Another year draws to a close so it's time to do our annual talk about the cattle industry with Cattle Buyers Weekly's Steve Kay.
Kay is fully qualified as an industry heavyweight. He is the Founder, Editor and Publisher of Cattle Buyers Weekly, the voice of the North American meat and livestock industry.
Kay writes for livestock publications in the U.S. and Canada. He is also the author of the U.S. Livestock Industry Review, a monthly report on the U.S. beef and pork industries. He was inducted into the Meat Industry Hall of Fame in 2014.
The hot issues this year? Those moribund international trade agreements, the quickly evaporating qualified labor pool, Federal and state rules and regulations (an annual annoyance), and those pesky, annoying-as-a-mosquito-in-your-bedroom activists.
Q. It's been a fascinating year in the cattle business. The agricultural heart of America voted overwhelmingly for President Trump last year but once he took office, he killed the TPP, often seen as a boon for the cattle industry, and he's close to ending NAFTA, another ag bonus. Will our export business suffer or will we find a way to improve our outlook?
A. The contentious talks between the U.S., Canadian and Mexican governments to re-negotiate terms of the North American Free Trade Agreement (NAFTA) certainly hang over the industry like a dark cloud. The entire agricultural sector, including the meat industry, has lobbied anyone who will listen as to the vital importance of NAFTA to U.S. agriculture and how NAFTA’s agricultural provisions must be maintained.
They no doubt have reminded the White House and members of Congress that America's food and agriculture sectors account for roughly one-fifth of the country's economic activity. The two sectors support 22.8 million jobs, which equals 15% of total U.S. employment. These jobs pay $763.12 billion annually in wages. The sectors have a direct output of $2.82 trillion and pay $891.4 billion in business taxes. The sectors annually export $146.32 billion of products. Industry lobbyists have pointed out that the meat and poultry industry employs nearly 900,000 workers.
They will also have pointed out the value of NAFTA in boosting exports. The U.S. meat and poultry industry contributed $16.22 billion to the estimated $135 billion in agricultural exports in 2016. The future strength and growth of the U.S. meat and poultry industry depends upon the expansion of trade into foreign markets, particularly as domestic per capita consumption of meat and poultry remains fairly stable and production increases, as it will do again next year in all three proteins.
Q. The Cattlemen's Beef Board is counting on a renewal of the classic old "Beef, It's What's For Dinner" campaign to help beef demand. What's the long- and short-term outlook?
A. Beef demand has actually been stronger than expected in both the domestic and export markets this year and helped prices for cattle and beef to be higher than forecast. I would characterize demand this year as “the story of the decade”. So there’s no need for a turnaround. The Beef Board should continue to put most of its resources into targeting Millennials and helping retailers and restaurants introduce new beef offerings.
(Editor's note: According to the Quarterly Beef Demand Index, calculated by Glynn Tonsor at Kansas State University, the 3rd Quarter beef demand index was 86 on a scale where 1990 equals 100. That was the third highest index in the last ten years, with 2015 being the highest at 91.)
Demand is likely to remain strong next year, as the macro-economic indicators are positive. U.S. gross domestic product is growing steadily year-over-year. U.S. GDP in the third quarter grew 3.3% on an annualized basis, says the Commerce Dept. This put GDP above its calculated maximum sustainable level for the first time in ten years. An annual growth of 4% next year would add approximately $800 billion to total U.S. GDP. This is a big positive as consumer spending accounts for approximately 65% of GDP. In addition, the unemployment rate is the lowest in nearly 17 years.
These and other factors are causing consumer confidence in the economy to be even more positive. The Conference Board’s confidence index increased in November to 129.5 from 126.2 in October, which was already a 17-year high. The boost in confidence was felt across multiple income levels, says the board. Notably, those earning less than $25,000 and those making in the low six-figures posted more than one-year highs in confidence. Consumers’ assessment of current conditions was driven primarily by optimism of further improvements in the labor market, says the board’s Lynn Franco.
Q. Growers, packers and processors have always relied on first-generation immigrants to keep their production lines humming. The recent political climate has seriously hindered access to that important pool of new employees. Can anything be done to solve the problem?
A. Meat and poultry processors across the U.S., as well as others in agriculture, certainly face a growing labor shortage, particularly in beef processing plants. I highlighted this shortage in a story in the November 27 issue of CBW. The shortage involves a lack of both unskilled and skilled workers. Virtually every beef company I surveyed recently for CBW’s annual Top 30 Packers ranking cited labor as the number one issue facing the industry.
Concerns are growing that beef packers will not have the ability next spring and summer to process all the cattle that will need to be harvested. Packers have the capacity to do so. CBW estimates that industry-wide capacity is about 126,000 head per day. The constraint will be on the labor side. Availability of fed cattle, as well as labor, has been a factor this year in limiting the size of daily kills. The supply of market-ready cattle though will grow much larger from early next spring. The key question is whether packers can kill all these cattle.
There are no easy solutions to the shortage. Tyson Foods, the largest processor of fed cattle, is seeing a labor shortage, president and CEO Tom Hayes told me. Tyson is focused on paying higher wage rates to attract higher-skilled employees. It is introducing automation such as robotics in the most difficult jobs, he says.
Andre Nogueira, CEO of JBS USA, cites the availability of skilled production labor as the top issue, as does Cargill. Cargill works diligently to be the employer of choice in the meat processing/packing space, says Cargill Protein president Brian Sikes. The labor shortage has become an ongoing concern that Cargill is working hard to address. Changing immigration policies and limited labor pools in many rural areas pose challenges. This, combined with an improving economy and competition from manufacturing and agriculture, creates competition for both skilled and unskilled labor, he says.
Q. The ag industry has an aging problem. Cattle ranchers, in particular, are among the oldest, averaging slightly more than 60 years old. Some estimates suggest that nearly 75% of cattle ranches will change hands before the next decade is out. What will be the impact on the cattle business? More importantly, who will be the new owners?
A. The average age of cattle ranchers has been increasing slowly for years and has not been a visible issue as yet. Given that nearly all ranching operations are family-owned, it seems the next generation or two is stepping up as ranchers retire. Reducing or eliminating the estate tax (death duties) would help transfer a property from one generation to another more easily.
Q. Rules and regulations have been a thorny thing. The Waters of the U.S. (WOTUS) regulation created an extremely strong backlash among cattlemen. Does the future hold a lessening of restrictions?
A. It appears to be that way under the current Administration but it remains to be seen if intentions become reality. The battle over WOTUS is not yet over but the Environmental Protection Agency might yet draft a new definition of WOTUS that is much less intrusive than the previous Administration’s rule and definition. USDA did withdraw its controversial interim final rule regarding the marketing of livestock and poultry. Perhaps the most the industry can hope for is that no new regulations will be introduced under this Administration.
Q. Finally, let's talk about anti-meat activists. They'll never go away and they're becoming more sophisticated in their single-minded pursuit of their goals and animal ag always seems to be playing catch up. What - if anything - should cattlemen do to protect themselves from intrusion?
A. If there’s one thing I’ve learned over 30 years of covering the meat industry, Americans do not like to be told what to eat or not to eat. Consumers trust in the safety and wholesomeness of beef and pork. Anti-meat activists will not persuade Americans to eat less red meat. Consumption trends instead will be based on the amount of red meat that is available rather than any other factors.
That’s borne out in latest consumption data from USDA’s Economic Research Service. It forecasts that 2017 per capita consumption will be: beef 57.3 pounds, pork 50.4 pounds, broilers 91.0 pound and turkeys 16.5 pounds. ERS forecasts that 2018 per capita consumption will be: beef 59.2 pounds, pork 52.1 pounds, broilers 91.8 pounds and turkeys 16.5 pounds. The forecasts reflect larger beef production and slightly larger pork and broiler production. Beef’s per capita consumption is likely to increase in 2020 as well due to further production increases. This trend is the industry’s best defense against anti-meat activists.
As far as attacks on the industry’s sustainability and other issues like greenhouse gas emissions, the U.S meat and poultry industry and the global beef industry mounted a massive response that continues to this day. The single most important initiative was the development of the Global Roundtable for Sustainable Beef (GRSB). It is a multi-stakeholder initiative developed to advance continuous improvement in the sustainability of the global beef value chain, it says.
The U.S. beef industry also produced its own studies on water usage, greenhouse gas emissions and the impact of beef production on the environment. The most effective industry response about the third topic came from Dr. Jude Capper of Washington State University. She analyzed extensive production data to show that modern beef production uses far fewer resources than in the 1970s and is far more efficient therefore more environmentally friendly.