Deals down under?
Another of Cactus Feeders' international interests generated publicity over the past few months, when news reports alleged that Cactus planned to begin importing feeder cattle from Australia.
Mr. Engler says the company has explored the option. But their interest is entirely speculative, contingent upon Australian interests developing an agreement with U.S. government regulatory agencies on a protocol and a permit process for importing Australian cattle. "Our position is to leave the approval process up to the two governments," he says. "We are not promoting or opposing a trade agreement with Australia. If live cattle imports are approved, we will consider the business opportunity just like we do with Mexico or Canada."
The story began over one year ago, when a shipping company approached Cactus representatives with the idea of exporting cattle from Australia to the United States. The company has ships capable of transporting up to 20,000 cattle at one time and considerable experience shipping live cattle from Australia to the Middle East and Asia. In spite of the great distances, the facilities and care are such that cattle actually gain weight during shipping.
Cactus began exploring the possibility and made inquiries about what the U.S. Department of Agriculture and the Australian government were doing to develop a protocol and approval process. "Our attitude from the beginning was that if the imports were permitted and the economics worked out favorably, we would view Australia the same as other exporting countries. We also believed that the burden was on the Australians and the shipping company to secure the necessary permits from the U.S. government."
In the meantime, Cactus representatives traveled to Australia to evaluate the logistics, health precautions and safety considerations involved in shipping cattle to the United States. These efforts were purely explor-atory, Mr. Engler says. If and when the U.S. government approved movement of cattle between the two countries, he wanted to know whether it was a viable business opportunity.
The strategy appears to have merit. The Cactus representative returned from Australia satisfied that the shipping company could transport the cattle without undue stress. The quarantine protocol would involve 60 days in Australia followed by 25 days on the ship and another 30 days of isolated quarantine in the United States. "They probably would arrive at the feedyard in better health than most of the cattle we buy domestically," Mr. Engler says.
Based on the low price of feeder cattle in Australia, shipping expenses brought the total cost of importing the cattle to around $70 to $75 per hundredweight, well below domestic prices at the time. In July 2001, the shipping company asked Cactus representatives to sign an application to import about 4,300 head of cattle from Australia during January 2002. "We signed the application with the understanding that they would not submit the request until after the U.S. government had officially approved imports of Australian cattle.
"We will consider all sources of feeder cattle," Mr. Engler says, "and if imports from Australia are approved, the opportunity won't be limited to Cactus." He also points out that Cactus places an average of nearly 20,000 head per week over the course of a year, so a shipment of 4,000 or 5,000 head from Australia would not have a major impact.
When Cactus made the inquiries last summer, prices for U.S. feeder cattle were high, and the outlook suggested high prices and shorter supplies for at least another year. In a different market climate, Mr. Engler says, with abundant domestic supplies of feeder cattle and U.S. producers operating at a loss, he would take a different approach. "We will not do anything to jeopardize the health of the U.S. beef industry. We would hurt ourselves by doing so." Especially in the area of animal health, he notes, since feedyards have a clear interest in avoiding the introduction of new diseases.
Mr. Engler says he is very interested in world trade, and has traveled to Europe several times as a delegate to the European Union's Conference on Agriculture. "Forty percent of our agricultural production goes into international trade. U.S. agriculture lives or dies on international trade. There are inequities that affect U.S. producers, but we need to strive for free trade rather than reacting with restrictions." He notes that while we rely on beef exports to support our markets, free trade has to work both ways. Also, he adds, "We do not feel that this is a good time to close our borders to any of our allies."