agman
Well-known member
I would first like to say that VanSickle's comments on page one are generally correct. Please note that he is objective enough to admit that the higher prices received in the U.S were not solely the result of the border closure. Having pointed that out many times myself, I am pleased to see him corroborate my position. I noted however, with special interest, that he failed to analyze the significance of the dramatic growth in domestic demand and the respective influence that gain also had in driving domestic prices higher. In sum, he only analyzed one-half of the price equation. That is par for R-Calf supporters. As previously mentioned, he also authored a piece in favor of MCOOL for R-Calf which also failed to analyze all pertinent data.
The first major flaw in his analysis of the economic impact of the resumption of trade with Canada is that it appears he assumes imports at the 2002 level of 1.68 million head. That is in conflict with his further stating that Canada has increased its daily kill capacity by 6,440 head. This, ironically, is approximately one-half the rate of weekly imports, pre-BSE. He further diminishes the importance of the new slaughter capacity in Canada by suggesting that it is mainly for cows and bulls over thirty months of age which will not be allowed into the U.S per the current published rule. As such, that added capacity would do little to stem the flow of fed cattle to U.S. slaughter plants. That assumption is a reach at best, and is wrong in that most plants, even smaller plants, are designed to handle various cattle types including fed steers and heifers. Thus, it is my belief that the added slaughter capacity will be in direct competition for many cattle previously destined for export to the U.S. This will limit the export of fed steers and heifers into the U.S. to a total well below pre-BSE levels, perhaps less than 50% of pre-BSE levels. He also does not account for this new slaughter capacity narrowing or limiting the price spread necessary to make exports an economically feasible venture. That, I believe, is another critical factor that was overlooked.
The latter condition is extremely relevant since, in his opinion, the import of slaughter cattle would limit expansion in U.S herds. There is no precedent for that occurrence. Of particular importance is this statement: "The increase in packer output due to increased supply from Canada was done by setting the regional purchase coefficient (RPC) for cattle to zero, FORCING (my emphasis) the model to import cattle for slaughter." That is an assumption that in reality may be difficult or even impossible to achieve. He further stated: "The impacts are separated in our analysis to show the impact due to INCREASED (my emphasis) imports from Canada and the impact from DECREASED (my emphasis) production by U.S. cattle producers." This dismisses the role of absolute price level paid to U.S producers and feed supply relative to production cost as a condition for U.S producers to expand. He incorrectly assumes that the level of Canadian cattle imports is the primary driver of herd expansion in the U.S. That is obviously a major oversight.
Finally, he assumes that the ban on Canadian beef exports imposed by some countries will remain in effect, thus creating a continued inherent price differential favorable to the export of cattle to the U.S. He states, "Clearly, the economic impact of the discovery of the BSE-infected Canadian cow in the U.S. is costing U.S. cattle producers. The new rule proposed by the USDA will increase those negative impacts by encouraging the economic displacement of U.S cattle producers by Canadian cattle producers, whose cattle are less expensive because of international import bans because of BSE in Canada." This reasoning is flawed for three reasons. First, he dismissed the possibility that the import ban on Canadian beef in existence today by some countries could be lifted during the period of analysis, the years 2005-2007. Second, the so-called negative price differential he suggests will occur would have the opposite impact upon Canadian producers versus U.S producers. They would be less inclined to expand while producers in the premium market, U.S producers, would be more inclined to expand. Third, he makes no provision for the reduction of Canadian beef imports as those exported cattle enter the U.S. Thus, he is double counting the production from some cattle, thereby overstating the negative impact of the resumption of Canadian cattle imports.
In summation, the output from any model is only as good as the validity of the assumptions used to derive the output. In other words, Y is accurately predictable only if X is correct. If X is based upon unsupportable or incorrect assumptions, then the result derived at point Y is incorrect and meaningless. I believe the derived output from his efforts is a waste of good paper.
The first major flaw in his analysis of the economic impact of the resumption of trade with Canada is that it appears he assumes imports at the 2002 level of 1.68 million head. That is in conflict with his further stating that Canada has increased its daily kill capacity by 6,440 head. This, ironically, is approximately one-half the rate of weekly imports, pre-BSE. He further diminishes the importance of the new slaughter capacity in Canada by suggesting that it is mainly for cows and bulls over thirty months of age which will not be allowed into the U.S per the current published rule. As such, that added capacity would do little to stem the flow of fed cattle to U.S. slaughter plants. That assumption is a reach at best, and is wrong in that most plants, even smaller plants, are designed to handle various cattle types including fed steers and heifers. Thus, it is my belief that the added slaughter capacity will be in direct competition for many cattle previously destined for export to the U.S. This will limit the export of fed steers and heifers into the U.S. to a total well below pre-BSE levels, perhaps less than 50% of pre-BSE levels. He also does not account for this new slaughter capacity narrowing or limiting the price spread necessary to make exports an economically feasible venture. That, I believe, is another critical factor that was overlooked.
The latter condition is extremely relevant since, in his opinion, the import of slaughter cattle would limit expansion in U.S herds. There is no precedent for that occurrence. Of particular importance is this statement: "The increase in packer output due to increased supply from Canada was done by setting the regional purchase coefficient (RPC) for cattle to zero, FORCING (my emphasis) the model to import cattle for slaughter." That is an assumption that in reality may be difficult or even impossible to achieve. He further stated: "The impacts are separated in our analysis to show the impact due to INCREASED (my emphasis) imports from Canada and the impact from DECREASED (my emphasis) production by U.S. cattle producers." This dismisses the role of absolute price level paid to U.S producers and feed supply relative to production cost as a condition for U.S producers to expand. He incorrectly assumes that the level of Canadian cattle imports is the primary driver of herd expansion in the U.S. That is obviously a major oversight.
Finally, he assumes that the ban on Canadian beef exports imposed by some countries will remain in effect, thus creating a continued inherent price differential favorable to the export of cattle to the U.S. He states, "Clearly, the economic impact of the discovery of the BSE-infected Canadian cow in the U.S. is costing U.S. cattle producers. The new rule proposed by the USDA will increase those negative impacts by encouraging the economic displacement of U.S cattle producers by Canadian cattle producers, whose cattle are less expensive because of international import bans because of BSE in Canada." This reasoning is flawed for three reasons. First, he dismissed the possibility that the import ban on Canadian beef in existence today by some countries could be lifted during the period of analysis, the years 2005-2007. Second, the so-called negative price differential he suggests will occur would have the opposite impact upon Canadian producers versus U.S producers. They would be less inclined to expand while producers in the premium market, U.S producers, would be more inclined to expand. Third, he makes no provision for the reduction of Canadian beef imports as those exported cattle enter the U.S. Thus, he is double counting the production from some cattle, thereby overstating the negative impact of the resumption of Canadian cattle imports.
In summation, the output from any model is only as good as the validity of the assumptions used to derive the output. In other words, Y is accurately predictable only if X is correct. If X is based upon unsupportable or incorrect assumptions, then the result derived at point Y is incorrect and meaningless. I believe the derived output from his efforts is a waste of good paper.
