It’s always the imports. That was my thought as I walked away from a discussion at NCBA’s Summer Business Meeting. But I’m getting ahead of myself. Let me give you some background.
I had just completed a presentation discussing “consumption” versus consumer spending (see Up-And-To-The-Right). As I stepped off the stage there was opportunity to visit with several people before they went to their respective meetings.
However, one individual (whom I know from some previous committee work) was waiting to talk with me. I’ve judged plenty of shows and I know the “look”; this was going to be less discussion and more lecture. My intuition was correct.
Cattle-On-Feed: From the get-go, this wasn’t intended to be a conversation. Rather, our short time together was meant to be him-telling-me about the industry. He was going to set me straight on international trade.
The complaint being the cattle-on-feed report needs more granularity. He wants feedlot inventory to be categorized by source: feeder cattle from the U.S. versus those from Canada and Mexico, respectively. I responded that he should take that up with USDA.
But it didn’t end there. What particularly caught my attention was his authoritative claim the U.S. imports three-million head of cattle annually. I interrupted saying that number was “way off” and recommended that he double-check his facts. His response being, “I track the numbers.”
Total Imports: So, let’s start there. The first chart details total annual cattle imports – including both slaughter and feeder cattle. The last time total imports even encroached three-million head was back in 2002. The current five-year average is roughly 1.885M head. (Chart 1)
Feeder Cattle: But let’s come back to feeder cattle imports. There’s this perception they unduly add to supply and thus suppress the fed market.
Accordingly, the data in the second chart details:
1. feeder cattle imports July-thru-December;
2. fed market in the subsequent six months (January-thru-June).
What’s most important are the marginal year-over-year (YOY) differences. (Chart 2)
Granted, the trend is negative (more imports, softer prices). As a reminder, correlation does NOT equal causation; it does NOT mean more imports mean lower fed prices later. And in this case, the correlation is only -.33. Therefore, YOY difference in imports explains only about 10% of the variation of YOY difference in spring fed market.
COOL vs non-COOL: Essentially the complaint about the cattle-on-feed report was a call for COOL. The second chart also differentiates COOL vs non-COOL years (’20 and ’21 intentionally omitted). Note that ’12 represents the largest YOY difference in imports from July through December. Additionally, four-out-of-seven years during COOL saw positive YOY differences in feeder cattle imports - the same as non-COOL years. In other words, COOL was NOT a market differentiator (see Nothingburger).
It’s Always The Imports: My visitor didn’t appreciate my rebuke. I stood there wondering why we were even having this discussion in light of everything else that was presented during the luncheon – including the final chart below. (Chart 3) It pretty much sums up what really matters.
His preoccupation with imports is causing him to miss everything else that’s going on in the business. Namely, it’s consumer demand that’s the difference maker. That’s where his time and energy and effort should be invested. After all, consumers are the business.
Not to mention, amidst his fervor, he somehow completely disregarded Cattle-Fax CEO Randy Blach’s discussion regarding trade. I said, “Well, I’m not going to stand here and fight with you.” And as I walked away, I couldn’t help but think, it’s always the imports.
