At the end of every year, I get in touch with Steve Kay, one of the most erudite observers of America’s cattle business and ask him to talk about the state of the industry. We review the soon-to-be-gone year and try to look at what might be coming in the New Year.
When it comes to cattle, Kay knows what he’s talking about. He edits and publishes Cattle Buyers Weekly, a marketing and business newsletter focusing on North America but covering the global meat and livestock industry as well. A 41-year veteran of daily newspaper, weekly magazine and newsletter journalism in three countries, he also writes monthly columns for several print and web-based publications in the U.S., Canada and Australia.
His work has earned many honors. Two of them are especially important to him. In September, he was inducted into the Meat Industry Hall of Fame, honoring him as “an authoritative yet impartial analyst of the North American meat and livestock industry as well as a talented journalist who has been widely quoted in national newspapers and news magazines, including the Wall Street Journal, Forbes and Business Week.” Last year, he was awarded The American Meat Institute’s highest award, its Industry Achievement Award, “in recognition of your exceptional coverage of beef industry issues through Cattle Buyers Weekly and the helpful insights and analysis you provide to reporters and others.”
So let’s get to it. As usual, I posed half a dozen questions and his answers were concise, well-balanced and to the point.
Q. Last year, we talked about the rising price of beef and I asked if there might be a breaking point for consumer buying. You said, "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. Those increases are continuing as the average consumer's pocket book is either static or shrinking. Their reaction seems to be a willingness to pay a little more and buy a little less. Are we building a house of cards that could soon come crashing down?
A. Tyson’s average beef sales price in fiscal 2014 was up another 12.8 percent. USDA has forecast that overall consumer beef prices in calendar 2014 will be up 11-12 percent on 2013. This year saw consumers willing and able to absorb higher prices until September. But beef sales then began to slow as monthly retail prices kept hitting new highs. By November, beef also faced a contra-seasonal surge in pork production. Both factors meant less retail beef and more pork feature activity. Consumers bought more pork because it was much cheaper than beef and this will continue well in to next year.
Consumers are buying less beef only because less is available. Americans consumed an average 56.3 pounds of beef in 2013 but will eat only 54.2 pounds this year and 52.2 pounds in 2015, according to USDA. It’s important though not to confuse the decline in per capita consumption with either meat preference or demand. The decline is strictly a function of how much beef is available.
Americans and consumers overseas will keep buying our beef because it is the highest-quality beef in the world. American consumers will get some relief in 2015, as USDA forecasts beef prices to increase only 4.5 to 5.5 percent. The increase might be less than this if the industry produces more beef as USDA is forecasting. The biggest relief will come in the second half of next year. In addition, Americans have more disposable income to spend on beef because of the huge decline in prices at the gas pump.
Q. Although the 'head count' of the U.S. herd keeps dropping, the available product isn't declining as quickly. Beta agonists have helped boost weight but they've fallen on hard times lately. The Wall Street Journal reported that two lawsuits were filed on Nov. 6 in the U.S. District Court of Northern California. Plaintiffs including the Center for Food Safety, the Humane Society of the United States, and United Farm Workers of America claimed that in approving those drugs "the FDA failed to adequately consider the drugs’ collective effects on animal welfare, worker safety, and wildlife and U.S. waterways." Is there a viable future for those products?
A. One product, Zilmax, has been off the market since August 2013 and I see no sign of it returning any time soon. Many in the industry realize the industry does not need Zilmax to add weight. Cattle feeders this year did it the old-fashioned way by feeding cattle longer and with more corn. So carcass weights in November were at record levels. Many in the industry also realize it would be hard to explain to the public why they are going to start using such a product again. As for another beta-agonist, Optaflexx, it is wisely used and I have seen no reports of any of the effects claimed in the two lawsuits.
Q. The WTO ruling on COOL should not have surprised anyone. Vilsack's revision was little more than rearranging a few commas. At a recent Heritage Foundation meeting, Edward Farrell, a lawyer with the beltway's OFW law firm, said an appeal would only prolong a process that's already played out. Will the U.S. acquiesce? What will be the effect on the North American herd and trade between the three protagonists in general?
A. USDA was merely playing for time when it appealed the WTO’s final ruling. Now Congress has started to act on COOL and we will see a legislative fix to the COOL law, probably later next year. This will come before Canada and Mexico get permission to impose retaliatory duties on a wide range of U.S. exports.
In the meantime, the North American cattle herd keeps shrinking. The cattle total in the three countries will likely be down 835,000 head on January 1, 2015 from a year earlier. This though is not because of COOL. In fact, the U.S. up until November 30 this year had imported 21.6 percent or 247,000 more cattle than in the same 11 months in 2013. This was strictly due to record feeder cattle prices in the U.S. Final resolution of COOL and the end of having to segregate Canadian and Mexican cattle will mean even more imports after that.
Q. The use of antibiotics has been a simmering issue for almost two decades and lately it has come to a full boil. Would you shed some factual light on the subject and outline what might happen if antibiotic use is seriously curtailed in the near future?
A. One of the most important facts is that some 80 percent of antibiotics used in livestock production are ionophores, compounds not used in human medicine. Another is that antibiotics used for livestock passed a rigorous Food and Drug Administration approval process and are used only to treat and prevent illness in animals.
However, the beef industry needs to see if it should produce more beef without the use of any antibiotics or even growth promotants (implants) to take advantage of the growing demand for so-called “natural” beef. Carl’s Jr. has just introduced an “All-Natural Burger” at all its 1,150 stores. The burger comes from beef raised without antibiotics or added hormones. The chain is using Australian beef because there is not enough domestic supply of natural beef available.
Yum Brands’ new CEO told The Wall Street Journal (reported on Dec 12) that he would like Pizza Hut and Taco Bell to switch to hormone-and antibiotic-free beef. A recent survey consumer by research firm Technomic revealed that 72 percent of consumers equate “natural” with “healthy.” So the market, rather than any other factor, might determine the future of antibiotics in livestock production. That’s how it should be.
Q. Let's talk about the beef checkoff or should I say checkoffs? Vilsack has threatened to create a second checkoff program next year. He seems to have the legal authority but will he actually do it? And what will its effect be on the cattle industry?
A. The Secretary ignored several facts when saying he might create a second checkoff, which he has the authority to do under a 1996 generic commodity checkoff law. Ten of the 11 entities on a working group that met for three years were in agreement about changes to the current checkoff program. That Vilsack acted because one entity pulled out of the working group made no sense. He also ignored the fact that an independent research company’s annual poll of 1,200 randomly-chosen cattle producers elicited a 78 percent approval rating of the checkoff. A large majority also said they see the checkoff as well-managed. The argument for a single, industry-controlled beef checkoff is so compelling that the Secretary will withdraw his threat on a second checkoff.
Q. Looking back over the contentiousness of the past year, what were the highlights and lowlights?
A. All wealth to the beef industry comes from consumers. So the highlight this year for me was Americans’ willingness to keep paying more for beef. The big issue in 2015 is to keep improving the quality of the product to ensure consumers know they are getting value for their money. The lowlight this year was to see issues about the checkoff and COOL drag on for another year, when they should have been laid to rest years ago.