Reduced and Altered N.A. Beef Industry Integration, Especially Among Canada and the U.S., Temporarily

While Unable to Export Fed Steers to the U.S., Canada Increased Feeding, Slaughter Capacity, and Beef Exports to U.S.

U.S. Firms (Tyson/IBP, Cargill) Have Increased Investment in Canadian Processing Plants

Will Resumption of Canadian Cattle Exports to U.S. Spark Return to 2002 Scenario – Getting Close

Integration in the North American Cattle and Beef Industry, 2004

$543 Million, 1,370,000 Head of Beef Cattle

$33 Million, 5,900 Metric Tons of Beef

$230 Million, 87,700 Metric Tons of Beef

$670,000, 1,400 Head of Beef Cattle$600 Million, 106,500 Metric Tons of Beef

$2.5 Million, 14,000 Head of Beef Cattle$56 Million, 11,800 Metric Tons of Beef

$0, 0 Head of Beef Cattle$1.2 Billion, 355,000 Metric Tons of Beef

Canadian and U.S. Steer Monthly Prices2003 - 2005

Source: Alberta Agriculture, Food and Rural Development, www.agric.gov.ab.ca

$20

$40

$60

$80

$100

$120US$/CWT

Canadian to U.S. Monthly Steer Price Ratios2003 - 2005

Source: Alberta Agriculture, Food and Rural Development, www.agric.gov.ab.ca and USDA

Jan 03

Apr 03

Jul 03

Oct 03

Jan 04

Apr 04

Jul 04

Oct 04

Jan 05

Apr 05

Jul 05

Oct 05

0.2

0.4

0.6

0.8

1.0CN P/US P

U.S. Imports of Live Cattle fromCanada and Mexico, 1989 - 2006

Source: U.S. Trade Intenet System, www.fas.usda.gov/ustrade

1989 1994 2000 20050.0

500.0

1000.0

1500.0

2000.0 Canada Mexico

Potential Disruptions to N.A.Beef Supply Chain

Diseases Such as BSE and FMD Could Again Disrupt Trade

Domestic Legislation, such as MCOOL and the Bioterrorism Act, Have Potential to Cause Disruptions

Anti-Dumping/Countervailing Duty Cases Filed by All Three N.A. Countries Against Each Other Strain Relations and Could Disrupt Trade Flows

Fluctuations in Exchange Rates Often Result in Temporary Changes in Advantages for Either U.S. or Canada/Mexico – and This Will Continue

Summary

North American Beef Is Almost One Supply Chain

Markets React Immediately to ‘News,’ But U.S. Recovered Quickly While Pain Lingered in Canada

U.S. Increased Cattle Imports from Mexico and Beef Imports from Canada and Uruguay to Help Meet Demand

Implications

Disruptions will Continue to Occur, But N.A. Supply Chain Is Resilient

NAFTA Appears to Facilitate Return to Integrated Markets

Adherence to International Standards Important, But Difficult Due to Political Influence

Canadian Beef Exports

Source: Agriculture and Food Canada, USDA/FAS

1 89

2 47

2 92 3 2

9

4 01

4 85

4 45

4 89

2 96

4 54 4 8

7

1995 1997 1999 2001 2003 20050

100

200

300

400

500

600

1,000 MT, Retail Weight

U.S. Mexico Japan Korea Others

Mexico Beef Imports

Source: FAS/USDA attache reports, U.S. Trade Internet System, and Agrculture and Food Canada

30

60

110

150

180

220 24

0

280

225

205

210

1995 1997 1999 2001 2003 20050

50

100

150

200

250

300

350

1,000 MT

U.S. Canada Others

U.S. Beef Exports, 1995 - 2006

5 82

5 98

6 76 6 98

7 85 8 1

3

7 56 8 0

1

8 21

1 35 2 0

2

3 48

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20060

200

400

600

800

1000

1,000 MT (Retail Weight)

Mexico Canada Japan Korea Taiwan Others

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

U.S. Beef Imports, 1995 - 2006

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade, 2006 through November

6 42

6 41 7 3

3 8 23 8 8

1 9 45 9 8

7

9 87

8 98

1 ,10

4

1 ,07

2

8 30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20060

200

400

600

800

1,000

1,200

1,400

1,000 MT (Retail Weight)

Canada Australia New Zealand Uruguay Others