Overview of North American Cattle Trade Issues

1. Overview of North American Cattle Trade Issues Christie Guinn Master of Agriculture Seminar Dr. Rhonda Skaggs, Advisor

2. North American Beef and Cattle Trade A Current Perspective December 2003

3. 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.

4. 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

5. 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

6. 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.

7. 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

8. 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

9. 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

10. 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

11. 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.

12. 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%

13. 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

14. 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

15. 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 - >705 pounds contributed 446,834 to the total of 1,669,208 head imported in 2002

16. 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

17. 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

18. 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

19. Live Cattle Imports by Port-of-Entry from Mexico into the United States Data and Models February 2004

20. 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.

21. 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.

22. 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

23. 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

24. 2003 Imports by Port of Entry

25. 2003 Imports by Month

26. 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

27. 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

28. 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

29. 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

30. 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