Demand and Price Analysis, Research and Development/Tech Change/Emerging Technologies,

Brester, Gary W.

Marsh, John M.

Smith, Vincent H.

English

Research Papers in Economics

B R I E F I N G 
Briefing No. 73                      February 2005
The Impacts of North American BSE Discoveries  
on U.S. and Canadian Cattle Prices 
 
John M. Marsh, Gary W. Brester, Vincent H. Smith 
Agricultural Marketing Policy Center 
Linfield Hall 
P.O. Box 172800 
Montana State University 
Bozeman, MT 59717-2920 
Tel: (406) 994-3511 
Fax: (406) 994-4838 
email: ampc@montana.edu 
website: www.ampc.montana.edu 
 
 
 
 
Objective 
  
Analysis 
 
for Informed 
 
Decision Making 
 
 
Contact: 
 
John M. Marsh 
(406) 994-5621 
jmarsh@montana.edu 
 
Gary W. Brester 
(406) 994-7883 
gbrester@montana.edu 
 
Vincent H. Smith 
(406) 994-5615 
vsmith@montana.edu 
 
Introduction 
 
The May 2003 case of bovine 
spongiform encephalopathy (BSE, 
or mad cow disease) in Canada 
and the December 2003 BSE case 
in Washington State (a dairy 
animal of Canadian origin) 
prompted several trade sanctions 
that affected both Canadian and 
U.S. cattle producers.  
Immediately after the Canadian 
discovery, the United States 
closed its border to imports of 
Canadian feeder cattle, fed cattle, 
cull cows, and beef.  Later in 
2003, the United States reopened 
its border to imports of Canadian 
boneless beef obtained from 
animals less than 30 months of 
age. 
 
Japan and South Korea terminated 
imports of Canadian beef in May 
2003.  After the U.S. BSE 
discovery in December 2003, 
Japan and South Korea terminated 
imports of U.S. beef.  As of 
February 2005, these borders had 
not been re-opened. 
  
The consequences of trade 
restrictions on Canadian beef 
producers were severe.  From 
1995 to 2002, Canada exported an 
average of 30 percent of its live 
cattle to the United States.  
However, trade restrictions 
imposed by importing countries 
in 2003 and 2004 substantially 
increased Canadian domestic beef 
supplies and severely reduced 
prices.  For example, the price of 
Canadian fed steers in March 
2003 (prior to the BSE discovery) 
was $77/hundredweight (U.S. 
dollars), but declined by 52 
percent to $37/hundredweight in 
September 2003.  By September 
2004, Canadian fed steer price 
had increased to about $57/
hundredweight. 
  
The December 2003 discovery of 
BSE in the state of Washington 
reduced exports of live cattle 
from the United States to Canada 
and Mexico by 86 percent in 2004 
relative to 2003.  U.S. live cattle 
exports to all countries, however, 
constitute only about one-half of 
one percent of total domestic 
slaughter.  More importantly, the 
U.S. also lost vital Japanese and 
South Korean beef export markets 
in 2004.  Beef exports to Japan 
and South Korea normally 
account for over 60 percent of 
U.S. beef exports.  U.S. beef 
exports in 2003 were 2.52 billion 
pounds, but declined by 84 
percent to 0.417 billion pounds in 
2004. 
 coefficient at the slaughter-
wholesale market level).  
Wholesale supplies are defined 
as wholesale beef production 
plus beef imports (carcass 
weight).  Wholesale beef 
production includes U.S. 
slaughter of domestic and 
imported cattle.  Results from  
a statistical model of beef 
demand and supply indicate 
that this coefficient is -1.42; 
that is, a 1.0 percent increase in 
wholesale beef supplies 
decreases fed cattle price by 
1.42 percent (Marsh 2004).  
  
Second, an estimate of the fed 
steer-to-feeder steer price 
transmission elasticity was 
required.  This elasticity 
measures the percentage change 
in feeder steer price that results 
from a 1.0 percent change in 
fed steer price.  The coefficient 
links changes in wholesale beef 
supplies to changes in feeder 
cattle prices.  Previous 
statistical work indicates that 
this coefficient is 1.20 (Marsh 
2003). 
 
Third, information was required 
on import and export market 
shares in the U.S. beef sector.  
The beef import share is 
calculated by dividing the 
quantity of U.S. beef imports 
(live cattle and beef) by the 
total quantity of U.S. beef 
supplies (wholesale beef 
production plus beef imports).  
The beef export share is 
calculated by dividing the 
quantity of U.S. beef exports 
(live cattle and beef) by the 
total quantity of U.S. beef 
supplies.  U.S. beef import and 
export market shares for the 
1970 to 2003 period are 
presented (Figure 1). 
consumer beef demand, U.S. beef 
prices rebounded.  From 
February 2004 through December 
2004, fed steer prices ranged 
between $84/hundredweight and 
$90/hundredweight. 
 
This briefing paper estimates the 
effects of BSE-related reductions 
in U.S. beef and cattle imports 
and exports on U.S. cattle prices.   
The analysis considers price 
differences which occurred 
between the last normal trade 
year (2002) and the BSE-affected 
year of 2004.  The statistical 
model used to generate estimates 
of the price effects accounts for 
other changes in supply and 
demand that occurred during this 
period. 
 
Analytical Approach 
 
Four pieces of information were 
used to estimate the impacts of 
the North American discoveries 
of BSE on U.S. cattle prices.  
First, an estimate was required of 
the effect of percentage changes 
in wholesale beef supplies on fed 
cattle prices (beef price flexibility 
From 1995 to 2003, annual U.S. 
exports of live cattle and beef 
(carcass weight equivalent) ranged 
from 7 to 9 percent of domestic 
beef supplies.  However, Canada’s 
exports of live cattle and beef 
(carcass weight equivalent) to all 
countries as a percent of their 
domestic beef supplies exceeded 40 
percent during this period.  
Consequently, the impacts on beef 
cattle prices in the United States 
and Canada from export market 
losses were considerably different.  
 
Canada experienced precipitous 
declines in cattle prices as a result 
of lost export markets while the 
United States experienced 
considerably smaller price 
reductions.  For example, prior to 
the U.S. BSE case, U.S. (Nebraska) 
fed steer prices averaged $97.05/
hundredweight the first three weeks 
of December 2003.  Following the 
BSE announcement, average fed 
steer prices declined by 21 percent 
to  $76.27/hundredweight over the 
first three weeks of January 2004.  
But, because of relatively low U.S. 
cattle inventories, reduced imports 
of  Canadian beef,  and strong 
0.00
0.05
0.10
0.15
0.20
72 77 82 87 92 97 02
Ti me
P
e
r
c
e
n
t
Import Share
Export Share
Figure 1:   U.S. Beef  Import and Export Market Shares of Live 
         Cattle and Beef Supplies and $10.69/hundredweight for 
feeder steers (about $70 per 
head). 
 
Conclusions 
 
We used a model that 
incorporated price flexibilities, 
import and export market 
shares, and base prices to 
quantify the effects of North 
American BSE cases on U.S. 
cattle prices.  Reduced U.S. 
beef and cattle imports 
increased U.S. cattle prices 
while reduced U.S. beef exports 
decreased U.S. cattle prices.  
The net effect of the BSE 
discoveries was a reduction of 
U.S. fed cattle prices was 
$6.21/hundredweight, and the 
net effect on U.S. feeder cattle 
prices was $10.69/
hundredweight. These 
estimates should be evaluated 
within the context of three 
concerns.   
 
First, the estimates are based on 
December 2004 prices that 
were near historical high levels.  
The use of percentage changes 
applied to these relatively high 
prices may cause our estimates  
steer price of $124.70, the loss of 
exports reduced feeder steer 
prices by $14.63/hundred weight.  
For 650 pound feeder steers, this 
represents a decline of $95 per 
head. 
 
U.S. beef (including beef from 
live cattle) import shares declined 
from 15.9 percent in 2002 to 14.0 
percent in 2004 as a result of U.S. 
trade restrictions imposed on 
Canadian beef and cattle (Table 
1).  The decrease in imports 
increased U.S. fed steer prices by 
$2.28/hundredweight or $27 per 
head.  In addition, this decrease in 
imports increased feeder steer 
prices by $3.94/hundredweight or 
$26/head.  
 
Reduced U.S. beef and cattle 
imports increased U.S. cattle 
prices.  However, reduced U.S. 
beef exports decreased U.S. cattle 
prices.  The combination of 
import and export share changes 
represents the net changes of U.S. 
cattle prices because of trade 
disruptions.   Trade disruptions 
caused by the North American 
BSE cases resulted in net price 
declines of $6.21/hundredweight 
for fed steers (about $75/head) 
Fourth, base period fed and feeder 
steer prices were identified to 
compute cattle price changes that 
occurred in response to North 
American BSE cases.  Average 
prices occurring during December 
2004 were used as base period 
prices.  The average Nebraska fed 
steer price for the month was 
$86.85/hundredweight and the 
average feeder steer price 
(Oklahoma City, 500-600 pounds) 
for the month was $124.70/
hundredweight. 
 
The Effects of the 2003 BSE 
Events 
 
The last normal year for cattle and 
beef trade between the United 
States and Canada occurred in 
2002. In 2002, the U.S. beef export 
share was 8.5 percent.  The U.S. 
beef export share declined to 1.6 
percent in 2004 because of the 
U.S. BSE case (Table 1).  Based 
on an average December 2004 fed 
cattle price of $86.85/hundred 
weight, the loss of exports reduced 
fed cattle prices by $8.49/
hundredweight.  For 1,200 pound 
fed steers, this represents a decline 
of $102 per head.  Based on an 
average December 2004 feeder 
 
 
Year/ 
Cattle Price 
Import 
Share 
Export 
Share 
Import Price 
Effects 
Export Price 
Effects 
Net Price  
Effects 
2002 15.89%  8.51%      
2004 14.04%  1.63%      
Fed Steer    $2.28/cwt -$8.49/cwt  -$6.21/cwt 
Feeder Steer    $3.93/cwt -$14.62/cwt  -$10.69/cwt 
Table 1:  U.S. Import and Export Market Shares of Live Cattle and Beef Supplies and Beef 
      Price Effects of BSE, 2002 and 2004 
Note:    Market shares and price effects are based on changes from 2002 (pre-BSE trade year) to 2004 
  (post-BSE trade year). The programs of the MSU Extension Service are available to all people regardless of race, color, national origin, 
gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status.  Issued in  
furtherance of cooperative extension work in agriculture and home economics, acts of May 8 and June 30, 1914, in  
cooperation with the U.S. Department of Agriculture, Dr. Douglas Steele, Vice Provost and Director, Extension  
Service, Montana State University, Bozeman, MT 59717. 
Marsh, John M. "Impacts of 
Declining U.S. Retail Beef 
Demand on Farm-Level Beef 
Prices and Production." 
American Journal of 
Agricultural Economics. 85,4
(November 2003): 902-913. 
 
 
beef slaughter by-products (hide, 
variety meats, tallow, etc.).  By-
product values declined since the 
announcements of North 
American BSE cases.  To the 
extent that these declines were the 
result of reduced by-product 
exports, estimated price impacts 
reported above likely understate 
actual reductions in U.S. cattle 
prices.  
 
References 
 
Marsh, John M. "Relative 
Volatility in the U.S. Beef 
Market." Briefing Paper No. 67, 
Agricultural Marketing Policy 
Center, Montana State University.  
Bozeman. May 2004. 
 
to overstate the impacts of BSE  
cases relative to more normal 
cattle prices.   
 
Second, the estimates of increases 
in U.S. cattle prices caused by 
reduced U.S. imports of Canadian 
beef and cattle would be lower if 
only the U.S. had imposed trade 
restrictions on Canada.  But, 
because virtually all world beef 
markets imposed such a ban, the 
impacts on U.S. cattle prices were 
much larger than would have 
occurred had only the U.S. banned 
imports of Canadian beef and 
cattle.   
 
Third, the estimates do not account 
for changes in cattle prices 
resulting from reduced trade in 

The Impacts of North American BSE Discoveries on U.S. and Canadian Cattle Prices

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