Plenty of solutions, little agreement on TAMU cattle markets report | TheFencePost.com
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Plenty of solutions, little agreement on TAMU cattle markets report

In a congressionally mandated investigation into meat packer business practices by the USDA and the Federal Trade Commission, it was noted that the prices of livestock so frequently have no relation to the cost of production, making cattle feeding a risky business and the fluctuations great enough to burden the feeders and consumers alike.

“Well-informed stockmen are convinced that these erratic price movements can be explained only on the theory of ‘manipulation’ by packers, whom they regard as the beneficiaries of the changes.”

Of course, this investigation finding is part of a 1920 investigation, but echo many of the concerns about today’s cattle markets.



In the summary of the findings in the mandated study published last week by Texas A&M, the National Cattlemen’s Beef Association has identified the four major findings. Government intervention in cattle markets would be harmful, costing up to $16 billion in lower prices over the next decade; alternative marketing arrangements (AMAs) do not change the underlying supply and demand fundamentals; AMAs were initiated by cattle feeders to capture more value associated with improved quality; and price discovery is still robust even though less than 30% of the transactions are from cash negotiations.

According to David Anderson, a professor and Extension economist with the Texas A&M AgriLife Extension Service, wrote that “questions about the accuracy and volatility of livestock prices — and particularly about the relationship of market structure to those issues — have been thoroughly investigated and hotly contested for well over a century now — with, it seems, little prospect for resolution even now.”



Anderson said the proposed solutions to the market’s woes are diverse, but there is little agreement. At a two-day workshop presentation of the findings that comprise the book, a panel was gathered to offer feedback on the presentations. The panel, meant to be a diverse cross-section of the industry, included Michael Nepveux, an economist at the American Farm Bureau Federation; Shelby Horn of Abell Livestock, a commercial cow-calf/stocker operator with ranches in Texas, Florida and New Mexico; Don Close, the cattle market analyst for Rabobank; and Justin Tupper the owner and operator of St. Onge Livestock Auction Company and vice president of U.S. Cattlemen’s Association.

NOT ACCEPTABLE

Gerald Schreiber, president of RCALF-USA said the analysis concluding that simply riding this out isn’t acceptable. He also maintains that the data used dating back to 2002, was a very different cattle market with 60% of sales being cash negotiated.

“Now, this idea of regionalizing, which we’re absolutely opposed to because the High Plains — Kansas, Oklahoma, and Texas — are less than 10% negotiated sales,” Schreiber said. “Negotiated cash trade still sets the price for the whole market. That was my heart burn with that.”

The problem, he said, with AMAs or grid is those cattle, which are sold that way based on the belief they are higher quality cattle, are based on a floor based on less than 10% cash sales.

As for the organic efficiencies of the market referenced in the book, Schreiber said it’s just not so. With efficiencies in the market, he said consumers would be benefitting but, as it is, he said consumers and producers are both getting the short end of the proverbial stick.

Schreiber said the more negotiated cash trade, the more competition and that competition is what Justin Tupper said is key to price discovery.

THE SECOND BIDDER

Tupper, who was on the panel, said true price discovery is the second bidder.

“If you don’t have a second bidder, you don’t have true price discovery,” Tupper said. “If you have to give up efficiencies for competition, then we’ve lost again.”

No one loves more government, he said, but this is how the market has arrived at its current situation.

“Every one of those guys who say the don’t like government intervention I bet has taken a government check in the last year,” he said. “That’s part of life, I don’t love it, but it is what it is.”

The packers, he said, either need to be broken up or regulated to ensure that all of the market control doesn’t rest with the big four and to ensure that true market participants aren’t left out in the cold.

The untold story of the packers, Tupper said, is the control they wield on the retail side of the market. He said building more shackle space is a reasonable solution but if the packers exercise their market power and block that beef from finding space in the retail cooler, it’s all for not.

“Once you get that built, they’re going to buy that plant for 10 cents on the dollar and we just built the big four a brand-new packing house,” he said.

The cattle industry, he said, is in a time when the consumers can recognize the problem, and there is a political will to make change. Ideally, he hopes there will be a passage of a combination of Sen. Chuck Grassley’s, R-Iowa and Sen. Deb Fischer’s, R-Neb., negotiated trade bills.

“If our own industry groups would get the hell out of each other’s way and let this go…and that scares me on both sides,” he said. “We have to get something passed and it’s going to have to be a compromise. It isn’t going to be everything RCALF wants, it isn’t going to be everything USCA wants, and it definitely isn’t going to be everything NCBA wants. Enough of those NCBA members have been rising up within, I think they’re catching enough flack to be changing the narrative in some shape or form.”


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