Economists Say Reason For Ag
Woes Not Simple As Some Think

BILLINGS, Mont. —(AP)— It's Canada's fault. That is the simplistic answer.

Supply is great, and demand is low. That is the simple answer.

Thailand's currency collapsed last year. That is the beginning of the complex answer.

Prices for cattle and wheat went in the tank in 1998, and ranchers and farmers throughout the Plains states are wondering if they'll be able to continue producing food.

While their costs have not declined, farmers and ranchers this summer were faced with historic low returns for wheat and cattle. And a turn in the global economy and U.S. trade and domestic farm policy is needed to put prices back above the cost of production.

"Canada is the easiest to point to, to target," says Steve Meyer, an economist with the Livestock Marketing Information Center at Colorado State University. "What you see is what you know."

The LMIC is a cooperative effort among land grant colleges to provide timely marketing information to the livestock industry.

"This is a complex world," Meyer said. "When there is an increase in supply (of cattle and beef) and demand does not shift (increase), there is a decline in prices. But a lot of things happened in the past year."

The same is true on the grain side.

"I can give you the simple answer," said Randy Johnson, executive vice president of the Montana Grain Growers Association. "Too much wheat, not enough demand. The whole world had a great crop this year, better than average and no weather disasters."

In October 1997, Thailand's currency, the baht, collapsed. Since then, currency devaluations and economic recession in Asia have rippled around the globe.

A flight of foreign capital to the safe haven of the United States has also increased the value of the U.S. dollar, which makes it even more expensive for customers to buy U.S. agricultural products. Asian Pacific Rim countries have been good customers in past years, but find themselves unable to afford U.S. foodstuffs.

Another reason for the decline in cattle prices is that there are record amounts of pork and chicken to compete with beef.

"The U.S. consumer looks to fill the shopping cart with the greatest value for the least cost," Meyer said. "There is a mountain of meat — beef, pork, chicken and turkey — demand in Asia has fallen and the European Union prevents U.S. exports from coming in."

Myriad factors have contributed to the cattle price decline.

Economists John Marsh and Linda Young at the Trade Research Center at Montana State University in Bozeman cite increased dressed weights, increased U.S. slaughter, increased meatpacker and grocer profits, and increased competition from pork, chicken and turkey.

Marsh and Young note that Canadian cattle imports have had an effect on U.S. fed cattle prices. Their analysis shows that fed cattle prices fell from an average of $79 per hundredweight in 1990, the first year of the Canada-U.S. Free Trade Agreement, to $66 per cwt. in 1997.

The results indicate that an increase in Canadian live cattle and beef as a percentage of total U.S. beef supplies caused the slaughter price to decrease $3.42 per cwt., they said.

"This amounts to $35-$40 per head for a fed steer or heifer and translates into a $982 million decrease for the fed cattle industry for the 1990-97 period," they said.

For the first six months of 1998 the net effect of fed cattle/beef trade between the United States and Canada resulted in another 70-cent drop in the fed cattle price, the MSU economists said.

A similar analysis of Mexico-U.S. trade since the inception of the North American Free Trade Agreement in 1994 through June 1998 shows one "will have a difficult time relating any price decline in U.S. slaughter price due to Mexico," they said. "(We) can't show much Mexican damage here to cattle price."

As a comparison, Meyer said that the loss in value of beef-byproducts, such as hides, was $2 per cwt. in the past year.

Some U.S. cattlemen believe that Canada is dumping its cattle on the U.S. market. The recently formed Rancher-Cattlemen Action Legal Foundation (R-CALF) has filed an anti-dumping petition with the International Trade Commission against both Canada and Mexico. If an ITC investigation finds that cattle are being dumped — sold below the cost of production — then the United States could impose fines and duties on the imported cattle.

On the grain scene, Robert Wisner, a grain marketing economist at Iowa State University in Ames, said the sharp drop in wheat prices this year was a result of the economic problems along the Pacific Rim and in the former Soviet Union.

"There is a relative large world supply of wheat," he said. "Because of a change in U.S. farm policy, we do not have a way of isolating excess supply from the marketplace. There is no longer CCC surplus (storage) and the farmer-owned reserve is gone."

"This places more downward pressure," he said. "We've let the price drop to create demand. Today's prices are 11 percent below last year. Lower prices for the last four years has not brought added demand."

He added that increased Australian production and subsidized production in Europe have created large supplies, also.

Johnson said that in each of the past three years the world has produced more wheat than it has consumed.

"The currencies are out of whack," he said. "The buyers are all weaker and the U.S. dollar is strong. These prices are at historical lows, and the customer is actually paying more than before."

Johnson said the Canadian Wheat Board sells wheat cheap to buy the market, which distorts the price of wheat.

"But Canada pales compared to the European Union," he said. "The EU's export subsidies amount to about a $1 per bushel."

Johnson also decried what can be described as self-inflicted wounds.

"The things that we do to ourselves," he said. "We are shut out of 11 percent of the wheat market because of trade sanctions. That allows Canada, who will sell to anyone, to make a premium selling to Iran and Iraq and undercut us in a competitive market."

"There is plenty of blame to go around for low prices," Johnson said. "But producers are responding. There will be less wheat planted in the U.S. next year and in the rest of the world, too."

As for the recent protests along the Canadian border and state inspections of Canadian ag products in Montana and the Dakotas, which resulted in negotiations between Canada and the United States, Johnson said the issues involved are "technical problems that need to be negotiated away. But it will take more than a few governors to motivate Canada to give up what they don't want to."

The border is not transparent, or equally open both ways, says Jim Peterson, executive vice president of the Montana Stockgrowers Association.

And while the influx of Canadian cattle is not the direct cause of low cattle prices in the United States, he said, "It has more of an effect when we have an oversupply. It is like pouring water into a full glass. The last drop causes the overflow."

Peterson said that the United States should eliminate its grading system on any and all imported product — live or carcass.

"Imported beef should not get our trademark," he said.

Canadian fed cattle coming into the United States are considered part of U.S. production and are eligible to be graded by USDA according to U.S. standards.

That has two effects, Peterson said. "It tends to distort U.S. production and it gives them the opportunity to convert imported product to a value-added U.S. product."

Because Congress refused to require country of origin labeling for beef and lamb, Peterson said the U.S. beef industry ought to take the "flip side of the issue and create our own flag by putting a 'U.S. Product' label on this country's production.

"The consumer has the right to know where the product comes from," he said.

Peterson also called for a level playing field in international trade.

"The U.S. is forcing agriculture to compete in a global market against those who are not following the same policies," he said. "That makes a sacrificial lamb of the American ag producer."