2012 in review and the future in sight

Dec 28, 2012

Last year saw some big stories in the world of beef and related topics. Some were bigger than others and not only had an impact on 2012, but will certainly have ripple effects felt well into the future.

Beef industry slimed: The nowloathed phrase “pink slime” ran through the mainstream media and took the beef industry by storm in March and April 2012. Consumers, incensed and disgusted by exaggerated, sensationalized coverage of lean finely textured beef (LFTB), rejected ground beef containing the long-used in gredient.

Though LFTB had been cleared as safe by FDA and been part of the food chain for many years, the damage to consumer confidence was already done once the initial ABC report was aired. Petitions were signed, outraged parents complained to USDA, and grocery stores tried to get rid of it as fast as they could. Once the dust had cleared, trim values were through the floor, cutout values had suffered, and Beef Products Inc.—primary maker of LFTB—were forced to shutter three of its four plants, costing hundreds of jobs. Some of those who lost their jobs have taken ABC to court, as did BPI for defamation.

It could have been mad: Last year saw the U.S.’ fourth confirmed case of BSE. An older dairy cow from northern California died on the farm and was sent to a rendering facility. Tests showed she had atypical—natural, spontaneously occurring—BSE. This came only a month after the beginnings of the LFTB battle and shook the already-shaken beef industry.

But what could have been a staggering blow following so rapidly after the LFTB issue was gratefully met with an unphased public. There was some consumer concern, but quick mobilization and admirable transparency on the part of USDA and others kept reactions minimal. Trade was not relevantly disrupted as major importers of U.S. beef were unconcerned.

Political pipeline: The on-going story of the Keystone XL pipeline, which would run from the tar  sands of Canada to the oil refineries of the Gulf Coast, has been as long-running in time last year as the pipeline would have in actual distance. In late January, President Obama rejected the pipeline while blaming congressional Republicans for forcing his hand. TransCanada later reapplied with a smaller, adjusted version of the Keystone plan in March. The northern portion of this adjusted version was again rejected by the president on environmental grounds.

TransCanada again reapplied with alternative northern routes in September which avoided the Nebraska Sandhills, the leading environmental concern of earlier refusals. State officials and congressional players criticized the president throughout the process, accusing him of playing politics ahead of the election.

Election 2012: The election was big news on all fronts, not just agricultural. But the results of the 2012 presidential election had (and will likely have) big impacts for agriculture. With Obama re-elected for a second term and control of the House and Senate remaining unchanged, those in agriculture were answered with the likelihood of more of the same.

The specific detail of a Republican-controlled House and a Democrat-controlled Senate had many worried for the continued inability of Congress to pass important legislature like the farm bill and fixes to prevent the fiscal cliff. At writing, it seems those were valid worries.

The election did see some victories for agriculture, however. California’s Proposition 37, which would have mandated labeling of food containing genetically-modified ingredients—and likely bankrupted the Golden State’s already suffering agriculture and food industries under mountains of new regulation—was defeated. Another defeated state issue was North Dakota’s Measure 5. The measure, backed heavily by the Humane Society of the U.S. (HSUS), was poorly and vaguely worded in ways opponents felt would both allow HSUS a foothold in North Dakota as well as harm animal protection laws currently in the works in that state. The measure’s defeat was called “an incredible blow” to HSUS’ animal rights agenda.

Investigations of loss: While the saga of MF Global did not begin in 2012, the investigation into its downfall occupied most of the year. Following its spectacular collapse on Halloween of 2011, it was discovered $1.6 billion in customer funds were “missing” from their supposedly sacrosanct segregated accounts. Many of the affected customers were farmers and ranchers hedging their crops. The disappearance of their monies left many in a bad position.

The congressional investigation report, released mid- November, found most of the blame for the company’s bankruptcy rested on the shoulders of then-CEO Jon Corzine, despite his claims to the contrary. Despite this finding, no legal action has yet been pursued, though some civil suits have been levied against Corzine and others at MF Global. The lasting result of the mess has been decreased confidence in the commodity markets and concern for the future of such markets and their security.

Big issues of 2012

There were some big stories last year, but there were also big overarching events which spawned many stories and had vast impacts on all things beef and ag. Trade, drought, lawsuits, regulations and politics all were big themes last year.

The year of 2012 saw some exciting and troubling trade events. The TransPacific Partnership—a trade group for Pacific countries to allow for greater trade freedom—got into full swing. Inclusion into the partnership became a valuable negotiating chip in a few trade relation disagreements with some Asian countries over issues like ractopamine residues. Mandatory Country of Origin Labeling (MCOOL) was ruled counter to World Trade Organization responsibilities which has since spawned some conflict here at home. Other notable trade-related stories were the moves of Japan to relax its maximum age for imported beef back to 30 months and the beginnings of establishing permanent normal trade with Russia.

The drought of 2012 was an enormous issue which had impacts on so much of ranching life. With drought came the decreased pasture quality and poorer crop yields. With drought came fire, and with fire came even greater hardships for cattlemen. The early warmth this year followed by the drought additionally impacted corn and expectations surrounding its planting and harvest.

When what was expected to be one of the largest corn harvests in recent memory turned into one of the smallest because of fields drying up, feed prices skyrocketed. The pull between poor or nonexistent pastures, mixed with high feed prices, impacted a lot of cattle selling behavior. Even now, the impacts of the drought on winter wheat grazing are forcing some to drastically cull their herds.

Last year also saw a lot of lawsuits, particularly between cattlemen and environmentalists over protected species. Wolves were a big focal point of lawsuits with various environmental groups initiating or threatening lawsuits over states delisting wolves, hunting included in wolf management plans, and laws allowing wolves to be shot if caught in the act of injuring livestock. Other wildlife species which garnered litigative attention included bison and sage grouse.

Non-wildlife related lawsuits of note have been the on-going case brought against the National Cattlemen’s Beef Association by R-CALF and HSUS regarding alleged misuse of checkoff funds.

Politics/regulations: The specter of new environmental regulations and the enforcement of earlier-passed legislation was a constant throughout 2012. In the last few weeks of December, the Environmental Protection Agency released its five-year update to its air standards which, gratefully, didn’t include increased restrictions to the dust standard.

Market-related regulations—many of them being recommended on the heels of the MF Global and following Peregrine Financial Group debacles—were proposed in 2012, both within the industry and externally. The socalled “Corzine Rule,” which would require the CEOs of investment firms take responsibility for the actions of their companies, was periodically proposed by both the Chicago Board of Trade as an internal safeguard and externally by the congressional investigation report.

Other market-related themes throughout last year were concern over a diminishing supply of feeder cattle projected into the future, the fiscal cliff and its impact on the economy, and the vicious cycle of per-head losses suffered by packers and cattle feeders, cutting production, higher prices, and lost consumer demand.

What 2013 might hold

Looking forward into the new year, there are several things we can expect to see come up in 2013. Things like the fiscal cliff—unlikely to be solved in the few days between this being written and when you read it—and related issues are sure to be felt long into the future. If the economy goes over the cliff as many expect, the impact of increased taxes and greatly reduced government spending could see the U.S. catapulted back into recession.

Even if something is worked out to prevent the full force of the fiscal cliff from happening, the issue of the estate tax—one of those taxes set to rise dramatically on the new year—will doubtless still be an issue. Given its impact on farmers and ranchers, let alone the rest of the population, it will be something to watch closely. The ever put-off issue of a new farm bill, too, is likely to be drawn into 2013 and will similarly be something to track in this new year.

Trade relations and ongoing issues like MCOOL are sure to return on us in the new year as they and others have not yet been finalized. China and Russia are likely to feature heavily in the immediate future of trade as both countries have begun growing their demand for beef, U.S. production methods, and expertise.

The farm bill will certainly rear its head again in 2013 as—barring a spectacular eleventh-hour lock-in of Congress—it does not appear anything will be done with it in the last days of 2012. What might come of that is anyone’s guess.

A major issue of next year and possibly the years beyond will be the tight supplies of feeder cattle and the small cowherd. After two years of drought and high feed costs driving continued herd reductions and little reason to rebuild the herds on top of an already historically low cow herd, scarcity of cattle will be a lasting theme into the future.

And, of course, the coming year holds the promise of new innovation. Cattlemen are forever being asked to do more with less, and less is going to be the case in many ways going forward: fewer cattle, less corn for feeding, fewer acres of available grazing land, less access to resources. Yet the need to provide nutritious, safe protein will remain, both at home and abroad.

We have seen advancements in feed efficiency and weight gains through genetic selection and finishing products like ractopamine. The pressures of the future will doubtless spur the technological and creative spirit of the industry to continue to rise to meet the needs of today and tomorrow. — Kerry Halladay, WLJ Editor