Copyright 1999 Federal News Service, Inc.
Federal News Service
AUGUST 4, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
2035 words
HEADLINE: PREPARED STATEMENT OF
GEORGE
SWAN
PRESIDENT, NATIONAL CATTLEMEN'S BEEF ASSOCIATION
BEFORE THE
SENATE AGRICULTURE, NUTRITITION AND FORESTRY
ECONOMIC
CHALLENGES FACING AMERICAN AGRICULTURE
BODY:
Thank you Chairman Lugar, Senator Harkin and Members of the
Committee for holding this hearing to discuss the challenges facing American
agriculture. Once again, NCBA commends your leadership and continuing efforts to
examine the issues and concerns of interest to cattlemen and women, and for
working with us to find ways to improve the profitability of U.S. beef
production. I want to thank you and your staff for providing me the opportunity
to testify today.
I also want to personally thank you for the hard work you,
this Committee and your staff exhibited in reporting the mandatory price
reporting legislation last week. Having sat in on some of the meetings your
staff held to sort this issue out, I know first hand how much time and resources
the Committee focused on this issue. I am George Swan, President of the National
Cattlemen's Beef Association. I am a fourth generation rancher on the House
Creek Ranch, Rogerson, Idaho.
You have heard this before from some of my
fellow producers who have had the privilege to testify before you, but I would
state at the outset that the issues and factors affecting livestock prices are
complex and controversial. There is a wide range of opinions among individual
producers throughout the beef industry about the effects of international trade
agreements, packer concentration and improvements in price discovery on the beef
industry.
This is not just true at the producer level. You will likely hear
comments from other segments of the beef industry that fall on either side of my
testimony in terms of defining the problems and developing workable, permanent
solutions. Short-term issues in the quest for longterm stability should not
sidetrack us. NCBA believes that an open and frank discussion -- such as is
provided by this hearing -- of all issues facing the cattle industry is vital to
this effort.
The structural changes taking place in the beef industry have
coincided with international economic crises, increased regulatory burdens, the
weather and the normal cyclical nature of agriculture. How these factors are
inter-related is the basis of heated debates, emotional arguments and general
consternation by many within the beef industry. Some producers have embraced new
marketing techniques for their own advantage while others believe structural
changes are, at least in part, the cause of recent price declines.
Outlook:
NCBA is constantly monitoring the economics of the beef industry. Our
economists work with their counterparts at USDA, the universities and other
segments of our industry to ensure our members have access to reliable and
objective forecasts. The current outlook is for some price improvement over the
course of the year -- but then, that was our outlook for 1998. In this business,
you quickly learn not to hold your breath.
Drought concerns have re-emerged
in the Southwest, and lately we have been hearing about the tough weather cycle
on the Eastern Seaboard. Last year's weather pressure and price situation
contributed to high total beef supplies as cattlemen culled more cows and sent
more heifers to the feeders (rather than retain them for herd replacements).
USDA's recently released mid-year (July 1) cattle inventory report indicated
that all cattle and calves in the U.S. totaled 106.8 million, a decline of 1
percent from a year earlier and the smallest July l inventory since 1991. The
number of cows and heifers that have calved was 1 percent less than a year
earlier. The number of heifers held for beef cow replacement purposes (500 lbs.
and over) declined 4.8 million head -- 4 percent less than a year ago and about
the same as the very low levels of the late 1980's. The U.S. beef cowherd is
continuing to shrink.
However, there were two categories that posted an
increase or no change from year earlier levels as of July 1 were heifers held as
dairy cow replacements (up nearly 3 percent) and other heifers (feeder heifers)
over 500 pounds (unchanged).
The 1999 calf crop was estimated to be 38.3
million head, a decline of 200,000 to 300,000 head from 1998 levels. The
year-to-year decline in the calf crop was likely moderated by favorable
conditions for calves born this past winter and spring. The size of the calf
crop suggests that fed cattle slaughter in the second half of 2000 may be
slightly larger than many analysts had previously forecast. Based on current
inventories, cattle slaughter in 2000 will post year-to-year declines.
Aggressive placements of cattle into feedlots and the smaller calf crop reduced
the estimated July 1, 1999 feeder cattle supply outside of feedlots by nearly
700,000 head (-1.6 percent) from a year earlier.
Cattle on feed in the U.S.
increased 4 percent from a year earlier as of July 1, 1999. USDA reported that
the July 1 feedlot inventory included 5 percent more steers and 3 percent more
heifers than at the same time a year earlier. Placements of cattle into feedlots
continued to surge in June as placements for the month increased 14 percent and
15 percent respectively for U.S. and for the historically reported 7- states
feedlots with a capacity of 1,000 head or more.
Most of the year-to-year
increase in placements during June was feeder cattle weighing more than 700
pounds. Fed cattle marketed during June increased 5 to 6 percent above
yearearlier and 1997 levels. Aggressive marketing kept the calculated number of
cattle that have been on-feed for 120 days or more below a year ago. Still, fed
cattle slaughter weights increased seasonally during recent weeks and are now
essentially the same as weights a year ago.
Fed cattle prices mare expected
to moderate slightly in the coming weeks before increasing into year-end. Fed
cattle prices in the Southern Plains averaged $59.12 and $61.33 during the third
and fourth quarters of 1998, respectively. During the second half of 1999,
slaughter steer and heifer prices are expected to increase about 5 percent
compared to 1998 prices ($62 and $64.40 during the third and fourth quarters).
During 2000, fed cattle prices should continue to increase above year-earlier
levels as they continue to be supported by low feed grain prices, smaller feeder
cattle supplies, and higher fed cattle prices.
While this should cause a
hint of a smile, beef producers have been battling this price situation for more
going on four years. Another ten months is a long time to hope, particularly if
you are sitting across from your banker.Mr. Chairman, the bottom line challenge
beef producers face is, "How do we improve demand?" A close second is, "What can
we do to address those critical "margin" issue that keep the nickels, dimes and
quarters in our pockets while we continue our search for dollars of profit?"
By focusing on long-term solutions that keep that ray of hope shining at the
end of the tunnel, there are policy areas that are currently being debated in
Congress that if enacted, will keep agriculture profitability moving in the
right direction.
An easy one is tax reform.
I know there is a lot of
debate regarding what is the right level of tax cuts and that the President will
reportedly veto the package currently before the Congress. However, the tax
measures passed by the House and Senate do contain provisions that are strongly
supported by beef producers and their families, namely:
Death tax
repeal
Capital gains reduction
Income management tools
100
percent deductibility of health insurance premiums for the self- employed
Alternative Minimum Tax relief.
Aggressive pursuit of solutions to trade
disputes, unfair trade restrictions and barriers to U.S. agricultural products
is another key area. The WTO Ministerial meeting is a little over a month away.
The frustrations with the European Union in particular begs for some hard- nosed
discussions with some of our trading partners on what America not only expects,
but will demand, to ensure continued support for international trade agreements
by U.S. producers.
One area that I am sure will cause some heartburn among
my fellow livestock producers is our belief we need to keep the government out
of the livestock sector to the extent possible. We have reviewed with great
concern the continued efforts initiate consideration of additional direct
government payments to pork producers, and the new suggestion of a sow
buydown/buyout program.
Regarding direct payments, NCBA has consistently
supported assistance to producers to alleviate the impact of weather-related
disasters. However, we have long opposed direct cash payments to any livestock
sector to alleviate adverse market conditions. Direct payments to address
economic conditions affecting all producers does nothing to alleviate the
supply/demand situation that typically is the root cause for low prices.
Additionally, when one livestock sector receives such payments, it creates
inequities relative to other livestock commodities. To date, pork producers have
received $175 million in direct payments. Given the tight federal budget
constraints we all face in trying to marshal critical funding for food safety,
research and regulatory and tax relief, we should avoid heading down this road
one more time.
We are particularly concerned regarding solutions that
involve buydown/buyout initiatives. A great many of our producers painfully
recall the devastating impact the mid-80's dairy buyout had on our industry. The
untimely and disorderly flow of dairy cattle into market channels resulted in
declining cattle prices and panic in the marketplace. During one week ended
April 4, 1986 the CME Live Cattle futures contract declined by $5.50/cwt (nearly
10 percent). Granted, those dairy cows went into the beef market directly
impacting beef cattle prices, but careful analysis of the Dairy Termination
Program also shows an indirect impact on hog prices.
Mr. Chairman, we have
begun discussion with leadership of the pork industry, to gain a better
understanding of their proposal, and have asked for any economic, demand and/or
trade analyses that the pork industry has conducted relative to the impact of
the buydown/buyout program and direct cash payments on the pork sector, as well
as the impacts on other meat sectors.
An economic analysis conducted by Dr.
Ted Schroeder and Dr. James Minterr of Kansas State University suggests that
from 1990 through 1998 pork production increased from 15.3 billion pounds to 19
billion pounds, primarily due to a huge increase in productivity. The 24 percent
increase in pork production was achieved in spite of a 7.8 percent decline in
the breeding-sow herd. Swine production was generally a very profitable
enterprise from 1990 until mid-1998. This profitability attracted new entrants
into swine production, increased capital investment, a rapid adoption of
production-enhancing technology, and a declining unit cost of production.
The bottom line is that their analysis suggests that a buydown/buyout
program and/or additional direct payments raises the potential for additional
negative pressure on beef prices, as well as pork prices. In addition, NCBA is
also concerned that neither of these initiatives will likely reduce actual pork
production because while some smaller producers might opt for such a program,
any production they agree to setaside would be quickly absorbed by larger
producers. Additionally, such a program could negatively impact trade
opportunities for meat and poultry as potential customers around the world line
up for USDA donations.
Virtually all sectors of agriculture are facing tough
times. NCBA has, and will, continue to support common sense efforts to restore
viable market prices for beef, pork and other agricultural commodities through
existing authorities and programs such as domestic feeding program purchases,
foreign aid, GSM, Market Access Program (MAP) etc.
Mr. Chairman, silver
bullets are hard to find. The impacts of unintended consequences that can result
from government intervention are usually difficult to recover from. We strongly
urge that careful and thorough economic, market and trade analyses of the
impacts of any solutions that Congress might consider be completed before
consideration begins.
END
LOAD-DATE: August 5,
1999 
