The "COOL" Rollercoaster Ride Continues

by Karen Emilson

Confusion over U.S. Mandatory Country of Origin labeling (M-COOL) continues as cattle producers and packers on both sides of the border wait to see how Barack Obama’s administration plans to deal with the proposed M-COOL legislation.


On January 20, 2009, the newly inaugurated President Obama put all pending rules brought forward by the Bush Administration on hold. Included in that list is the Final Rule on M-COOL - a requirement in the 2008 U.S. Farm Bill that covers numerous commodities including beef (specifically muscle cuts and ground beef) requiring that these food products must be labeled at the retail level to indicate country of origin.

Speculation on how COOL would affect movement of both feeder and fat cattle into the U.S. caused growing concern and uncertainty within the Canadian cattle industry since the idea was brought forward by U.S. agricultural lobby groups in 2002.

Last fall, years of speculation came to a head when details of the COOL Interim Rule were announced. Cattle were divided into the following four labelling classes:

A) U.S. born, raised and slaughtered;
B) Born in Canada, exported to U.S. as feeder, finished and slaughtered in U.S.;
C) Exported into the U.S. from Canada for immediate slaughter; and
D) Exported in boxes to the U.S.

In order for the packing plants to label properly, cattle from the different classes would have to be segregated. Feedlots in the U.S. responded by minimizing the amount of Canadian cattle they imported, due to uncertainty about whether or not they’d be able to get those cattle killed. A number of U.S. packing plants announced they would not be killing Canadian cattle at all.

After a full review of the ramifications, the Canadian government filed a WTO trade challenge.

On January 12, 2009, the United States Department of Agriculture (USDA) announced details of the Final Rule which proposed the combining of classes—specifically that class C cattle can be put with class B cattle if there is co-mingling of the B and C cattle on same kill day.

The Canadian cattle industry called the compromise fair and the WTO trade challenge was withdrawn.

Latest development
The Obama Administration memorandum of January 20th, directed agency heads to withdraw all proposed or final regulations, (with the exception of emergency situations) that have not been published in the Federal Register. The memorandum also called on agency heads to extend for 60 days the effective date of regulations that have already been published in the Federal Register, but have not yet taken effect. The Final COOL Rule falls into the latter category since it has been published in the Federal Register, but was not scheduled for implementation until mid-March.

Federal agriculture minister, Gerry Ritz, said he was not surprised by Obama’s decision. He also said he would be communicating with the new U.S. Secretary of Agriculture in early February.

John Masswohl with the Canadian Cattlemen’s Association reported that the WTO challenge will remain suspended. He explained that the challenge was initially filed against the Interim Rule but with the Final Rule on file as the most current piece of proposed legislation (and it is favourable toward the Canadian industry) there is no need to pursue the WTO challenge at this time.

So for now, Canadian cattlemen are once again forced to take a “wait and see” attitude. The 60 day comment period has re-opened and all concerned groups can submit briefs for review and consideration.

With some groups in the U.S. not completely in favour of the law—including the National Cattlemen’s Beef Association (NCBA)— there is some confidence within the Canadian cattle industry that the Final Rule will pass as proposed.

With some of its membership heavily reliant on imports of Canadian cattle, the NCBA has lobbied to have the regulations softened to minimize the added expense and inconveniences incurred by U.S. feedlots and packing plants. Read more!

U.S. feedlot owners say COOL "too costly"

Cody Easterday estimates that some 25 percent of the cattle at his 30,000-head feedlot come from Canada, with maybe a few cattle from Mexico in the pens.

But weeks after the government began requiring producers to label beef with the country the animals came from, Easterday estimates he’s already getting lower prices for that foreign beef — as much as $30 per head.

It’s just one reason he’s suing the U.S. Department of Agriculture to rewrite the beef labeling provision in what could be one of several attempts to overturn a law long sought by consumer and farm groups.

“It’s a flawed law that’s going to cost the industry hundreds of millions of dollars,” Easterday said.

The new law, required by the 2008 Farm Bill, went into effect Sept. 30. It requires grocery stores to identify the “country of origin” for meat, produce and certain nuts. Retailers have six months to fully comply before the USDA will begin enforcement.
Meat packers and retailers have long opposed the rules, saying they would be expensive and burdensome.

In the lawsuit filed last month in U.S. District Court, Easterday Ranches Inc. contends that labeling will increase record keeping and operating costs and deter meat packers from buying Canadian-born cattle from Easterday’s feedlot.

The Agriculture Department declined to comment, citing the pending litigation.

Beef industry insiders have said the law could be troublesome in the Northwest, where so many Canadian cattle are shipped across the border to U.S. feedlots and slaughterhouses.

There are just two commercial beef packers in the Northwest, both in Washington — AB Foods in Toppenish and Tyson Foods Inc. in Wallula — and as much as 30 percent to 40 percent of their cattle come from Canada.

Cattlemen in the Southwest might buy cattle from Mexico, but the issue of cross-border cattle shipments doesn’t strike home in the Midwest or Northeast, Easterday said.

“They move back and forth across the border all the time,” he said of the U.S.-Canada cattle industry. “Any time there’s a wrench in that, we jeopardize the livelihood of the cattle industry on both sides. They need us and we need them.”

Easterday also said the program offers no additional safeguards that beef products are any safer, though consumers may believe it does. Rather, it just allows retailers to discount non-U.S. products, which are just as high in quality, he said.

“Every single one of them is subject to the same food safety laws and the same USDA inspection,” Easterday said. “It’s not a safety program. This is a marketing program only.”
- www.thebeefblog.com Read more!

COLUMN - The Bottom Line

by Rick Wright

What a roller coaster ride the fall calf run has been! Lots of ups and downs, twists and turns. Prices have been very unpredictable and demand has been very selective. Order-Buyers are sticking tight to orders and there has been no speculation buying at all this year.

Usually the last week in October and the first week in November are the largest marketing volumes of the fall in Manitoba. This year, deliveries are slow compared with other years as producers hold on to their cattle hoping for better pricing. Most of the large auctions market report a decrease in the numbers sold from August 1 to now. Gladstone’s numbers are up slightly and the Killarney market has really increased its weekly numbers. Direct sales from the farm to buyers have also increased as producers try and cut marketing costs while looking for price guarantees on an unstable market.

The Prices improved on some classes and weights of cattle late in October. The drop in the value of the Canadian dollars helped offset the losses on the cattle futures markets, keeping the Americans interested in purchasing Canadian feeder cattle. The drop in the dollar also helped make the cost of backgrounding feeders for American investors at Manitoba feedlots more competitive.

The only reason the Americans are not jumping in the Canadian market with both feet is “COOL.” There are still too many unknowns as to how the packers will treat the Canadian origin cattle fed in the United States. It looks like there will be little to no discount on the cattle that will be slaughtered prior to April 1, 2009. That is why the prices for yearlings off the grass remained strong while the wet nosed calves were a tougher sale. Originally the majority of the major packers indicated that they would label all beef fed in the USA, category 2 (Product of USA/Canada). Immediately there was pressure from the American side that this plan would undermine the purpose of Country of Origin legislation. Packers were told if they did not have beef in category 1 (Product of USA) there could be changes to the rules on how category two and three products were handled in the food chain. These changes would be very burdensome and costly for the packers, wholesales and retailers. As I write this, we await word from the packing industry in the south as to what kind of discount, if any, there will be on non-American born cattle.

Cattle finished in Canada will face a bigger challenge. By the time you read this, JBS Swifts is expected to announce that they will no longer kill finished cattle from Canada at their plant in Greeley, Colorado. This means all finished cattle from Western Canada destined to the United States will have to be killed at Pasco, Washington (Tyson) or Hyrum, Utah (Swifts). The plant in Utah is approx. 1100 miles from Brandon, Manitoba. Rumours from the south are that the packing companies feel the Canadian government has not done enough to influence the USDA and American government to protect the Canadian cattle producers on the COOL issue. Maybe it is time the American packers and Canada’s trade department sat down together to develop a plan to present to the new President for consideration.

Despite the fear of the unknown, Alberta feedlots finally started to purchase from Manitoba markets in mid October. Prices in Alberta finally increased enough to have some of the bigger lots looking outside the province for inventory.
Quebec feeders got good news the last week of October. It looks like Smithfield’s plant (now JBS Swifts) in Pennsylvania is going to start purchasing cattle on the cash market and is looking at possible contracts in the future. Despite the high cost of transportation this year, feedlots there have a renewed interest in purchasing Manitoba calves.

I certainly do not see any major price increases in the calf prices for the remainder of 2008. The world economy is far from being stabilized and until that happens, the fundamentals that influence the cattle and meat markets will be very unpredictable.
The best advice that I can give today is cull your cowherd hard. Now is the time to get rid of the free loaders and poor producers. The cow market is decent and you cannot afford to feed those extra cows. Heifer prices are under pressure and in most cases you can get more money for your cull cow than your best heifer calf. If you are going to keep something back, the heifers look like they are worth the feed. There will be lots of seection at the bred cow sales and the majority of the breds sold so far this fall have gone for slaughter at market price.

If you do the math, most of those poor producing 1,500-pound cows will eat more feed this winter than their calf is worth this fall when you consider hay prices at 4 to 5 cents per pound delivered (most of the cows will eat $1.60 to $2.00 with off hay per day), plus straw for bedding, interest on your investment, corral cleaning costs, and depreciation on your equipment and facilities.

This is a good year to pay the preg checking bill and cull those free loaders.
Another bit of advice is: Age Verify your calves and any of your home raised cows. Regardless of what you have heard it does not cost you anything and if we want to develop more markets for our cattle in the future, age verification and traceability will be very a important part of the formula to moving beef into new markets. Today on cull cows, the premium is between $75 and $140 per cow if they can be exported to the U.S. With Alberta going to mandatory age verification on their calves in January 2009 and Quebec already there, it will just a matter of time before we will have do ours as well to market our calves to those feedlots. Read more!

Nuts 'n Bolts

by Shane Sadorski

It’s October, and that means mandatory Country of Origin Labeling (COOL) is now in effect in the U.S. for the beef supply chain. Packers, processors, and retailers in the U.S. now have a 6 month grace period to adjust their business operations while the USDA conducts an ‘education campaign’ to bring industry players into line with the new rules.

As expected, the immediate impact for Canadian cattle producers has been mixed, thanks to the USDA’s flexible rules on the commingling of cattle and beef.

While some packing plants in the U.S. have already announced they are shifting their production to U.S.-only, and are closing their doors to Canadian and Mexican cattle, other packers are saying they intend to use the ‘multiple country of origin’ label instead (Product of USA, Canada & Mexico) and are continuing to buy cattle from Canada.

What is happening is that each individual packer and plant is putting pen to paper, looking at their supply, production costs, and marketing plans, and deciding which label is the best one for them. It will take a few more months until all the dust settles and we know who is running what label – and therefore who is buying Canadian cattle.

At this point, things are going as well as can be expected under the circumstances. Soon, there will be both ‘U.S.-only’ and ‘multiple-country’ products on American store shelves, and U.S. consumers will have their say with their purchasing dollar. While demand for Canadian cattle is expected to drop and a discount is already being seen, Canadians aren’t shut out of the U.S. market entirely - for now.

Unfortunately, there is a scary cloud hanging over the horizon that threatens to make things worse.

If there was any doubt (which there wasn’t) that the push for country of origin labeling had nothing to do with consumer choice and everything to do with the politics of putting up a trade barrier to Canadian cattle, that doubt has completely disappeared in the last few weeks.

Already, a third of the U.S. Senate has written to the USDA complaining about the flexibility the USDA has given packers under COOL. Among a whole laundry list of complaints, they are upset that some U.S. packers plan to use only the ‘multiple country of origin’ label and run U.S. cattle through along with foreign cattle. “That’s not what we intended when we passed COOL,” say these senators, led by Ag Committee Chairman Tom “Ethanol Man” Harkin out of Iowa. So much for allowing consumer choice.

So far, the USDA administration has held pretty firm on allowing packers the right to co-mingle their cattle and run just one ‘multiple country’ label. But there are some signs that USDA might be starting to back down. A recent USDA clarification of the rules on COOL now states that packers can label meat from U.S. cattle as ‘multiple country’ only if the plant also processed some foreign cattle on the same production day. To avoid having to use a second U.S.-only label, packers have to ensure that some non-U.S. cattle get mixed in with U.S. cattle. Not that big of a deal to some, but it is still one more administrative burden for those packing plants buying Canadian cattle.

But more importantly, what this signals is how shaky the current USDA regulations are. A sudden ‘change of heart’ at the USDA can easily change the existing rules to the point where it becomes totally impractical for any U.S. packer to buy non-U.S. cattle. That change of heart would come in the form of a new Secretary of Agriculture at the helm of the USDA, and it is the President of the United States who appoints the Secretary of Agriculture.

And by the way, who are two of the 31 senators who signed Harkin’s complaint letter about COOL?

Presidential nominee Sen. Barack Obama and Vice-Presidential nominee Sen. Joe Biden.
Hang on to your hats. This ride could get a whole lot bumpier come November 4th. Read more!