The year is drawing to an end and it's time for my annual visit with Steve Kay. He edits and publishes Cattle Buyers Weekly from his aerie in downtown Petaluma, California. Kay is a one-man publishing empire who also writes for the Australia's Beef Central, Western Livestock Journal, MEAT&POULTRY magazine and BEEF TODAY magazine. He's the author of the U.S. Livestock Industry Review, a monthly report on the U.S. beef and pork industries.
He is recognized around the world as an authoritative and impartial observer of the North American meat and livestock industry. Widely quoted in national and publications like the Wall Street Journal, Forbes and Business Week, he also has a radio program on Midwest ag farm radio KRVN, Lexington, Nebraska.
And, once a year, he takes a few minutes out of his incredibly busy schedule to share his views about the cattle industry with me. I posed the questions; he answered succinctly.
Q. Steve, let's talk about the hot topics that will lead us into 2014. First, the herd is the smallest since 1952, with much of the decline caused by several years of devastating drought in our major cow-calf states. Some people are confident the drought has broken and that, with better cattle prices, we are about to embark on some serious rebuilding. Others point to the advancing age of the average rancher and question if he has the desire or the time to rebuild. What's your take?
A. Drought was the main reason for the decline in herd numbers but high input costs and lack of financing have also inhibited herd expansion. The average age of ranchers and their aversion to risk is another factor. I see no evidence of herd rebuilding starting yet although producers might have kept back a few more replacement heifers this year than last. Remember though that the replacement number on January 1 this year was 200,000 head higher than the year before and all these have gone to feeding and slaughter.
Whether we see an increase in net heifer retention in 2014, i.e., herd growth, will depend on pasture conditions throughout the five largest cow-calf states, the price of calves and feeder cattle, adequate financing to carry that heifer until she has a calf, and other factors. I doubt there will be much herd growth in 2014 because parts of Cow-Calf Country will need at least two years of much improved pasture to encourage producers to increase their stocking rates.
Q. Looking at the next generation of ranchers, we'll need lots of new people to enter the industry as the current crop 'ages out.' Research already shows the oldest group of people in the American work force is farmers and ranchers. Where do we find the next generation and can we do it quickly enough to keep cattle ranching a major part of our agriculture 25 years from now or will we be faced with some major restructuring?
A. The next generation of ranchers is in place because nearly all the U.S.’s ranching operations are family-owned. What is urgently needed to help that generational transition of ownership is the repeal of the death tax, which is considered one of the leading causes of the breakup of multi-generation family farms and ranches. Congress at the end of 2012 passed the American Taxpayer Relief Act (ATRA), which gave some relief. But the tax needs to be fully repealed. The industry also needs to persuade the financial sector to support the cattle/beef industry with new and innovative lending programs.
Q. The U.S. Meat Export Federation reports that our export business is booming and domestic retail prices are at an all time high. For the future of beef consumption in America, do those two things qualify as good news/bad news?
A. Both are good news for the industry. Demand for U.S. beef has been much better than expected this year. There are clear signs that consumers at home and abroad are prepared to pay more for high-quality U.S. beef. Tyson Foods on November 18 reported that its average selling price for beef in fiscal 2013 (ended September 28) was up 6.6% on average prices in 2012. This followed a 14.4% increase in 2012.
One caveat about higher beef prices going forward is their relationship with pork and chicken. But available beef supplies in 2014 are currently projected by USDA to be 54.0 pounds per person, down from 56.5 pounds this year. I’m confident that Americans will continue to pay more for beef because they will buy less. They will also pay more because they are beef lovers and there is no other protein that provides the same degree of eating pleasure.
Q. Let's talk about beta-agonists. Soon after they were first introduced, the folks who market USDA Prime and Choice beef suggested their use had a negative impact on quality grading. Recently, some have expressed concerns about animal wellness issues that might be created by one of the supplements. World-renowned animal welfare specialist Dr. Temple Grandin has expressed serious reservations. Do we have a problem?
A. The increased use of the two beta-agonists might have caused a slight decline in grading quality in recent years, although there are other factors as well. One of the two agonists, Zilmax, was pulled off the market in mid-August by manufacturer Merck after Tyson Foods expressed concerns about it possibly causing animal wellness issues. The last Zilmax-fed cattle were harvested by the end of September.
Cattle the week ended September 27 graded 3.23 percent Prime and 60.55 percent Choice. By the week ended November 1, they graded 4.50 percent Prime and 64.22 percent Choice. This suggests the absence of Zilmax and producers feeding cattle longer with more corn improved their grading. Cattle feeders and the wider industry will have to carefully weigh the pros and cons of using Zilmax if and when it returns to the market.
They will need to ask themselves if it is worth spending $25 per head on Zilmax if they can get this and more through better grading. As for the link to animal wellness concerns, the industry will need to see a lot more evidence that this link is real rather than perceived. Cattle feeders will also need to examine whether they used Zilmax too aggressively.
Q. Fifteen years ago, I was discussing the future of the meat industry with representatives of a major meat industry trade organization. They dismissed the growth of vegetarianism as just 2 percent of the public and nothing to worry about. During that time, though, the average serving size of a piece of meat has declined significantly and more people - especially the Millennials - are opting for a diet that includes a lot less meat. Is this an inevitable trend that won't be reversed or can the industry manage it?
A. I’m not concerned about these trends. The first reflects the reality that an aging Baby Boomer generation can’t eat a 16-ounce steak at a sitting and would prefer half that size. Retailers and restaurant operators, helped by the industry, are responding creatively to this.
The key to encouraging the Millennial generation to eat more meat, and beef in particular, is to engage them in the social media, to explain all aspects of beef production to them, and educate them about selecting and preparing beef cuts. Many have no idea what cuts to buy and how to cook them. So they avoid buying beef altogether although they might love eating it.
Q. MCOOL threatens to create a North American trade war. Canadian Agriculture Minister Gerry Ritz, accompanied by Ag ministers from several provinces, spoke to a group at the North American Meat Association's Outlook Conference early this month and did some serious saber rattling.
Although Ritz pinned his hopes for a peaceful resolution in the Farm Bill, he reiterated Canada’s threat of $1 billion in retaliatory tariffs if the new version of MCOOL was not rescinded. Mexico could follow suit. Is there any hope that this dispute can be handled amicably?
A. No. The dispute has pitted the U.S. against Canada and Mexico at the World Trade Organization level, and final resolution there might not occur until early 2015. The possibility of an amendment to repeal MCOOL through the proposed new Farm Bill is currently pitting MCOOL supporters against opponents. Each is fighting tooth-and-nail to persuade the Farm Bill conferees either to leave MCOOL intact or get rid of it.
Should the Farm Bill not contain a MCOOL provision, the battle over MCOOL will only intensify in 2014. One can only hope a resolution is found before Canada’s threatened tariffs take effect and damage dozens of American businesses that export goods to Canada.