In its economic analysis, USDA adjusted the annual estimate of older live cattle imports pertaining to the MRRII rule from 657,000 head to only 75,000 beginning in 2008. “Once this rule enters into effect, the primary result is expected to be additional imports of Canadian non-fed beef —  rather than live cattle —  which will replace lean beef imports from other countries such as New Zealand and Australia,” said Gregg Doud, NCBA chief economist.     

Doud and other industry economists do not expect this rule to vastly impact the U.S. cattle market, for the following reasons: 

  • The age requirement in this rule will disqualify most Canadian beef cows from importation for lack of proper age documentation.
  • Transportation costs, the strength of the Canadian dollar, and a surplus of packing capacity in Canada are additional disincentives to live cattle imports.
  • The extra Canadian packing capacity boosted Canadian cull cow and bull slaughter by 50 percent between 2004 and 2006 and has greatly reduced any backlog of cull cows in Canada.
  • Although the price of cull cows in Canada is currently about 20 percent less than it is in the United States, annual Canadian cull cow slaughter is only 13 percent of that in the United States. As a result, it is widely expected that Canadian cull cow prices will appreciate to U.S. levels almost immediately after this rule goes into effect.
  • In the short term, analysts expect U.S. cull cow prices to dip slightly but still stay above 2006 levels.

“Because of a seven percent swing in the exchange rate during just the past 60 days, the biggest variable entering into play with this rule actually involves the movement of feeder cattle,” said Doud. “Even after a $100 per head transportation cost, feeder cattle movement into the United States, mainly from Saskatchewan and Manitoba, could be sizable because of what may be historic differences in the cost of adding a pound of gain in an Alberta feedlot (mid $0.90’s/lb. of gain) versus one in Nebraska (mid $0.60’s/lb of gain).”

“The implementation of this rule also sets the stage for normalization of beef and more importantly live/breeding cattle trade with Mexico, and this will have a positive impact for U.S. cattlemen. We’re also very mindful of the fact that our international trading partners are watching how we handle the resumption of trade with Canada (and Mexico) and will likely apply some of the same standards to resuming trade with us.”

Source: NCBA Cattlemen's Capital Concerns