As 2018 gets underway, the American beef industry is moving to greener pastures. Buoyed by three years of consistent growth, a new administration committed to easing the regulatory environment for producers and cattlemen, an improving domestic economy, and reopened access to important international markets, the industry is in the midst of recovery.
“I think you have to be a little more optimistic now than in past years, and ranchers are,” said Burt Rutherford, senior editor of BEEF magazine. “We’re in a cyclical pattern now of slowly increasing the number of cattle nationally, and if we continue to focus on producing high-quality product, the market should stay positive.”
National Cattlemen’s Beef Association (NCBA) Senior Vice President of Government Affairs Colin Woodhall shares Rutherford’s outlook.
“We have a scenario right now where all segments of our industry are making money simultaneously,” he noted. “That rarely happens. We’ve had strong demand, decent weather, and overall input costs have been manageable. Coupling that with what we’ve seen here in Washington, D.C., with our successful efforts to roll back some over-burdensome regulations, folks are feeling pretty good.”
Industry data from USDA’s Economic Research Service (ERS) confirms Woodhall and Rutherford’s positivity, with increased production for domestic and export markets expected in 2018 and a steadily increasing domestic herd size.
ERS’ monthly “World Agricultural Supply and Demand Estimates” report and “Livestock, Dairy and Poultry Outlook” show consistent gains. In October 2017, there were 5.7 percent more cattle on feed and 2.9 percent more outside feedlots waiting to be placed domestically than in 2015. Beef exports were higher in each month of 2017, with third-quarter exports up 13 percent over those in 2016. Forecasts for 2018 predict even stronger overall demand for beef, with total production estimated nearly 5 percent higher than in 2017.
While the news is better in almost every category for beef producers this year, with rapidly evolving technologies being applied to yield higher-quality product, a host of concerns remain. U.S. Agriculture Outlook spoke with Woodhall and Rutherford to get a snapshot of the beef industry in 2018.
The United States remains the planet’s largest beef producer, accounting for nearly 20 percent of the world’s beef supply. For 2016-2017, the top five export markets for American beef were (1) Japan, (2) Mexico, (3) South Korea, (4) Canada, and (5) Hong Kong.
While demand for high-quality beef is on the upswing, there are some headwinds. Exports to Japan are a good example.
“We export about $1.45 billion [worth of beef] to Japan,” said Woodhall. “We’re doing that despite a 38.5 percent tariff on all of the chilled beef we’re sending and a 50 percent tariff for frozen beef.”
The industry had hoped for relief from the high tariffs with U.S. participation in the Trans-Pacific Partnership (TPP). But the Trump administration announced America’s withdrawal from the 12-nation agreement in early 2017, preferring to pursue bilateral trade negotiations with countries in the region, including Japan.
The move represents a setback for American beef producers, according to Woodhall and the NCBA.
“TPP was poised to take tariffs down significantly, making our product more competitive and that $1.45 billion figure significantly higher. But we lost an opportunity with the president pulling out of TPP.”
Bilateral negotiations will take time, said Woodhall, adding that Japan may have less incentive to talk trade with America as it moves on with TPP. BEEF’s Rutherford said the magazine’s readers have expressed a desire for a trade agreement as soon as possible.
“The U.S. cannot even think about any form of isolation trade-wise. Agriculture and the beef industry in particular – we’ve got to be a player.”
At home, the administration’s stance on the North American Free Trade Agreement (NAFTA) is also a concern for the beef industry. President Donald Trump is in favor of renegotiating much of the current agreement with partners Mexico and Canada.
However, the NCBA argues that NAFTA has been “one of the greatest success stories in the history of the American beef industry, removing tariffs on U.S. beef exports to Canada and Mexico and developing roughly $2 billion in annual sales.”
Woodhall pointed out that if the United States pulls out of NAFTA and loses access to Mexico and Canada – two of the top five markets for American beef – the impact would be damaging for the industry.
“The access between the U.S., Canada, and Mexico – how do you improve on what we have now? We have no quota, no tariff,” Woodhall stressed. “From our perspective, it doesn’t get any better than that. We’ve made it very clear to the Trump administration to do no harm when it comes to the beef trade provisions of NAFTA. So far they’ve respected that.”
On a brighter note, the doors to China are open again after a 14-year hiatus. Woodhall said exploiting the potential of this reopened market requires thoughtful promotion of American beef in China to make sure the Chinese appreciate its quality, how to cook it, and more. American producers must also know what the requirements are to send beef into China.
“This is a great opportunity,” Woodhall explained. “I think as we see some packers and producers tailoring their herds to Chinese demand that will have a positive impact here. We just found out [late November 2017] that the Chinese are interested in making an investment in Montana, specifically investing money to build a packing plant and some feed yards. That could have a game-changing impact on our access to China.”
On the technology front, Rutherford said genetics and genomics are beginning to have an impact on the beef industry, providing producers with rapidly available data on the genetic potential of cattle.
Artificial selection of cattle in pursuit of desirable traits has been carried out for centuries via various methods. In the modern era, statistical analysis of animals via software has allowed large sets of data collected over multi-year periods to be mined for expected progeny differences (EPDs). But data on young bulls hasn’t been available due to their brief life spans.
Progress in mapping genomes allows data to be collected much more quickly now, and Rutherford noted that “genetic suppliers” are taking advantage of the new technology.
“Ranches that produce the bulls that a commercial rancher would buy to breed to his cows to produce the next year’s calf crop are starting to make routine use of genomics. Genetic testing can now be done on cattle at a very young age, giving an indication as to what their genetic potential might be. I think commercial ranchers will increasingly use genetic testing on their “replacement females,” the heifers they would separate from their cash crop to use to breed and maintain their herd.”
The 2018 Farm Bill
The U.S. House and Senate are currently putting together the 2018 Farm Bill, legislation that incorporates several priorities for the beef industry. Maintaining funding for agricultural research, a foot-and-mouth disease vaccine bank, support of a free and open private market for beef, and responsible stewardship of land and resources are all of interest to the industry, Woodhall said.
But the NCBA’s highest priorities are the funding of a vaccine bank and funding for research.
“We haven’t had foot-and-mouth disease here since 1929, and we need to make sure we’re protected. The current vaccine bank that we have is obsolete – just not prepared. We need to improve upon that,” Woodhall said. “That’s our primary ask in this farm bill, but research is important, too. Researchers at USDA and beyond help us find ways to be more effective and efficient in producing beef. More importantly, they work to find ways to protect us against foreign animal diseases, and find ways to better treat diseases we currently have domestically. That’s critical.”
Just as Americans were eyeing tax reform individually in 2017, the American beef industry was keen to see tax relief that aids producers. Leading up to passage of the tax bill, the NCBA advocated for elimination of the federal estate tax (commonly referred to as the death tax).
“The death tax is our No. 1 tax reform issue,” said the NCBA’s Woodhall in December 2017, before passage of the tax bill. “It has hurt the ability of producers to pass operations on to the next generation.”
Woodhall said that it was a priority for NCBA “to address the fact that while on paper a lot of farms and ranches look extremely rich because of the value of their land, in actuality they are cash poor. That’s the way our industry has always worked, and in many cases they don’t have the resources to pay the death tax when they have a generational transfer.” Doing away with the federal estate tax would help to make sure farms and ranches can stay intact, Woodhall explained, and to make sure producers “don’t have to spend $10,000, $20,000, or, in some cases, $50,000 per year on attorneys and CPAs to protect their estates.”
Ultimately, the tax bill that passed in late 2017 did not eliminate the federal estate tax as the NCBA had hoped. However, it does double the exemption rate, which provides some relief – at least for now; this change and others in the bill are currently set to expire in 2025. In a December 2017 press release, NCBA President Craig Uden expressed gratitude for lawmakers’ work on behalf of agricultural producers, then continued, “Of course, fourth-, fifth-, and sixth-generation cattle producers tend to think about things in the long-term, and in that tradition, we will continue to fight to reduce the tax burden on family ranchers in the months and years to come.”
Evolving federal and state regulations for identifying cattle are a big concern for BEEF magazine readers, Rutherford noted. Electronic identification of cattle via RFID (radio frequency identification) tags and other means troubles many ranchers and producers.
“From USDA’s perspective, it’s about traceability in the event of an animal health situation,” Rutherford explained. “If an animal turns up with foot-and-mouth disease, the USDA and the state are tasked with tracing the origin of the disease. Being able to trace those animals quickly is very important for these agencies.
“But ranchers are concerned about data collection. What kind of information will be required? And who has access to that information? Can organizations or the public get that information and use it against them?”
The technology also represents a significant cost for beef producers, Rutherford said.
“That’s a bill if you’re an individual rancher, and one of their first questions is: Who pays for that?”
The Waters of the United States (WOTUS) rule, issued by the Environmental Protection Agency (EPA) in 2015, has been of great concern to the beef industry, which considered the language in the Clean Water Act broad and overreaching, bringing unintended water bodies into federal regulatory jurisdiction.
“As we entered 2017 with the Trump administration coming into office, that was the No. 1 issue for the NCBA,” said Woodhall, “repealing WOTUS.”
“The fact that the president made this a priority, that the EPA administrator has made this a priority, and that we hope to see the full repeal of this in 2018 bodes well for cattle producers and everyone in agriculture.
“But we have to figure out ultimately how we rein in the EPA,” Woodhall continued. “The question remains as to where the EPA has jurisdiction and where do local governments have jurisdiction? But I think we have an administration and EPA administrator that are willing to take a look at that to make sure we are protecting the waterways, but at the same time, not infringing on private property rights.”
This article was originally published in the 2018 edition of U.S. Agriculture Outlook.