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CME: USDA Cattle On Feed

23 October 2014

US - Analysts expect, on average, USDA’s October Cattle on Feed report to indicate that September placements were slightly larger than one year ago, writes Steve Meyer and Len Steiner.

That is the most newsworthy item in Urner Barry’s pre-report survey of livestock analysts regarding the report that will be released Friday at 2:00 Central. The average of analysts’ pre report estimates for September placements is 101.4 per cent of last year but note that there is substantial variation in the responses which range from 93.1 per cent to 107.0 per cent of year ago levels. Urner Barry drops the high and low estimate in computing the average for all three key numbers.

If the average estimates proves to be accurate, September would mark the first time since February in which placements have exceeded year ago levels. Analysts expect, again on average, the 1 October inventory of cattle in lots with capacities of 1000 head and more to be slightly less than last year. If true, it will mark the 26th straight month of lower COF numbers versus one year earlier. One possibly important note: September of this year had one more weekday than last year (21 vs. 20) and we never know if that was taken into account by respondents to the pre report survey — or USDA’s Cattle On Feed survey for that matter.

This is an important and often overlooked source of month to month and, sometimes, year on year variation that should probably be considered more explicitly. The next two months are perhaps the starkest example available. October 2014 will have 23 nonholiday weekdays. November will have just 19. That is a 17 per cent difference in “opportunity” to conduct activities that would be impacted by the number of working days, be it placements or marketing or slaughter or whatever. We all should probably consider this source of variation more carefully.

To offer a World Series metaphor, the World Trade Organisation has called “Strike two! ” on the United States’ mandatory country-of-origin labelling (MCOOL) program. The latest decision was release Monday afternoon.

While MCOOL supporters such as Senate Agriculture Committee Chairperson Deb Stabinow tried to trumpet WTO’s allowance that providing country of origin information to consumers is a legitimate policy goal, this was another resounding defeat for this method of doing so. And the WTO statement bore out what many observers, including us here at The Daily Livestock Report, had believed for some time: The latest “fix” by USDA made the situation WORSE. Consider these statements in the WTO report:

“In particular, the compliance panel concluded that the amended COOL measure increases the original COOL measure's detrimental impact on the competitive opportunities of imported livestock in the US market, because it necessitates increased segregation of meat and livestock according to origin; entails a higher record keeping burden; and increases the original COOL measure's incentive to choose domestic over imported livestock.”

“The detrimental impact caused by the amended COOL measur's labeling and record keeping rules could not be explained by the need to convey to consumers information regarding the countries where livestock were born, raised, and slaughtered.” Those statements are, we think, pretty unequivocal that MCOOL violated our obligations under WTO rules regardless of whether providing information to consumers is a legitimate goal or not.

So where do we go from here? Though balls and strikes are not reviewable in Major League baseball games, WTO decisions seem to be reviewable ad infinitum! The United States has 60 days to appeal the WTO decision. Many hope the government will move on to finding a solution to this obvious problem but most expect an appeal to be filed, if for no other reason, to buy time. So that would happen by mid December.

We understand that this appeal would be subject to an expedited review and decision process at WTO meaning an announcement would likely be made next spring. Should that — as we expect — go against the US once again, Canada and Mexico would be free to proceed with retaliatory tariffs on a broad range of products. That would not happen immediately but it seems reasonable that those could go into effect perhaps by late 2015 or early 2016. What needs to happen? This was USDA’s second attempt to write rules to enforce the MCOOL law that would meet WTO muster.

Both have failed with this one apparently failing even worse than the first. Many have contended that there is no way to design a program that will meet either the letter or spirit of the original law and not violate our WTO trade obligations. The most fundamental reason for that would be that the law itself was in fact meant to impact trade and keep Canadian and Mexican livestock out of US markets. MCOOL proponents claim that is not so and that the law is meant to provide information to US consumers.

MCOOL opponents cry “Poppycock!” to those ideas — and the experience so far with WTO complaints, reviews and decisions suggest that the opponents are correct. After taking two unsuccessful stabs at rule writing, it may now be time to actually address the real problem: The law itself. MCOOL proponents do not believe that is necessary and want to leave the statute — which was inserted into the 2003 Farm Bill in House Senate conference proceedings and was never actually voted on by either full body — intact.

MCOOL opponents offer the WTO decision results to date as evidence that the law must be changed to avoid retaliation by Canada and Mexico. A possible solution (known from day one!): Leave a labelling program intact to insure that labels are meaningful but make them voluntary. Meat sellers would provide labeled meat to consumers who see those labels as valuable and are willing to pay for it and not impose the costs of segregation, record keeping and labelling on all consumers and all livestock.

Further Reading

You can view the full report by clicking here.

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