Bypassing Technology Has a Cost

Dr. Jeff Lehmkuhler, Associate Beef Extension Professor, University of Kentucky

Discussions on the potential to expand exports to China are continuing. The optimists will see this as a means to add value to feeders sold to feedyards in response to increase beef demand. The actual impact of this foreign market on the cow-calf operator is yet to be determined, but increasing demand is generally always favorable. Yet nothing is free in this world, and the current proposed guidelines for beef to be exported to China will likely increase production costs.

As I write this, the most recent guidelines for the beef to be exported as reported by USDA AMS are listed below.

  1. Must be derived from cattle born, raised and slaughtered in the U.S.
    a. Imported cattle from Canada and Mexico that are raised and slaughtered in the U.S.
    b. Cattle imported from Canada and Mexico directly for slaughter
  2. Cattle must be traceable to the U.S. farm of origin/birth
    a. Imported cattle must be traceable to the farm of origin or port of entry
  3. Beef must be from cattle less than 30 months of age
  4. Chilled or frozen bone-in and deboned beef products are eligible as well as offal products
  5. Carcasses, beef and beef products must be uniquely identified and tracked up to the time of export

China imports beef from other countries as well. Canada and Australia export beef to China currently. This beef must not contain hormones that are not naturally occurring (i.e. trenbalone acetate) and must be free of beta-agonists (i.e. ractopamine). In addition, pork exported to China from the U.S. must be free of beta-agonists. Though nothing is stated on the USDA AMS website to date regarding the use of growth promotants, reading between the lines, several have stated the use of implants and growth promoting feed additives will not be allowed. With the recent herd expansion and increased beef production, export markets will be important in the near future to sustain beef prices. Yet, what will the cost be for beef to qualify for China?

In the past, Kentucky had an active PVP program for feeder calves when the market demand existed. One had to pay a nominal fee with most of the cost going towards the electronic ear tag, but this was an expense incurred to market calves. In 2007, Iowa State economists estimated that implants improved average daily gain in the feedlot by 12.85% and lowered the breakeven price by 2.3%. This penciled out to about $18/hd potential return. This work also indicated that ionophores such as monensin and lasalocid provided a 7.7% increase in average daily, lowered breakeven price 1.46% and with a cost savings near $11.51. Lastly, growth promoting additives like ractopamine were estimated to lower production cost by $43 per head through a 29.9% increase in average daily gain and lowering breakeven cost by 5.5%. If each of these are independent of each other and responses are additive, the potential technology savings is $72.50 per head for finished steer. Accounting for an increased production cost, this would lower the price one could pay on feeders. Thus, a 500-pound feeder calf would potentially be priced $14-15/cwt lower to compensate higher production costs.

Granted it is a stretch to assume an additive response for each of the technologies. However, it should illustrate the point that forgoing technology without receiving a higher market price will result in reduced profit margins. Sustaining or increasing market prices are what we are banking on with the opening of the China export market. Be sure to follow this situation so you fully understand the impact it may have on our beef markets.