A Successful Beef Industry Relies on the Right Mix of Both Exports and Imports for Added ValueMon, 01 May 2017 11:21:02 CDT
Mondays, Dr. Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist, offers his economic analysis of the beef cattle industry. This analysis is a part of the weekly series known as the "Cow Calf Corner" published electronically by Dr. Peel and Dr. Glenn Selk. Today, Dr. Peel explores the value of trade and how it impacts the beef industry .
"The U.S. is the fourth largest beef exporting country and the largest beef importing country. The U.S. is often a net importer of beef, with the quantity of beef imports exceeding beef exports. Occasionally, beef exports exceed the quantity of beef imports. Most often however, the value of beef exports exceeds imports making the U.S. a net exporter of beef in value terms. Given the relatively close balance between beef exports and imports, just how important is beef trade to the U.S. beef industry?
"Most obviously, beef exports add value by increasing the quantity of total beef sales allowing the U.S. to sell more beef to more places. Secondly, beef exports add value by selling beef at higher prices. In some cases this is because high valued products in the U.S. have even more value in global markets. Often, however, it is because products that have a relatively low value in the U.S. have a higher value in some global market. Beef offals are a long time example of this but it is true for numerous other beef products as well. The beef industry produces a vast array of products from different parts of the carcass and of varying quality (e.g. Choice versus Select).
"Finally, beef exports add value by optimizing this diverse set of beef products in the domestic market. Beef demand is often characterized with pork and poultry as the primary substitutes for beef. In reality, the biggest substitute for any particular beef product is usually another beef product. As beef is perishable, the entire set of beef products will be consumed on average each year, including products less preferred in the U.S. market. Lower valued products will be priced to ensure consumption, even at the expense of stronger underlying demand for higher valued products. Anyone who has ever put a side of beef in the freezer knows that the steaks are gone long before other parts of the carcass are consumed-but those other products must be cleaned out before more steaks are added to the freezer. The same is true in total in the bigger domestic market. Export markets provide a way to ship out some of those lower valued cuts thereby focusing domestic demand on higher value. Every pound of lower-valued beef product exported is one less pound that competes with increased total demand (and value) for beef in the domestic market. This role of beef exports to improve the domestic product mix and optimize beef demand is often overlooked but is arguably the most important component of total beef export value.
"Beef imports are largely driven by the enormous market for ground beef in the U.S. Roughly 72 percent of beef imports are lean trimmings used primarily to make hamburger. In 2016, ground beef consumption was estimated at 25 pounds per capita, making up 45 percent of total U.S. retail beef consumption. Imported beef is used to supplement domestic supplies of lean trimmings which are mixed with the fatty trimmings from fed cattle to make ground beef. Without additional lean, some of those fed trimmings would have, at best, value as tallow rather than as ground beef.
"Without imported beef trimmings, one of several outcomes would impact the U.S. beef industry: 1) less ground beef would be produced, reducing the value of the nearly 150 pounds of fed trim from each carcass; 2) some steers and heifers (roughly 10-15 percent) would need to be raised and slaughtered as nonfed beef for lean (-think Australian range beef-) and would be valued roughly the same as cow carcasses or 3) additional lean from fed carcasses could be ground for hamburger rather than being used for whatever higher value it currently has. In each case the value of U.S. beef production is lower than it is when supplemented with imported beef. Imported beef compliments domestic production to improve product utilization in the domestic market and increase the total value of production.
"Beef imports are often viewed as (partially) offsetting beef exports thus reducing the net value of beef trade. In reality both beef exports and imports add value to the U.S. beef industry. Beef trade, both exports and imports, helps to sort out the complex set of beef products in domestic and international markets to maximize the value to U.S. beef producers."
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