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Speaker 1: Morning, Michael, Morning Dragon.

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Speaker 2: I just wanted to say that from now on, whenever

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Speaker 2: I pass gas, I'm just gonna say, my butt is breathing.

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Speaker 3: Yeah, exactly, exactly makes perfect sense to me.

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Speaker 4: It makes perfect sense. And that you know that, just

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Speaker 4: that just fulfills my soul because we like to think

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Speaker 4: that we provide a service, and that's an example of

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Speaker 4: a great service that we provide.

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Speaker 3: If you can learn one thing by listening to the

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Speaker 3: situation with Michael Brown.

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Speaker 5: Our work is done. We're done. We're done.

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Speaker 4: I had a text message that reminded me about some

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Speaker 4: other renovations to the White House, and then that reminded

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Speaker 4: me about I forgot to put Jackie Kennedy on.

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Speaker 5: The White House on the renovation list.

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Speaker 4: Because Jackie Kennedy, at taxpayer expense, renovated the tire interior

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Speaker 4: the White House. In fact, it was so lauded, so

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Speaker 4: wonderful that CBS News did a complete special viewed by

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Speaker 4: I forget what the number was, but you know, tens

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Speaker 4: of millions of people watched it, and it was well,

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Speaker 4: it went sort of like this.

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Speaker 5: I'm not gonna play the whole thing, but just give.

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Speaker 3: You an idea on f Kennedy, created and produced by

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Speaker 3: CBS News for the CBS television network.

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Speaker 4: The the graphic is a tour of the White House

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Speaker 4: and she's walking down the Colonnade hall from the East

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Speaker 4: wing toward the West wing.

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Speaker 5: And listen to the music, just compare.

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Speaker 3: You won't be on the podcast, but I'll find it

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Speaker 3: and put it up at Michael says, go here, it's the.

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Speaker 4: It's on YouTube on the CBS News archives and it

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Speaker 4: imagine imagine Trump scrolling down the Colonnade and you know,

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Speaker 4: CBS News and Dallas special Donald Trump and the renovation

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Speaker 4: of the White House.

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Speaker 5: My, how things have changed.

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Speaker 4: I love that quote from tr You know, as the

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Speaker 4: as the people's house, it should be kept as it is.

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Speaker 4: And then he proceeds to completely renovated and add on

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Speaker 4: a complete section to it. And it just it goes

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Speaker 4: on and on and on. She goes through and she's

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Speaker 4: describing things. Yeah, what's fascinating is right there where they're

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Speaker 4: showing the exterior walls, you're seeing what I just described

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Speaker 4: as the original White House. Can't see the West wing,

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Speaker 4: can't see the East wing. You just see the north

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Speaker 4: portico and and and that's I'm sorry, on this particular view.

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Speaker 4: It's the South Portico. Yeah, that's all you see. But

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Speaker 4: oh no, we gotta go backcrap crazy because Donald Trump

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Speaker 4: tore down part of the East Wing is going to

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Speaker 4: renovate it. I'm so tired of it. I'm really tired

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Speaker 4: of it. Anyway, moving on to what I really wanted

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Speaker 4: to talk about. I want to talk about meat.

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Speaker 5: Beef. I love steak.

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Speaker 4: I love hamburgers, big, juicy, juicy hamburgers. Apparently ranchers are

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Speaker 4: upset with Trump, but I think they might be upset

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Speaker 4: with the wrong person. I want to talk about beef.

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Speaker 4: I want to talk about what Trump's done, and I

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Speaker 4: want to talk a little bit about the meat packing cartels. Yes,

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Speaker 4: we've got a meat packing cartel in this country. The

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Speaker 4: Biden years kind of left us with the suborn fact

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Speaker 4: beef stayed expensive and cattle herds shrank. Now do you

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Speaker 4: remember back earlier we were talking about the oil and

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Speaker 4: gas embargo, and you know, there's lots of oil and

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Speaker 4: gas and opek, particularly in Saudi Arabia. They wanted more

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Speaker 4: money their oil, so they cut production. And when they

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Speaker 4: cut production, the price of gas in this country went skyrocketing. Huh,

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Speaker 4: So what do you think happens when the numbers in

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Speaker 4: cattle herds begin to shrink prices go up. Trump's second term,

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Speaker 4: Trump two point zero tried to confront that reality regarding

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Speaker 4: beef directly. First he told us the truth about supply

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Speaker 4: and demand. He told us the truth about supplying price,

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Speaker 4: and then he started using trade tools to try to

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Speaker 4: rewire where our supplemental beef comes from. And I particularly

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Speaker 4: put that word supplemental beef in there because we don't

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Speaker 4: and can't get I suppose we could over time, but

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Speaker 4: we cannot right now get all of the beef we

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Speaker 4: consume from domestic production. We have to import some. So

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Speaker 4: the announced beef arrangement with Argentina fits a wider strategy.

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Speaker 4: It is not a subsidy, it's a swap. It sources

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Speaker 4: the lean trimmings that we already import from a friend

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Speaker 4: at a lower tariff cost, and away from a supplier

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Speaker 4: that's now facing punitive duties because of broader disputes that.

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Speaker 5: We have Brazil now.

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Speaker 4: The result is modest relief and ground beef prices no

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Speaker 4: hit to us cattleman who remain constrained.

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Speaker 5: By biology, weather and time.

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Speaker 4: So let's just start with the market that we actually have,

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Speaker 4: you know, start start with the reality on the ground,

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Speaker 4: not the one that the critics want to imagine. Roughly

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Speaker 4: half of all beef eaten in this country is hamburger,

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Speaker 4: and hamburger, unlike a steak, is a blend. Us feedlock

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Speaker 4: cattle produce abundant fatty trim to fifty fat. It's actually

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Speaker 4: a byproduct of the marble cuts that actually pay the bills.

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Speaker 4: So if you want to achieve say an eighty twenty

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Speaker 4: blend or a ninety ten blend, packers, the meat packers

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Speaker 4: have to the rent.

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Speaker 5: No give me.

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Speaker 4: Maybe I should be even more basic to get that

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Speaker 4: blend that occurs at the meat packing plant. It doesn't

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Speaker 4: occur at the ranch where the cattle are. It doesn't

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Speaker 4: even occur at the feed lots. It occurs in the

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Speaker 4: meat packing plants. Now I want to add a little

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Speaker 4: asterisk here. I'm gonna add a footnote.

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Speaker 5: The beef.

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Speaker 4: Now not all beef, because occasionally we will get something

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Speaker 4: from the grocery store, but we keep usually a side

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Speaker 4: of beef from a local rancher at home. We buy direct.

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Speaker 4: They pick a cow, they take it to a processor,

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Speaker 4: not a meat plant. They take it to a small

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Speaker 4: processor and they process it for us. They cut it

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Speaker 4: up to what we want X number of steaks, x

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Speaker 4: number of hamburger, x number of dis cut x number

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Speaker 4: of that cut. So that's how that's how it works.

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Speaker 4: When I talk about these blends. The packers have to

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Speaker 4: mix that domestic fat beef with very lean beef off

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Speaker 4: the ninety percent or more. And that historicality comes from

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Speaker 4: two places, call cows in the domestic herd and imports

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Speaker 4: of lean processing beef. So when the cow herd is

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Speaker 4: tight domestically as it is now after drought driven liquidation,

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Speaker 4: the domestic source of very lean trend starts to fall short.

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Speaker 4: Imports fill that gap because the demand is still there.

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Speaker 4: So if the the man still remains up here and

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Speaker 4: I've got my arms above my head. If the demand

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Speaker 4: remains up here but the supply is mixed, domestic is

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Speaker 4: falling very short, imports fill that gap. Now, I'm not

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Speaker 4: conjecturing here that I'm not there's no conjecture. Is It

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Speaker 4: is the standard explanation offered by beef economists, And of course,

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Speaker 4: the USDA market notes without the imported lean trim, a

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Speaker 4: sizable share of domestic fat trim would be downgrade to

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Speaker 4: tallow rather than sold as hamburger, and consumers would pay

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Speaker 4: even more, and overall demand for beef would soften. Now

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Speaker 4: that context makes the Argentina move pretty straightforward, because Argentina

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Speaker 4: is already already a meaningful player in our imports. It

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Speaker 4: is the fifth largest supplier by volume, with shipments measured

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Speaker 4: in tens of millions of pounds. Brazil, who is not

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Speaker 4: our friend, by contrast, surged to become the second largest

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Speaker 4: supplier earlier this year, even the largest supplier, riding record

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Speaker 4: high US prices and record low US cow inventories. This

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Speaker 4: is so such pure economics of play here. So when

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Speaker 4: Trump imposed heavy retaliatory tariffs on Brazilian goods, raising Brazilian

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Speaker 4: over quota duties to a prohibitive level, that signal that

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Speaker 4: Brazil's beef would likely start to recede, withdraw perhaps to

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Speaker 4: zero next year. Now, if a major supplier steps out

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Speaker 4: under punitive rates, somebody's got to step in, or retail

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Speaker 4: prices for beef at the grocery store will climb even higher. Now,

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Speaker 4: this announced US Argentina understanding does just that. It removes

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Speaker 4: the ten percent tariff applied to Argentine quota trimmings, and

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Speaker 4: it expands practical access, so it makes Argentine lean trim

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Speaker 4: competitive without any subsidies from US and without increasing total

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Speaker 4: import valumes. The composition of the beef shifts, the total

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Speaker 4: amount of beef does not shift, doesn't increase or decrease.

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Speaker 4: I know that people are worried about displacement, meaning that

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Speaker 4: cheaper Argentine beef depresses US production. No, that is not true.

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Speaker 4: The key distinction is product type. US ranchers specializing grain finished,

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Speaker 4: well marbled cattle that generates what would I just say

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Speaker 4: the phrase well marbled? What do you think? You don't

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Speaker 4: think a hamburger? At least you shouldn't. When I say

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Speaker 4: well marbled, you ought to be thinking about old ribbis,

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Speaker 4: New York strips, flays, well marbled steaks and roasts, and

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Speaker 4: of course some faty trim Argentine achievements like shipments like

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Speaker 4: those from Australia New Zealand are overwhelmingly lean processing beef

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Speaker 4: that's headed into grinders. Why make hamburger? These are compliments,

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Speaker 4: They're not substitutes. They make each other valuable. Lean imports

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Speaker 4: allow US packers to sell every ounce of domestic fat

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Speaker 4: trim as part of a burger blend. They're doing that

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Speaker 4: instead of sending it off to a renderer to be

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Speaker 4: used for, you know, some other product that you can

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Speaker 4: make out of beef fat. The import lean does not

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Speaker 4: listen closely. The imported lean that we're now taking from

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Speaker 4: Argentina does not replace a single t bone, a single ribbi,

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Speaker 4: or a single brisket from a US steer. It enables

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Speaker 4: instead the full monetization of that animal that the rancher

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Speaker 4: has already raised. This is why, in a year with

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Speaker 4: record imports, cash cattle prices still set record highs. The

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Speaker 4: domestic shortfall dominates the price formation, and imports simply cap

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Speaker 4: the extremes. Now, second confusion is volume. Now remember just

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Speaker 4: to make sure you understand the roadmap where we're going,

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Speaker 4: we're talking about beef production right now, before we get

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Speaker 4: to actual beef processing. So the second confusion is volume.

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Speaker 4: Could Argentina flood our market with tariffs if the tariffs vanish?

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Speaker 4: I don't think so. Because Argentinea's total exportable supply is finite.

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Speaker 4: It's bounded by its own very high domestic beef consumption, which,

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Speaker 4: by the way, with all due respect to American farmers

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Speaker 4: and ranchers. Argentine steaks. Oh, baby, you talk about something

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Speaker 4: really good. If you ever have the chance to go

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Speaker 4: to Buenos Aires or Mendos or anywhere else and have

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Speaker 4: a really good Argentine steak, do it. Oh, American steaks

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Speaker 4: are still wonderful, but Argentine steaks h pretty damn good,

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Speaker 4: pretty damn good. So even if we doubled or tripled

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Speaker 4: Argentine sales to this country, it would barely register as

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Speaker 4: a share of total US beef consumption in use. So

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Speaker 4: some analysts have run the math and they've concluded that

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Speaker 4: even extreme scenarios would amount to maybe a couple of

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Speaker 4: points of US supply at most nowhere near enough to

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Speaker 4: knock to knock down domestic production. So in practice, the

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Speaker 4: Argentina opening is simply going to backfill the hole that's

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Speaker 4: left by Brazil and partially offset type supplies that we

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Speaker 4: also get from Australia and New Zealand while their herds

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Speaker 4: are being rebuilt.

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Speaker 5: Same problem.

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Speaker 4: You've got droughts and you've got a reduction in the

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Speaker 4: number of head in Australia and New Zealand. So all

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Speaker 4: of this is simply a reallocation of import sources. It's

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Speaker 4: not an expansion. This designed to undercut US ranchers, So

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Speaker 4: why are ranchers bitching? Will hang on because price effects

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Speaker 4: deserve some careful.

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Speaker 5: Understanding, Michael.

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Speaker 2: Usually, as I have you on the background and I

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Speaker 2: drift in and out before I get up for the day,

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Speaker 2: I have to go back and listen to the podcast

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Speaker 2: just to.

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Speaker 3: Make sure I caught everything.

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Speaker 2: But this time I'm really excited to listen to the

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Speaker 2: first hour or two because I am really fascinated to

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Speaker 2: hear how you connect your love of meat, meat packing,

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Speaker 2: and butt breathing.

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Speaker 5: This is going to be interesting.

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Speaker 4: Some people are just sick, just sick, and we're proud

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Speaker 4: to have them as a part of the audience.

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Speaker 5: That's the sad part.

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Speaker 3: Do you expect anything less from one of the twelve?

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Speaker 4: No, but you would think out of twelve that we

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Speaker 4: would find one normal person.

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Speaker 3: I don't know they listen to this show. None of

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Speaker 3: them are normal.

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Speaker 5: I just it.

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Speaker 4: But I feel like I'm violating the affirmative action rules

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Speaker 4: by not having at least one normal person among the

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Speaker 4: jury of twelve. So maybe we should add a substitute, like,

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Speaker 4: you know, a alternate juror maybe we should get the

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Speaker 4: thirteenth one, and the requirement would be that we get

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Speaker 4: to do a psyche valve to make sure that they're normal,

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Speaker 4: and then they could just sit on the side. You know,

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Speaker 4: they still had to listen. They couldn't participate. But if

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Speaker 4: we had to kick somebody off because they got too

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Speaker 4: sick or perverted, we could just PLoP that person in.

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Speaker 3: It'd be so much work to find a normal person

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Speaker 3: amongst this group.

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Speaker 4: Oh, we'd have to go outside. In fact, we might

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Speaker 4: have to. I mean, don't tell the other twelve, but

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Speaker 4: we might have to pay a premium to get a

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Speaker 4: normal person to listen. So there goes the big fat raises.

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Speaker 5: We were going to get big fat raises.

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Speaker 3: So long Christmas bonus.

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Speaker 4: Yeah, you mean we couldn't give them our King Super's

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Speaker 4: gift guard. Tell them, Hey, year, go buy fourteen years ago,

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Speaker 4: go buy a tenth of a pound of beef. Well, okay,

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Speaker 4: let's talk about price prices. The promised benefit of all

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Speaker 4: of this is not going to be a price collapse.

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Speaker 4: And I'm talking about retail prices, not prices that the

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Speaker 4: cattlemen are getting at the ranch. It is marginal relief

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Speaker 4: and it is concentrated in ground beef.

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Speaker 5: Just go through the mechanics with me for a minute.

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Speaker 4: A blender's cost is the weighted cost of the lean

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Speaker 4: beef and the fat inputs. Domestic fat tram is tied

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Speaker 4: to fed cattle values. Those are elevated right now because

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Speaker 4: our domestic herd is so small. The lean component is

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Speaker 4: either domestic cow beef, which is scarce because ranchers are

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Speaker 4: holding back effers to try to rebuild their herds, or

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Speaker 4: it has to come from imported beef. So if we

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Speaker 4: replace tariff burden resilient lean beef with ten free Argentina

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Speaker 4: lean beef, then all else being equal, the input cost

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Speaker 4: falls by just a few cents per pound. A few

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Speaker 4: cents at the input stage yields just a few percent

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Speaker 4: at the real retail case where you actually pick it

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Speaker 4: up once grinding, packaging, retail margins. Everything else then gets

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Speaker 4: included in that final price that you pay when you

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Speaker 4: pick it up at the grocery store. There are multiple

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Speaker 4: agricultural economists that have described the likely price effect in

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Speaker 4: just that way. A very slight moderation and ground beef

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Speaker 4: costs maybe somewhere between two and five percent compared to

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Speaker 4: the counterfactual. That is enough to matter to families, especially

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Speaker 4: because beef has been to stand out in grocery store inflation,

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Speaker 4: but it is not enough to dent the profitability of cattle,

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Speaker 4: which is set by the scarcity of the finished animal.

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Speaker 4: Now I get that one might object at imports. However targeted,

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Speaker 4: they might be still lower overall beef prices, and so

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Speaker 4: they've got to be hurting the ranchers. Let's look at

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Speaker 4: the data. The US imported record volumes in twenty twenty four.

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Speaker 4: We've imported even larger volumes in twenty twenty five, Yet

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Speaker 4: fed cattle and feeder prices also set records. So the

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Speaker 4: tightness of the domestic herd overwhelmed any marginal dampening from

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Speaker 4: those imports. Imports instead filled a hole, They didn't create

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Speaker 4: a glut. In fact, by keeping ground BF from becoming unaffordable,

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Speaker 4: the imports helped preserve total beef demand that in turn

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Speaker 4: supported what are called the cut out values that make

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Speaker 4: ranchers hole. Now, if you're a rancher, you know, but

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Speaker 4: people in the city don't. A shrunken herd takes years

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Speaker 4: to rebuild.

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Speaker 5: You don't.

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Speaker 4: You don't go to the cattle store and buy a

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Speaker 4: you know, a three year old cow.

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Speaker 5: It takes time.

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Speaker 4: You've got to go through the breeding I mean, let's

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Speaker 4: let's get down to the nitty gritty. You got to

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Speaker 4: go through the breeding process. You got to cab them,

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Speaker 4: they've got to grow. I mean, it takes all of

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Speaker 4: that takes time during that rebuilding window measured in seasons,

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Speaker 4: not in weeks. It's better to keep consumers in the

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Speaker 4: category with reasonably priced hamburger than to push them into

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Speaker 4: substitution toward other meats like chicken or pork, the other

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Speaker 4: white meat. That is the conservative pro producer pro consumer equilibrium.

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Speaker 4: Maintain demand now, rebuild supply patiently, and avoid demand destruction

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Speaker 4: that would punish the ranchers later because they're in the

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Speaker 4: process of rebuilding right now. Then there's the whole issue

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Speaker 4: of food safety. I hear objections about food safety. Did

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Speaker 4: we lower our standards to be from Argentina.

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Speaker 5: No.

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Speaker 4: Argentina regained access back in twenty eighteen only after the

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Speaker 4: USDA verified the sanitary systems and their equivalents after a

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Speaker 4: seventeen year absence related to animal health, and since then,

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Speaker 4: Argentine exports to the US have operated under the same

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Speaker 4: inspection and residue regimes that govern all the other eligible countries.

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Speaker 4: So the present arrangement changes tariffs, it doesn't even touch

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Speaker 4: the sanitary rules. If anything, sourcing more from a competent

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Speaker 4: democracy aligned with standards is safer than relying on suppliers

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Speaker 4: in more opaque jurisdictions think Brazil. The risk control remains

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Speaker 4: where it should be in science based inspection and in certification,

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Speaker 4: not on the tariffs. And then there's this, I personally

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Speaker 4: think absurd objection political why reward Argentina trade policy is

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Speaker 4: a tool. Trade policy is used for both domestic price

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Speaker 4: stability and our international national security strategic alignments. Argentina under

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Speaker 4: Malay has pursued market reforms, They've pursued pro us diplomacy,

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Speaker 4: they pursued government liberalization in the classical sense of liberalization.

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Speaker 5: It is in our interests to see that succeed.

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Speaker 4: Allowing Argentine producers to earn dollar revenues by selling a

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Speaker 4: commodity that we already buy is a low cost way

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Speaker 4: to boaster a friendly government. At the same time, Trump

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Speaker 4: sent a very clear signal to Brazil because he raised

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Speaker 4: duties amid a broader dispute about trade behavior. Treatment of

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Speaker 4: our political allies, and I think personally most importantly Brazil's

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Speaker 4: alignment with China.

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Speaker 5: This is another forty E chess move.

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Speaker 4: To cut off China. To say, okay, few countries that

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Speaker 4: are dealing with China. They're making all these deals with China,

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Speaker 4: hold my beer. If Brazil chooses to forego the United

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Speaker 4: States market rather than adjust, we already have alternatives by

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Speaker 4: strengthening our links with Argentina, Mexico, Canada and Australia. We

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Speaker 4: do that without binding us to any one provider. Go

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Speaker 4: back and think about supply chains and how during COVID

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Speaker 4: we learned, Oh my gosh, you mean all our antabotics

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Speaker 4: come from one place. Now, think about beef, something that

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Speaker 4: we all, not all, but most rational people consume. There's

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Speaker 4: a smartest remark that most rational people consume beef. Do

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Speaker 4: you want it to be solely linked to one provider,

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Speaker 4: and one provider that has links to communists China in fact,

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Speaker 4: favors communist China over us. No diversity becomes resilience. It

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Speaker 4: becomes resilience in our supply chain. It becomes resilience in

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Speaker 4: our food chain. Now, the legal mechanics of this are

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Speaker 4: pretty narrow, and actually, I quite frankly think they're targeted.

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Speaker 4: It's a targeted calibration, but it's not a wholesale rewrite

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Speaker 4: of trade law. But I think there's a useful economic analogy.

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Speaker 4: Think of usbe complex as a two input production process

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Speaker 4: for a very ubiquitous everywhere consumer good. Input A domestic

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Speaker 4: fat trim abundant tied to the value of fed cattle.

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Speaker 4: Input B is very lean trim, which is scarce domestically

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Speaker 4: as they go through the rebuilding phase, and therefore is

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Speaker 4: sourced abroad. If you lower the tax on input B

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Speaker 4: from a friendly supplier while raising it greatly on a

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Speaker 4: less friendly supplier, you reduce the expected cost variance of

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Speaker 4: the production process, and you reduce the level of cost

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Speaker 4: as well. You have not in increase the total use

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Speaker 4: of input be beyond the quantity that the demand already requires.

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Speaker 4: You've only changed who supplies it. The optimized production process

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Speaker 4: then keeps the composite good, which is hamburger meat, within

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Speaker 4: reach for consumers, and that keeps the entire demand schedule

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Speaker 4: for beef higher than it otherwise would be.

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Speaker 5: There's an upstream effect.

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Speaker 4: The upstream effect is it supports the prices of fed

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Speaker 4: cattle that yield input a which is domestic. Other words,

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Speaker 4: cheaper lean imports keep the value of domestic fat trim higher,

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Speaker 4: and that's good for the ranchers. There's yeah, I was

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Speaker 4: gonna go down the slippery slope. But what I really

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Speaker 4: want to do is I really want to start the

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Speaker 4: beef meat packing cartels. Let's do that next instead.

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Speaker 1: I can't see how half of that basically consume is

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Speaker 1: in the form of hamburger. Do you think we should

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Speaker 1: encourage Trump to put the hamburglar on the terrorist watch group?

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Speaker 3: I think it would be a good idea.

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Speaker 4: We're better yet, since he loves McDonald's, I think on

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Speaker 4: the new ballroom out front, we ought to have the

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Speaker 4: hamburglar and Ronald McDonald and kind of make it like

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Speaker 4: an interests into McDonald's, make the make the front of

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Speaker 4: the White House on the on the east end look

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Speaker 4: like the now boxy McDonald's.

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Speaker 5: They make everywhere with the golden arches out.

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Speaker 3: Front, as long as they put in a playplace and.

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Speaker 5: Yeah, place for the kids exactly.

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Speaker 4: So all of so, while all of the old hippies

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Speaker 4: and in the you know, the everybody else that protests

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Speaker 4: and bitches about everything over Lafayette Park. They can just

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Speaker 4: put their kids in the playplace. Well, they marched to

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Speaker 4: and down the White House. It's a win win for everybody.

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Speaker 4: McDonald's Golden arches.

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Speaker 5: Obs.

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Speaker 4: You don't have time to get to meatpacker. I don't

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Speaker 4: have time to get to the meat back in cartels anyway.

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Speaker 4: I just want you to understand what I think is

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Speaker 4: going on about. Yeah, the ranchers are bitching. All you

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Speaker 4: hear is they're upset about this deal with Argentina they're

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Speaker 4: upset about. I think they're directing their anger in the

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Speaker 4: wrong place, and I think they're doing so because they

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Speaker 4: dare not bitch at the real cause of their the

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Speaker 4: low prices. They're getting paid for a headache for their

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Speaker 4: heads of cattle, and I think that's the meatback. I'll

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Speaker 4: explain why I think that coming up next