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Drought Relief Measure Passes in House

Ranchers forced to reduce herd size due to historically severe drought conditions will be protected from paying taxes if the Ranchers Help Act is passed in the Senate.

The "Ranchers HELP (Help Extend Livestock Proceeds) Act of 2003" was introduced by Rep. Scott McInnis (R-CO) on Jan. 29. This legislation will defer capital gains taxes for cattle producers forced to sell livestock due to drought. The measure passed in the House on March 19 and is on its way to the Senate for consideration.

"This is a commonsense piece of legislation that reflects the reality of what ranchers are facing today," said McInnis. "Ranchers shouldn't have to choose between replacing their herds during an ongoing drought with paying capital gains tax on a sale that was induced by that very same natural disaster. They need options, and they need more time."

McInnis has worked to aggressively push the measure through the legislative process. To ensure speedy passage for ranchers in dire need of tax relief, McInnis attached the measure to "The Tax Relief, Simplification, and Equity Act of 2003" (H.R. 1308).

In related actions, signup for producers to participate in the Livestock Compensation Program (LCP) will begin April 1. Information on the LCP will be available at local Farm Service Agency (FSA) offices or on the USDA Web site at www.fsa.usda.gov.

Smaller Supply, Stronger Demand Boosting Cattle Prices

Smaller beef supplies and a resurgence in beef demand are fueling higher fed-cattle prices, and a Kansas State University agricultural economist expects the strength to hold through early spring.

"Smaller beef and competing meat supplies during 2003, compared to last year, explains part of the price rise, but stronger demand for beef also appears to be partly responsible for this year's price strength," said James Mintert, livestock marketing specialist with K-State Research and Extension.

During the first eight weeks of 2003, slaughter cattle prices at western Kansas feedlots averaged $79.42 per hundredweight (cwt) on a live-weight basis — nearly 14 percent higher than they were a year earlier. At the same time, prices on USDA Choice-grade boxed beef were up 12 percent over 2002 levels.

"Most cattle finishing programs have been operating in the black since November," Mintert said. "And the profitability recovery continued in early 2003 with prices averaging from $79 to $80 (per cwt), while cattle feeders' breakevens averaged in the low $70s."

He expects cattle to trade in the high $70s to about $80 through March and into early spring, which should keep finishing programs profitable through most of the period. Prices are likely to weaken seasonally by late spring and summer, Mintert said, but the magnitude of the decline will depend on the late winter and early spring placements of cattle on feed.

Beef supplies dipped 1.2 percent in the first two months of 2003, partly from a reduction in cattle slaughter but also from a slight drop in average cattle weights.

"The modest beef production decline was accompanied by a 2.8 percent drop in poultry production," Mintert said. "But not all competing meat supplies were below a year ago, as pork production was actually 2 percent larger than during the first 8 weeks of 2002."

He expects beef production to run below year-ago levels for the rest of the year.

"As a result, look for beef production in early spring to fall 3 to as much as 5 percent, compared to a year ago," Mintert said.

That would set the stage for Kansas slaughter cattle prices to trade in the high $70s to low $80s (per cwt) in late March and April, depending on the weather conditions over the next few weeks.

"Fallout from a possible war in Iraq on the cattle markets is difficult to predict," the economist said. "The impact on livestock prices could be tied to any impact the war has on domestic meat demand and on international meat trade. In particular, if war leads to reduced shipments to principal export destinations, it could have a very negative impact on all livestock prices, similar to last year's disruption in poultry trade.

"A more likely scenario, however, is that the war will have little material impact on either domestic or international meat trade."

Beef Export Tonnage Up, But Value Down

Last year was good - and bad - for the U.S. beef industry.

"The good news was that carcass-weight shipments of beef and veal shipped to all export destinations during 2002 were about 8 percent larger than in 2001, said Kansas State University agricultural economist James Mintert. "The bad news was that the value of all beef, veal, and variety meat shipments fell 6 percent below a year earlier. That marked the second year in a row that beef export value declined."

The lower value stemmed from a 20 percent drop in the value of variety meat shipments, a 2 percent decline in the value of beef and veal, and a 9 percent drop in the value of exported hides.

"Perhaps the best news was that beef exports to Japan started to rebound late in the year," Mintert said. After running below 2001's sales through the first 10 months of 2002, beef export tonnage to Japan jumped 30 and 25 percent above the prior year's during November and December, respectively.

"Unfortunately, Japan is likely to impose snapback tariffs on U.S. beef exports sometime in 2003, which will increase the effective tariff rate from 38 to 50 percent and slow the beef export recovery," the economist said.

Coupled with continued growth in sales to Mexico, the slowdown in sales to Japan through most of last year made Mexico the No. 1 export market for U.S. beef. Exports to Mexico in 2002 rose 18 percent while beef tonnage to Japan fell 27 percent below 2001 levels, Mintert said.

"Mexico's share (value) of U.S. beef, veal and variety meat exports during 2002 was about 27 percent," he said.

Another bright spot for the beef industry was South Korea, which bought 597 million pounds, or 73 percent more U.S. beef, than it had the previous year.

Some of the rise in export shipments to South Korea was tied to the World Cup soccer competition held there last year, Mintert said. Shipments slowed appreciably in the fourth quarter, when export volume was up just 3.5 percent. compared to the prior year's.

U.S. Cattle Herd Continues to Shrink - 2002 Marks Seventh Year of Decline

The nation's cattle producers continued to thin their herds last year, particularly in states that were hit hard by the drought of 2002.

"The number of cattle and calves declined for the seventh consecutive year, dipping 0.6 percent below the prior year to just 96.1 million head," said Kansas State University agricultural economist James Mintert, citing the U.S. Department of Agriculture's "Cattle" inventory report.

A drop in the number of beef cows contributed to the decline, he said. The Jan. 1 beef cow inventory totaled 32.9 million head, 0.5 percent less than a year earlier.

The USDA data indicated that moisture conditions this spring and summer could determine whether producers continue to liquidate their herds or start to expand, he said.

R-CALF USA Files P&S Complaints Against Meat Packers

On March 5, 2003, R-CALF United Stockgrowers of America (R-CALF USA) filed a complaint with the Packers and Stockyards Administration (P&S) against various meat packers who sent letters to U.S. producers demanding that producers meet certain conditions in order to market their livestock. R-CALF USA alleged the packer demands constitute unfair, unjust discriminatory, and deceitful practices actionable under the Packers and Stockyards Act. After R-CALF USA submitted its complaint, the nation's largest meat packer, IBP, sent its March 2003 letter to U.S. producers. On March 20 an Addendum filed by R-CALF USA addressed the new IBP letter and raises additional concerns about all the packer letters.

R-CALF USA asked the P&S to issue a Cease and Desist Order against IBP and other packers who have circulated similar letters to producers. The P&S is also asked to initiate an immediate investigation to determine if the letter circulated by IBP and the letters by other packers, in which threats of lower cattle prices were made, were having the effect of "either causing cash and futures prices for U.S. feeder cattle to fall, or if the letters have put downward pressure on the U.S. feeder cattle market."

VerifEYE™ Carcass Meat-Inspection System (CIS) to be Installed in Excel Plant

eMerge Interactive has announced that Excel Corporation has entered into an equipment and technology license agreement for eMerge's first commercial VerifEYE™ Carcass Inspection (CIS). The system is to be installed in Excel's Schuyler, Neb., beef processing facility in April.

VerifEYE is a tool developed to help meat processors detect the presence of microscopic levels of possible organic contamination that might harbor bacteria. The CIS system provided automated, real-time inspection of each carcass at full line speeds up to 450 head/900 sides per hour.

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