Overview of North American Cattle Trade Issues

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Overview of North American Cattle Trade Issues

• Christie Guinn
• Master of Agriculture Seminar
• Dr. Rhonda Skaggs, Advisor

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North American Beef and Cattle Trade

• A Current Perspective
• December 2003

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2002 Trade Statistics
In 2002, the total value of U.S. beef and cattle
trade with Canada and Mexico was 4.12 billion.
The U.S. was a net importer of beef and cattle
products from Mexico and Canada, just as it has
been for the past five years.
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North American Beef and Cattle Trade NAFTA

• Implementation of NAFTA led to changes in import
  policies of the three nations and elimination of
  tariffs on live cattle and beef
• Beef and cattle trade between the U.S., Mexico,
  and Canada has increased since NAFTA was
  implemented in 1994

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United States-Mexico Beef and Cattle Trade

• In 2002, beef and cattle trade between the U.S.
  and Mexico had a value of 1.36 billion, 9.89 of
  total agricultural trade between the two
  countries
• 70 of the value of all beef-cattle trade is in
  beef exports from the U.S. to Mexico

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United States-Canada Beef and Cattle Trade

• In 2002, U.S.-Canada beef and cattle trade was
  valued at 2.76 billion, 14.52 of total
  agricultural trade between the two nations
• 44.53 of the trade was in beef imports into the
  U.S. from Canada, while 40.91 was slaughter
  cattle imports into the U.S.

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Beef Trade

• Beef trade in North America was greatly
  influenced by the reduction in tariffs and policy
  changes resulting from NAFTA
• Total North American beef trade in 2002 was 1.9
  billion pounds including hides the total value
  was 2.5 billion
• In 2002, Mexico became the largest export market
  for U.S. beef, while Canada ranked 4th behind
  Japan and South Korea
• Canada is the 1 source of beef imported into the
  U.S., followed by Australia and New Zealand

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2002 Beef Trade

• Exports of beef to Mexico from the U.S. accounted
  for 40 of beef trade in 2002, an increase of
  132 from 1997
• U.S. imports of beef from Canada increased 41
  from 1997 and comprised 47.5 of 2002 beef trade

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Cattle Hide Trade

• The U.S. trades cattle hides bilaterally with
  both Canada and Mexico
• The most significant trade consists of exports to
  Mexico, which are assumed to be exported for
  manufacture into shoes and clothing
• In 2002, U.S. cattle hide trade had a value of
  200.7 million, with exports to Mexico accounting
  for 50 of the total trade

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Live Cattle Trade

• Live cattle are traded in three classes feeder
  calves, slaughter cattle, and breeding cattle
• Reasons for cattle trade include size
  affluence of beef markets, availability of grain
  and pasture, location of feed lots, and location
  availability of slaughter facilities
• Cattle are often imported into the U.S.,
  slaughtered, and the meat sent back to Mexico and
  Canada
• Cattle trade follows a cyclical pattern and
  numbers can vary greatly from year to year
  affected by factors including currency
  depreciation and drought

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Cattle Trade and NAFTA
Although NAFTA led to significant increases in
agricultural trade between the U.S. and Mexico,
beef and cattle trade between the two countries
was well established and saw dramatic increases
for decades prior to NAFTA.
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2002 Live Cattle Trade

• In 2002, the U.S. traded 2.7 million head of live
  cattle worth 1.57 billion with Mexico and Canada
• Imports of 1.87 million head from Canada
  accounted for 61.51 of total trade
• Imports from Mexico worth 300.5 million
  accounted for 29.78

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Breeding Cattle Trade

• Although only a small percentage of total live
  cattle trade, beef and dairy breeding cattle
  still accounted for 34.6 million in 2002
• Breeding cattle trade occurs primarily in U.S.
  imports from Canada and exports to Mexico

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Non-Breeding Cattle Imports from Mexico

• In 2002, 65 of the non-breeding cattle imported
  into the U.S. from Mexico weighed 200-440 pounds
• Cattle weighing from 200 705 pounds accounted
  for 808,907 of the 816,456 head imported in 2002

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Non-Breeding Cattle Imports from Canada

• Imports of slaughter cattle from Canada worth
  745.9 million accounted 61.37 of non-breeding
  cattle imported in 2002
• Cattle in the heavier weight categories from 440
  - gt705 pounds contributed 446,834 to the total of
  1,669,208 head imported in 2002

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Analysis of Imports from Mexico and Canada

• Average weight of Mexican cattle imported into
  the U.S. is 450 pounds
• The cattle are fed in the U.S. to 1200 pounds
• Thus, 2/3 of their final carcass weight was
  acquired in the United States
• Average weight of Canadian cattle imported into
  the U.S. is 1200 pounds
• These cattle are fattened in Canada and
  slaughtered shortly after entering the United
  States

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Trade of Other Cattle Products

• There is also trade of bovine genetic products
  between the United States, Mexico, and Canada
• The majority of this trade involves bovine semen
  moving between the U.S. and Canada
• In 2002, the U.S imported semen worth 13.6
  million from Canada
• U.S. exports of semen were valued at 3.8 million
  to Canada and 5.5 million to Mexico
• Trade in bovine embryos is relatively small with
  a total value of 644,884 for U.S. exports and
  imports in 2002

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Looking Toward the Future

• It is clear that the U.S., Mexican, and Canadian
  beef and cattle industries will continue to
  evolve and face challenges in the future
• Trade could become even more liberalized or new
  trade restrictions could be implemented
• Increased protectionism could result from growing
  concerns about the potential animal and/or human
  health and economic impacts of diseases such as
  foot and mouth (FMD), bovine spongiform
  encephalopathy (BSE), and others
• The growing and increasingly affluent North
  American population will continue to demand
  greater quantities of high quality beef products
• Identification of BSE infected animals in Canada
  and the United States in 2003 dramatically
  affected trade in livestock products throughout
  North America

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Live Cattle Imports by Port-of-Entry from Mexico
into the United States

• Data and Models
• February 2004

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Focus of the Data Study
The study focused on the nine ports of entry with
significant numbers of cattle imports. Monthly
data by port was obtained from USDA-APHIS.
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Analysis of Imports
U.S. cattle imports from Mexico have a marked
seasonal pattern, with the highest numbers of
cattle crossing in the months between October and
May and lower volume from June to September.
2003 was the third highest volume year since
1994, with 1.13 million head imported into the
U.S.
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High Volume Ports of Entry

• Ports with the highest volume of imports are
  Nogales, Santa Teresa, and Presidio
• Although they are geographically separated, they
  share similar tends with respect to import volume

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Low Volume Ports of Entry

• Ports with lower volume of imports are Douglas,
  San Luis, Columbus, Del Rio, Eagle Pass, and
  Laredo
• These ports have more variability in the high and
  low volume months than the high volume ports

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2003 Imports by Port of Entry
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2003 Imports by Month
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Updated Regression Models

• Explanatory Variables
• Rainfall, previous 12 months
• Cumulative
• Lagged
• For relevant Mexican states of origin for cattle
  crossing at each port
• U.S. cattle prices / Mexican cattle prices
• Price ratio
• Nominal values
• / cwt.
• Exchange rate incorporated

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Updated Regression Models

• Explanatory Variables, Continued
• Trend
• Linear (1 - 120)
• Used for ports-of-entry with decreasing volume
• Monthly dummy variables
• Low volume months 0
• Higher volume months 1
• Intercept shifter
• Used stepwise regression to evaluate the monthly
  dummy variables

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Results of Updated Models

• SASTM estimation showed that the updated models
  explained at least 54 of the variability in
  monthly cattle crossings at each port
• Relationship between the U.S. Mexico live
  cattle price ratio and the independent variables
  was consistently positive
• Rainfall variable coefficients were mostly
  negative and none were significantly different
  from zero

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Results, Continued

• Trend variable was significant in Eagle Pass,
  Laredo, and Del Rio models
• Goodness of fit (R2) of all of the re-estimated
  models was lower than that of the original models
  that had a more limited data set
• Mexican economy has become more stabilized
• Cattle exportation procedures have changed
• Additional variables may need to be incorporated

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Summary Conclusion

• Econometric analysis of U.S. imports of Mexican
  cattle is limited by the amount and type of data
  available
• Rainfall as a proxy for pasture conditions
• Possibility of autocorrelation between variables
• Patterns of cattle trade could also be influenced
  by infrastructure and institutional factors
• Future work on these models should be done with a
  more expanded data set of at least 15 years a
  national model could be developed