Industry in crisis: As packers pocket beef profit, lobbying groups seek solutions
The growing disparity between boxed beef prices and cattle prices can officially be considered a crisis, said R-CALF USA past president Bryan Hanson.
Escalating corn prices mean the cost of feeding cattle has increased significantly and cattle feeders who are already suffering severe losses due to the erratic fed cattle market will likely need to buy their inputs at a much lower price to stay in business, by offering less to cow/calf producers and yearling operators for their cattle, said R-CALF in an earlier statement.
Oklahoma Farmers Union president Scott Blubaugh, a fifth generation rancher from Tonkowa, said “If we don’t get some of these problems fixed quickly, we won’t have any independent ranchers in this country. That’s what we’re fighting for.”
With boxed beef at about $323 per hundredweight (/cwt) and fat cattle around $119/cwt, by most calculators, the packer is putting over $1,000 in his pocket before expenses. John Nalivka with Sterling Marketing estimates packers were netting about $600 per head in April and feeder margins were more than $200 per head, although many feeders say that with $7 corn and scarce hay, that their profits have all but vanished.
Nalivka expects that cow-calf producers could net $125 per cow, feeders could net about $13 per head and packers could net about $365 per head in 2021.
It is this dysfunctional market that inspired the six groups to gather, said Blubaugh.
PUSHING FOR CHANGE
This significant net income variant has cattle folks pushing for a change, said Iowa feeder Eric Nelson.
“I think there is heightened awareness. The cattle industry misery index is at an all time high and when that happens, phones ring, emails are sent and there is a heightened level of diligence from producers seeking positive changes. My phone and email have been more active in the last two months than they have been for a long time,” he said.
Even as all three of South Dakota’s congressional delegation, along with 14 others are asking the U.S. Attorney General to look into packer buying activity for possible anti-trust violations, the country’s six most prominent cattle lobbying organizations gathered for a historic face to face meeting in Phoenix, Ariz., May 10, 2021, to discuss the same thing.
The meeting, arranged by the Livestock Marketing Association, whose members include auction barns and dealers, was put together to discuss challenges involved in the marketing of finished cattle with the ultimate goal of bringing about a more financially sustainable situation for cattle feeders and cow-calf producers.
The National Cattlemen’s Beef Association, R-CALF USA, the United States Cattlemen’s Association, the American Farm Bureau Federation, the National Farmers Union joined LMA in an effort to see if common ground could be reached among the diverse groups.
In an official statement, LMA said the groups discussed, among other things:
•Price transparency and discovery,
•Packers and Stockyards Act enforcement,
•Level of captive supply, and
R-CALF’s Hanson, who owns and operates Fort Pierre Livestock, Fort Pierre, S.D., with his father Dennis Hanson, said that the meeting attendees worked together with representatives from other groups to prioritize what they considered to be the biggest problems facing the industry. “By far the most votes were for packer concentration,” he said.
“For all six organizations to work together and to list packer concentration at the top of our list of concerns facing the industry, that’s a big statement,” he added.
COOL AND IMPORTS
Some issues such as mandatory Country of Origin Labeling and concern over rising quantities of imported beef were brought forth but some organizations did not want to address them.
Hanson said his group agrees that packer concentration is choking out the small, independent feeder.
“If the government would step in and break them up, it would make an immediate difference on live cattle prices. There are almost 30 plants controlled by the big 4 packers. A lot of times feeders only get a bid from one or two. If they were all independently owned, we’d have some competition,” he said.
American Farm Bureau Federation president Zippy Duvall, said in a media statement that in his five years as president, those six groups had never met up together.
“So, I was excited about us getting together and talking about what we could do in the future to help our cattle feeders and our cow-calf producers, and to make sure that they get treated fairly and have access to transparent marketing systems,” he said, adding that three main action items were agreed upon. Each meeting attendee committed to seek the “go ahead” from their own group to pursue action on each of the following items
•Expedite the renewal of USDA’s Livestock Mandatory Reporting (LMR), including formula base prices subject to the same reporting requirements as negotiated cash and the creation of a contract library.
•Demand the Department of Justice issue a public investigation status report and as warranted, conduct joint DOJ and USDA oversight of packer activity moving forward.
•Encourage investment in, and development of, new independent, local, and regional packers.
“Price transparency and discovery is… a concern, and market oversight. We have a Packers and Stockyards Act and we’re going to make sure that it’s enforced. That act was put there to make sure that everybody, from the birth of the calf to the time it’s harvested and reached the shelf is treated fairly,” said Duvall.
US Cattlemen’s Association Vice President Justin Tupper who manages St. Onge Livestock in South Dakota, said that getting those groups in agreement on a number of items was a significant first step.
“Legislators are always telling us that we need to get on the same page. I think this is a great step in that direction,” he said.
Tupper said the DOJ investigation and involvement in the industry as a “referee” could potentially make a big difference in the industry.
Larry Schnell who owns Stockmen’s Livestock, Dickinson, N.D., said, on behalf of LMA, that he was surprised to see the groups agree on so much.
“I think that was a surprise to everyone,” he said.
The representatives all committed to asking their respective organizations for support for the three action items.
The LMA will help work to accomplish those items in whatever way their membership asks them to, he said.
Several meeting attendees mentioned that a follow-up meeting will be important if not needed to make any substantive moves toward legislation or rule changes.
Blubaugh said that he was pessimistic about the outcome of the meeting because those groups tend to disagree on policy frequently. But he was pleasantly surprised. “I felt it was my duty and obligation to try. Once we sat down at the table and started talking on a rancher level, it was quite obvious that everyone in the room saw those problems and agreed upon some things,” he said.
While Hanson believes actions such as implementation of mandatory country of origin labeling for beef or the implementation of Grassley’s 50/14 bill would help immediately strengthen cash cattle prices, he said it was positive and encouraging that the different organizations found a number of areas they can agree to work on.
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