Sponsored by: Presenter: Dr. Glynn Tonsor, Kansas State University Moderator: Lisa M. Keefe, Editor, Meatingplace

WEBINAR OVERVIEW USDAs January Cattle Inventory Report Broad Economic Outlook for 2012 Status and Direction of MCOOL

USDAs Jan. Cattle Inventory Report Many expectations were confirmed: – Beef Cow Inv. smallest since 1962 (29.88 mil.) – Calf crop smallest since 1950 (35.31 mil.) – Feeder supplies down 3.9% (25.85 mil.) Partial Surprise: – Heifers held back +1.4% National vs. Regional Variation stories abound…

Livestock Marketing Information Center Data Source: USDA-NASS

Livestock Marketing Information Center Data Source: USDA-NASS USDA NASS: # 1,000+ Head Feedlots: 2007: 2, : 2, : 2, : 2,140 Under 1,000 Head Feedlots: 2007: 85, : 80, : 80, : 75,000

Livestock Marketing Information Center Data Source: USDA-NASS When will U.S. national herd really start to expand? -- by 2014??? -- who & where will expansion occur??? Largest Increases: NE: +55,000 (+18.3%) SD: +40,000 (+14.3%) CO:+35,000 (+29.2%) WY: +25,000 (+17.9%) IA: +20,000 (+16.7%) Largest Decreases: TX: -60,000 (-9.8%) OK: -55,000 (-15.5%) MO:-30,000 (-10.0%) AR: -21,000 (-15.4%) NM: -20,000 (-21.1%)

Do some regions have an economic advantage for expansion? Operating Cost Value of Production

BEEF COWS THAT CALVED JANUARY 1, 2012 (1000 Head) Livestock Marketing Information Center Data Source: USDA-NASS U.S. Total: National Herd: - 3.1% (vs. 2011) Smallest since 1962

CHANGE IN BEEF COWS NUMBERS JANUARY 1, 2011 TO JANUARY 2012 (1000 Head) Livestock Marketing Information Center Data Source: USDA-NASS U.S. Total: -967 OK + TX = 98.1% of National Decline

CHANGE IN BEEF COWS NUMBERS JANUARY 1, 2002 TO JANUARY 2012 (1000 Head) Livestock Marketing Information Center Data Source: USDA-NASS U.S. Total: OK + TX = 46.2% of National Decline National Herd: - 9.8% (vs. 2002)

Overarching 2012 Economic Outlook Tight Supplies Excess Feedlot and Packer Capacity Export and Domestic Demand Strength Weather – Drought Recovery?; Dry Corn-Belt? Uncertainty Abound – Overall, expect a volatile year with probable attractive opportunities for many operations/firms who can stomach the new normal…

QUARTERLY FORECASTS (LMIC:2/1/12)

2012 Economic Outlook: Cow-Calf Benefit from very tight supplies and possible expanded heifer retention… – What expected return is needed for expansion? Returns over cash costs may set historic records 2013 or 2014 may prove to be peak return year

Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC

As of: 2/6/12

KSU – Beef Replacement; Excel Spreadsheet Decision Tool ( Scenario3: Future = 5% above FAPRI Adjusted (550 lbs $155 in 2012 to $159 in 2021) 6.5% interest/discount rate; 3% calf death loss 1/18/12 Salina, KS Auction: Young, Bred Cows (Med-Lg 1-2, 3rd stage) $1,400 to $1,600 Notable regional variation…

2012 Economic Outlook: Stockers Continued sophistication of this segment – cheap corn days are unlikely to return Expected margins have been squeezed by run on calves Easiest segment to start and stop so sitting tight may be prudent at times… – Flexibility in what type/weight class is purchased appears important currently…

2/6/12 Salina, KS Situation: BeefBasis.com forecasted price of 750 lb steer May 7, 2012 is $157.16/cwt What is break-even purchase price of a 550 lb steer purchased on Feb. 7, 2012? forecasted price is $171.68/cwt Buy-Sell spreadsheet tool (

Buy-Sell spreadsheet tool ( Expected Return: +$5.20/head [2.0 *($ $171.68)] Feeding COG $80 = +$11.86/head Expected Return Feeding COG $100 = - $1.46/head Expected Return

2012 Economic Outlook: Feedlots Excess capacity and packer margin concerns will remain an issue Growing relevance of premiums and diversity across operations Probable losses for the year, but markets suggest potential improvement over 2011

Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS, Compiled & Analysis by LMIC NAIBER (2/6/12): 750 lb placed on 2/6, sold at 1,244 lbs on 7/6/12 = - $94/hd

MCOOL Status and Direction Implemented amongst controversy – 2% to 4% increase in demand needed to justify – Estimate omits WTO ruling and related responses Dec – Canada initiated WTO dispute settlement process Nov – WTO ruled largely in favor of complaint Mar. 23, 2012 – extended deadline for U.S. response – Adopt or appeal the WTO panel reports

Livestock Marketing Information Center Data Source: USDA-ERS & USDA-FAS

MCOOL WTO Nov Ruling: Possible Responses/Retaliations International response will not necessarily be meat retaliations – WTO ruling doesnt force MCOOL to end; but can allow imposition of sanctions of equal measure against the U.S. i.e., possible tariffs on U.S. pork exports to Mexico … OR imposition of tariffs on non-ag products for political reasons… – Buzz around FTA with South Korea must be kept in mind nothing happens in a silo….

MCOOL – U.S. Consumer Views Current USDA funded project; little ex post research March/April 2011 national survey of 2,000 U.S. residents – Limited MCOOL awareness Are grocery stores currently required by law to label the country of origin for fresh {beef/pork/poultry}products? a) Yes [30% correct] b) No [11% incorrect] c) I don't know [59%] – Limited COOL use in purchasing decisions 11% look at COOL every time of fresh {beef/pork/poultry} purchase; 28% look sometimes; 60% never look

MCOOL – U.S. Consumer Views March/April 2011 national survey of 2,000 U.S. residents – WTO ruling, U.S. response preferences: Adjust or repeal MCOOL as law in the U.S. to bring the law into line with WTO's ruling.(48%) Make matching economic conciliations to compensate Canada and/or Mexico for estimated damages, and keep the current MCOOL law in the U.S. in its current form. (37%) Other (please describe:) (15%)

MCOOL – Tonsors Current Take Canada and others are being rather reasonable WTO ruling was largely as expected Free market can address this issue sufficiently Fighting WTO (and by extension Canada et al.) is unwise

QUESTIONS & ANSWERS Sponsored by:

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