Chuck Jolley   |   Updated: December 2, 2011

This will be my third annual visit with CBW’s Steve Kay, one of the sharpest observers of the direction and occasional misdirection of the North American cattle business.   His answers to my nosy and occasional misdirected questions are generally spot on, too.  Take a moment to read what he said last year by clicking here.

He tagged the looming GIPSA rule change and the shrinking herd as the top two issues of 2011.  The GIPSA proposal was, indeed hotly debated but a year later it seems to have been seriously wounded.  The size of the herd also had a tremendous effect on the market, maybe even more than he thought.  One of the most devastating droughts in decades forced many Southwestern cattle ranchers to empty out their lots as fast-rising international demand put more pressure on the dwindling beef supply.

In addition to Cattle Buyer’s Weekly, you might see him quoted by national publications like the Wall Street Journal, Forbes and Business Week.  He writes for Western Livestock Journal and contributes regularly to MEAT&POULTRY and BEEF TODAY magazines. He’s also responsible for U.S. Livestock Industry Review, a monthly report on the U.S. beef and pork industries.  I’ve seen his musings from time-to-time in the National Meat Association’s weekly newsletter, too.

This year, we talk more about GIPSA, the continuing impact of the drought and the new kid on the block: pre-harvest intervention.  If you’re not familiar with that term, you need to read this and then do your own research.  It has the potential to become one of the most explosive issues of 2012.

Q. Last year, you listed the proposed GIPSA rule change as the one critical issue that could have the most impact in 2011. Even though it's still not finalized, I think you nailed that one. In a recent article about the shape of the new farm bill where I interviewed several of the big voices in animal agriculture, the common and most contentious theme was how that rule should be written and enforced. It’s definitely caused more bumping and bruising in the cattle industry than an Oklahoma/Oklahoma State football game. With a year of hindsight, how do you see it? What is the most likely outcome?

A. After conducting its own comprehensive economic analysis of the proposed rule, USDA realized the negative impact it would have on the U.S. livestock industry. It sensibly put forward a final rule and interim final rule confined to what Congress in the 2008 Farm Bill required USDA to do. These are nearly all poultry provisions. USDA has dropped some livestock provisions and will continue to review others. These might or might not appear in 2012 in a much diluted form, depending on whether Congress continues to block funding for such provisions (as it did in November).

Many in the industry regard USDA’s action as a victory for common sense. But the battle over the proposed rule also diverted a colossal amount of time and focus away from the truly important issues. These include building stronger demand for beef and developing new products, food safety measures to make beef even safer, pushing for free access to all global markets, and educating consumers about how beef is produced to counter the anti-beef rhetoric from activist groups.

USDA’s action also revealed that producers’ voices still count in Washington. Producers large and small told of the impact the rule would have on their businesses, and members of Congress heard them. It was producer lobbying, not packer lobbying as some suggested, that swayed the debate. Conversely, the groups that supported the proposed rule discovered they had little support in Congress. The political pendulum has swung firmly back in favor of the vast majority of the livestock industry, which is where it should be.

Q. Maybe the one issue no one expected or wanted to see was the continued and devastating drought that hammered the heart of cattle country. Texas and Oklahoma were especially hard hit; parts of New Mexico, Kansas and the Southeast were hurt badly, too. What has it done to the cattle industry - short term and long term?

A. The drought, which began in mid-2010 and is not yet over, dealt a severe blow to individual producers in the affected regions. It has also delayed any possibility of expanding the U.S. cattle herd until late 2012 or 2013. The cruel irony is that the national herd continues to contract just when domestic and global beef demand is increasing. The shrinking numbers mean the cattle feeding and beef processing sectors will be under more pressure next year, as they each attempt to operate profitably with smaller numbers. I hope that producers in unaffected regions see that the prospects for the beef industry are extremely bright and expand their herds as much as possible.

Q. Our friends at USMEF have done an excellent job in spurring sales of beef as well as pork in foreign markets. Have we finally climbed out of the hole that mad cow put us in eight years ago? Or have other factors come into play?

A.: We certainly have. It has been a long haul since 2003 but beef and pork exports are expected to reach record highs this year in terms of value. The prospects are even brighter for 2012, given the implementation of the U.S.-South Korea free trade agreement and a possibly relaxation of age restrictions by Japan on U.S. beef. Ironically, the biggest barrier to new record exports next year, at least in terms of volume, might be lack of available product. U.S. beef though will go to whatever market provides the highest price. The U.S., in part through USMEF’s promotional work, is now selling middle meats in brand-new markets such as the Middle East. Should this trend continue, the value of middle meats that remain on the domestic market will increase, after languishing since 2008.

Q. Beef prices, of course, have been a source of some serious head scratching. Sometimes, prices seemed to be almost upside down. Taking into account the still shrinking herd, changing demand and a world economy that’s still seriously wounded, what can we expect in 2012?

Q.  Right now, retail beef prices are significantly lagging the record high wholesale prices and live cattle prices. This has allowed consumers to keep buying the beef items they most like. The danger going forward is that the record prices will force retailers to raise their prices by as much as 10% from today’s levels. This might impact Americans’ ability or willingness to pay such prices. Demand in 2012 will be the key to how high cattle prices go. Americans are already eating even more ground beef, primarily in fresh form and as hamburgers. This trend will continue and will mean that more and more sub-primal cuts will go through the grinder.

Q. One of the biggest news stories this year was USDA’s decision to include the ‘Big Six’ STEC’s as adulterants beginning in March 2012. A few weeks ago, Dr. Mohammed Koohmaraie of IEH Labs estimated that the number of positives might increase by as much as 4% to 10%. If he’s anywhere close on his guess, what would the effect be on the cattle market, especially during the summer of 2012?

A. The impact will not be on the price of live cattle but on the wholesale price of beef trimmings. More positives will mean that more trim will have to be diverted to cooking, so there will be less on the fresh/frozen market. In addition, product that is held but tests negative will be priced lower than other product because the hold time is much longer (six to seven days) than for E. coli O157:H7, and that product will have a shorter shelf life.

Q. Dr. Koohmaraie’s comment leads me to ask about the growing movement toward pre-harvest intervention. What can the cattle industry do to comply if the concept goes forward? Will cattlemen be willing to take those measures?

A. USDA’s decision over the six STECS, and its likely inclusion of even more STECS in the future, means that even more resources need to be devoted to pre-harvest interventions. One tangible action cattle producers can take is to increase the beef checkoff’s $1 per head levy specifically to increase funding for food safety research.

Q. Thousands of people read Cattlenetwork. What would you like to say to them?

A.  Growing global demand for beef is hugely positive for U.S. cattle/beef producers. The U.S. already produces the highest-quality grain-fed beef in the world. It is rapidly becoming one of the most sought-after food products in the world. I encourage producers to expand to take advantage of this. The future is extremely bright for those who do.

Chuck Jolley is a free lance writer, based in Kansas City, who covers a wide range of ag industry topics for Vance Publishing.

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