Experts weigh in on fed cattle markets at request of Congress | TheFencePost.com
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Experts weigh in on fed cattle markets at request of Congress

Editor’s Note: This is part of a series that will be continued in next week’s issue of The Fence Post.

In 2020, Congress asked then-Secretary Sonny Perdue to utilize research centers and experts across the country to research current issues and trends in the cattle markets. The result is a 200-page book titled “The U.S. Beef Supply Chain: Issues and Challenges Proceedings of a Workshop on Cattle Markets” is composed of findings and conclusions from a who’s who of economists and experts that urges “extreme caution in making changes to a system that has grown organically over time to reward high-quality beef production in a way that acknowledges regional differences throughout the country.”

Bart L. Fischer, a research assistant with Texas A&M (TAMU) AgriLife Research, and Joe L. Outlaw, Regents Fellow, professor, and Extension economist with Texas A&M AgriLife Extension Service, who are co-directors of the Agricultural and Food Policy Center at TAMU, compiled the key findings from the evaluation.



With regard to concentration, Fischer and Outlaw said fed cattle pricing and capacity discussions must acknowledge the concerns over packer concentration.

“While not necessarily a popular position, most economic research confirms that the benefits to cattle producers due to economies of size in packing largely offset the costs associated with any market power exerted by packers,” they wrote. “Research indicates that there is market power, but its effect has been small.”



According to the key findings, among the cattle market economists consulted, there was general agreement that price discovery in fed cattle markets is still robust despite the fact that less than 30% of the transactions are negotiated (or cash). While some argue that imposing mandatory minimums on negotiated (or cash) transactions would improve price discovery in the fed cattle markets — accruing benefits to the cow/calf producer in the process — authors in this book argue it could have the opposite effect, potentially imposing huge costs that are passed down to cattle producers in the form of lower prices.

Despite still robust fed cattle price discovery, the economists noted that additional transparency in general would be good because it could help build confidence in the market.

The economists consulted in the study repeatedly stressed the cyclical nature of the cattle business. Though cattle supplies are currently outpacing available packing capacity, they warn that can change. This is particularly notable for anyone considering building additional slaughter capacity.

“As a result, expansion of small and regional packing capacity needs to be done in a way that is sustainable and economically viable,” they wrote. “While the program is still being implemented, the funding recently made available by the Biden Administration may help meet that demand for additional capacity.”

IT’S COMPLICATED

The beef cattle industry is one of the most — if not the most — complicated markets in agriculture, and stakeholders throughout the supply chain have a number of varied viewpoints.

According to Derrell Peel, the Charles Breedlove professor of agribusiness in the Department of Agricultural Economics at Oklahoma State University, who wrote the chapter entitled How We Got Here: A historical Perspective on Cattle and Beef Markets, the challenges facing the beef industry are not new, some even remaining the same over the past century. For the most part, Peel said the industry has avoided embarking on policies targeting issues that, according to Wayne Purcell, are more nearly peripheral in nature and often deal with the symptoms of economic problems rather that the causes. The exception, Peel said, is Mandatory Country of Origin Labeling or MCOOL, though the U.S. has repealed what he calls a detrimental policy.

In the emotional reactions that accompanied the Black Swan events of late, he said demand was fueled for legislative actions that he said attempt to jump to a solution without addressing the “complex structural and behavioral issues that brought the industry to the current situation.

“The risk is that these overly simplistic solutions will have long term detrimental impacts on cattle producers, the industry, and consumers, and jeopardize the ability of the industry to compete in dynamic global protein markets for a successful future,” Peel wrote.

Proposed solutions, he said, must carefully evaluate incentives, whether the desired outcomes are feasible or sustainable, and to understand the unintended consequences and undesirable outcomes of those solutions.

The complexity of the markets, he said, is likely part of the reason the industry has long been plagued by contentious issues. With cow-calf, stocker, feeder, packer, wholesale, additional processing, retail grocery, food service, and export all involved at varying scales and cost efficiencies, all contribute to what Peel calls an intricate set of markets. This is, he said, made even more complicated as the industry has grown and evolved, placing additional importance on international trade, value-added programs, beef imports, and beef demand.

Peel said producers have cycled through a veritable list of perceived villains over time including packer concentration/market power, price discovery, beef and cattle imports, and futures markets. Historically, periods of high cattle prices have significantly diminished producer concerns only to see them revived during typical industry dynamics. The turmoil of the past two years has revived all these concerns simultaneously and added a couple of new ones in the form of supply chains and cold storage.

Peel said it is worth repeating the words of Wayne Purcell:

“The big danger is that all the attention on short-run and highly visible issues will block recognition of the problems that are long run and structural in nature and, in the process, prevent efforts to move to programs and policies that have a legitimate chance of helping.”


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