In The Cattle Markets: Prices up on Last Week

US - Cattle prices in several markets and weight classes were up last week, reports Glynn T. Tonsor, Associate Professor Department of Agricultural Economics, Kansas State University
calendar icon 21 November 2012
clock icon 3 minute read

The Markets

Fed cattle prices were higher trading at over $125/cwt on a live weight basis and about $196/cwt on a dressed basis. Nebraska yearlings traded almost $2/cwt higher at almost $149/cwt while Nebraska calves were up slightly and traded at over $165 for the week. Corn prices were down about $0.19/bu for the week.

Demand Impacts of Mandatory Country of Original Label and Industry Implications

As stakeholders throughout the cattle industry ponder the broader situation of historically tight supplies, heightened production costs, and higher retail beef prices it is increasingly important to assess, recognize, and appreciate the role that various policies have on the economic situation of the industry.

In short, many of the more controversial subjects and policies facing the industry have a larger economic impact in today's environment than they may have in the past.

In this light, it is important to note the recent findings of a study examining the meat demand impacts of the mandatory country of origin labeling (MCOOL) policy which has been implemented since March 2009, is still in a period of dispute resolution at the WTO (World Trade Organization), and has been intensely debated domestically for over a decade.

The key findings of this study include: 1) U.S. residents are largely unaware of MCOOL and do not regularly use origin information when making purchasing decisions; 2) U.S. consumers prefer meat products that have some origin label, but they tend to be indifferent to specific provenance details on the label; and 3) there is no evidence of consumer beef, pork, or chicken demand responses to MCOOL implementation at the retail level.

This study's findings are important for several reasons. In the direct context of MCOOL's impact on the meat industry, this study coupled with previous research suggests the policy has resulted in a net economic loss.

Specifically, if a policy is costly for the industry to implement (cost estimates vary but they are not zero) and consumer demand for the associated products does not increase, a net economic loss occurs.

Looking across species involved, another point arises as existing estimates of implementation costs are lower for the chicken industry than both the beef and pork industries suggesting the beef and pork industries may have been more adversely impacted.

Various sectors of each industry are impacted differently from MCOOL implementation, but collectively the body of research indicates costs of complying with MCOOL exceed benefits, and ultimately those most adversely impacted in the beef industry are cow-calf producers.

It is further important to look beyond the specifics of MCOOL and how it fits into the wider industry situation. At a time of excess capacity at several points in the industry, policies that effectively restrict or discourage more free flow of animals and/or meat products magnify the economic implications of underutilized capacity.

Moreover, anything that adds costs to an industry that is concerned about consumer willingness to absorb historically high retail prices without providing benefits is troubling.

While MCOOL is not the only driver of these concerns it does appear to be a contributor. The industry is encouraged to not only learn from the MCOOL experience but to more broadly, strategically make individual producer- or firm-level and industry-wide decisions in line with today's global nature of producing beef.

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