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Trade Remains The Topic Of Industry Conversation

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CattleAnnie

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Trade Remains The Topic Of Industry Conversation

There is significant trepidation about the March 7 date to reopen the Canadian border to live cattle exports, as well as concern about the economic impacts. While it doesn't take an economist to figure out what opening the border without reopening export markets means to the market, there does seem to be, in general, a belief in the country that the negative impact will be far greater than what economists are predicting. Of course, in the short term the old adage of the self-fulfilling prophecy is likely to bear out.

While the industry's concerns certainly are justified, it also probably makes sense to look at the reopening of the border from a different viewpoint as well. From a timing standpoint (virtually nobody disagrees that the market will be reopened, it is just a question of when), it certainly makes sense to have our export markets open so they can offset negative price impacts. But, from a supply standpoint, it is difficult to paint a more favorable time to reopen the border.

The sad reality is that the industry finds itself in a bad situation. With beef trade already re-established and record tonnage levels already coming from Canada, the cattle industry really isn't being asked whether trade should only resume with the resumption of our export markets. Instead, we're being asked to answer the question. "Do we want Canada to ship us beef, fed and processed in Canada, or live cattle that are fed and processed in the U.S.?"

While the argument hasn't been framed in this light, and is contrary to the majority position, the way it's answered has significant long-term implications. We have already seen one packer's credit rating reduced and, no doubt, smaller packers will be put out of business. It's not hard to argue that the current situation is the absolute worst solution available.

The current status benefits the two largest packers that control the majority of the packing capacity in Canada, and may have long-term negative impacts on the northern tier of states relative to their own packing capacity and market access. Certainly, this trend will never be totally reversed. Canada has already increased packing capacity by 22% and it will be difficult for American processors to compete against subsidized state-of-the-art packing capacity, and an already highly subsidized feeding industry.

In 10 years, BSE is not likely to be a major issue in the global marketplace. However, a policy that benefited the bigger packing entities at the expense of smaller ones, that moved packing and feeding capacity north of the border, and which left the U.S. farther behind its competitors in the world movement to create source-, genetic- and process-verified beef is likely to have the exact opposite effect of what was originally intended.

-- Troy Marshall
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Take care.
 
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