Commentary by Bill Bullard, CEO, R-CALF USA
BILLINGS, MT | I’ve titled this episode “Beef Trade for Dummies,” but I’m not singling anyone out. Instead, I want to explain how our current trade policies for cattle and beef are benefiting the very few at the expense of the many.
Let’s start with our trade in cattle and beef with who we’ve been told are our two most important trading partners: Canada and Mexico.
But before we do, imagine that you’re a savvy international trader and you’re sitting at a table in Las Vegas across from your two most important trading partners. And then the game begins. Your two partners hand you $2 and you put that in your pocket. Then you take your wallet out and hand them $5. In return, your partners hand you another $2 and you put that in your pocket, and then you take your wallet out again and hand them another $5. And let’s say you’ve been doing this every year for the past five years.
So just how long will your two partners keep playing this game? The answer is until you quit!
The game you’ve been playing mimics our actual trade in cattle and beef with Canada and Mexico. For the past five years on average, those two countries have purchased $2 billion in cattle and beef from us (they give us $2), and we’ve turned around and purchased over $5 billion in cattle and beef from them (we give them $5).
How do we justify this huge trade imbalance that’s left the United States awash with an average $3 billion trade deficit each year?
And just a note: It’s getting worse. Our cattle and beef trade deficit has increased in each of the past five years. Last year our trade deficit hit a record high of over $4 billion with Canada and Mexico.
But you might think we should be looking at trade from a supply standpoint, and that’s right because it is the available supply of beef in our domestic market that most influences the demand and price for your cattle. After all, our industry just went for many years with record beef prices and new record export sales, and yet we had seriously depressed cattle prices.
It wasn’t until supplies became exceedingly tight that cattle prices improved. So, you’re right, it’s supplies that matter most.
So, let’s look at the supply side and look at the volume of imports and exports in our trade with Canada and Mexico. For the past five years, we exported on average just under 1 billion pounds of beef and cattle to Canada and Mexico, but we imported on average just under 3 billion pounds.
So, we import three times the quantity (or supply) of beef and cattle than we export, and we pay two and one-half times more for the beef and cattle from Canada and Mexico than we’re able to sell to them.
In what world does this make sense for domestic cattle producers?
Consider that for the past five years the average per pound price of Canadian and Mexican imports was $0.33 less than the per pound price of our exports.
So, it does make perfect sense to maintain a deficit in the multinational beef packers’ world. They’re able to sell some product for a higher price than what it would cost them, but the real advantage is to import huge quantities of lower cost beef and cattle from Canada and Mexico and to use those additional supplies to effectively reduce demand for domestic cattle and, hence, the value of domestic cattle.
But that’s not all.
You’ve certainly heard the “tongue” argument from the multinational beef packers and their allies when they explain why you should be happy importing far more price-depressing supply than we’re able to export. Their tongue argument goes like this: “In the U.S., beef tongue might be valued at $1.00 or less per pound, yet the Japanese are willing to pay $5.00 to $10 per pound for it.” In other words, they say we export the parts of our cattle, like tongues, that have little value in the U.S. market.
If that’s true, then why, for example, did we import 2.3 million pounds of tongues from Canada than we exported to them last year? And at a net cost of $8.5 million?
Do you suppose the multinational packers are importing low-cost tongues from Canada and then using your beef checkoff dollars to sell those imported tongues to Japan in a box that says, “U.S. Beef”?
So, let’s sum this up. We import three times the beef and cattle supplies from Canada and Mexico than we export to them, and we pay two and one-half times more for those supplies than we’re able to sell back to them. But we’re happy doing this because the multinational beef packers can make a killing selling cheap imported tongues to Japan in a box that says, “U.S. Beef.”
Who’s the dummy? How long will independent cattle producers continue supporting trade policies that work against their financial and economic interests. What we know for sure is that our trading partners won’t end this game until we do.
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R-CALF USA’s weekly commentary educates and informs both consumers and producers about timely issues important to the U.S. cattle and sheep industries and rural America.
Ranchers Cattlemen Action Legal Fund United Stockgrowers of America (R-CALF USA) is the largest producer-only trade association in the United States. It is a national, nonprofit organization dedicated to ensuring the continued profitability and viability of the U.S. cattle and sheep industries. Visit www.r-calfusa.com or call 406-252-2516 for more information.