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Struggling livestock industry seeks solutions

Most, if not all, industry groups seem to agree that 15 or 20 percent of finished cattle sold in a “bid and buy” or negotiated pricing situation is not enough to determine the true value of the cattle.
Trl-State Livestock News staff photo

Almost 150 members of Congress asked U.S. Ag Secretary Sonny Perdue, on April 1, to help deliver subsidy assistance to cattle producers via the Coronavirus Aid, Relief, and Economic Stabilization Act recently signed by President Trump.

The CARES Act provides $9.5 billion to be distributed to farmers and ranchers and replenished the U.S. Department of Agriculture Commodity Credit Corporation’s borrowing authority back to the statutory cap of $30 billion, in response to the COVID-19 pandemic which has caused commodity prices to plummet.

The CARES Act is intended to provide $2 trillion in assistance to Americans.

The letter was led by Sens. John Thune, R-S.D., and Catherine Cortez Masto, D-Nev., in the Senate, and Reps. Henry Cuellar, D-Calif., and Dusty Johnson, R-S.D., in the House of Representatives.


“We’ve got to quit trying to break even. We’ve got to get that out of our heads. We need a return. They’ve got us so beaten down that we’re so excited at the prospect of getting back to zero, let alone running a successful business.”

“This program should deliver targeted, temporary, equitable relief to cattle producers in a manner that limits market distortions and negative effects on price discovery,” said the letter, adding that younger farmers and ranchers are especially vulnerable in a time like this because they haven’t built up equity to fall back on.

The American Sheep Industry estimates that the COVID-19 crisis will cause a $125 million loss to the sheep industry directly and will have an overall negative $300 million impact economically to the industry and those it affects.

The group asked Ag Secretary Sonny Perdue for help in developing “a mechanism that would help offset actual and demonstrated losses realized by America’s sheep producers.” They cited a 25 percent drop in wool prices, an 88 percent decline in wool exports to China (the U.S.’s biggest wool buyer) in the past year, a 50 percent drop in demand for lamb due to the food service shutdown and last week’s bankruptcy of the second largest lamb company.

While he appreciates the attention given to the livestock industries in recent weeks, rancher and backgrounder Brett Kenzy of Gregory, S.D., said the cattle market has been in need of regulatory fixes, for years, not just subsidy assistance.

“We’ve got to quit trying to break even. We’ve got to get that out of our heads. We need a return. They’ve got us so beaten down that we’re so excited at the prospect of getting back to zero, let alone running a successful business,” said the R-CALF USA director. Kenzy said his family operation will survive the extreme challenges because of equity they’ve been able to build up, but many producers, especially younger ones, will likely not make it through the coming months or years without some changes that put a bigger percent of the retail beef dollar into the producer’s pocket.

“The percent of the producer dollar is shrinking, ever since 2015. The fed cattle price and boxed beef price used to run together, now there is no correlation,” Kenzy said.

“I’ll be honest, I think we were in serious trouble way before the Holcomb fire. The fire made it worse all at once, and that backed the packers off a little bit.”

CATTLE GROUPS

The National Cattlemen’s Beef Association and the U.S. Cattlemen’s Association have asked for direct subsidies for producers. “USCA worked directly with congressional offices and cattle producers to rally support for this letter — it came together really well,” said Jess Peterson, senior policy adviser.

His group also voiced opposition to the corporate meatpackers being eligible for any of the CARES Act support.

NCBA voiced support for the subsidies as well. “America’s cattle producers have been hit hard by the unforeseen financial challenges brought on by this pandemic. We thank each and every lawmaker that showed their continued support to rural families by signing onto this critical letter,” said NCBA President Marty Smith, a family cow-calf operator from Wacahoota, Fla., in a news release. “We remain hopeful that USDA can quickly deliver this relief to the cattle producers that so desperately need it.”

“While the effects of COVID-19 will be felt across the country, we must ensure we avoid permanent, fundamental changes to workings of the American cattle market,” NCBA said in a March 19 news release.

R-CALF USA has asked for regulatory fixes, to help drive market prices upward, rather than subsidy assistance.

While Kenzy acknowledges that some producers may need direct assistance now, he said that concept isn’t a long-term solution.

“They talk about sustainability — this is so unsustainable,” he said.

“We all want to be sustainable, we’ve always been about sustainability, but we can’t be sustainable if we’re not profitable.”

NCBA declined a request for a phone interview for this story.

Leading up to the coronavirus crisis, the cattle industry faced a multitude of challenges.

USDA announced in February that the agency had lifted the 2 1/2 year ban on Brazilian beef, saying, “FSIS confirmed that Brazil has implemented the corrective actions and has determined that its food safety inspection system governing the production of raw intact beef is equivalent to that of the U.S.”

CATTLE MARKET

Before this announcement, industry-wide conversations were had regarding the struggling state of the live cattle and feeder cattle markets.

Most, if not all, industry groups seem to agree that 15 or 20 percent of finished cattle sold in a “bid and buy” or negotiated pricing situation is not enough to determine the true value of the cattle. The 80 plus percent of cattle sold on contracts that are based on the sliver of “cash trades” are considered by many to be the “tail wagging the dog.” This problem is exacerbated by confidentiality rules that prevent many of the already limited cash trades from being publicly reported. The result is that the few cash trades that occur, which might consist of high quality cattle that grade well one week, and subpar, poor grading cattle the next, are setting the price for the hundreds of thousands of cattle that are slaughtered weekly.

Additionally, a disconnected futures system where many feeders sell cattle based on their hedge positions rather than the perceived value of their cattle, creates challenges for the other feeders who are then unable to get stronger bids than their “hedging” counterparts.

Following an August, 2019, packing plant fire in Holcomb, Kan., it was reported that meatpacker profit margins climbed over $400 per head, well above the previous record of $308, according to Denver-based livestock marketing advisory service HedgersEdge.com.

The industry continues to reel from the market impacts of the plant fire (as far as slaughter capabilities, USDA data showed that more cattle were slaughtered in the weeks following the fire than those leading up to it).

The coronavirus or COVID-19 pandemic and ensuing panic buying of beef which brought about record gains in boxed beef prices has also been blamed for a record drop in live cattle prices. Ranchers and media pundits alike scratch their heads when learning about new record packer profits upward of $600 per head, according to hedgersedge.com.

Iowa Republican Sen. Chuck Grassley questions whether this constitutes possible price gouging of consumers and producers. South Dakota Republican Sen. Mike Rounds questions whether the big four meatpackers were price fixing.

In recent months, industry groups have called for any number of policy changes to revive the cow-calf and feeding sectors

Some are calling for better price insurance for cattle producers.

Others want mandatory Country of Origin Labeling, mandated minimum negotiated cash trades, more export opportunities and more.

Cattle ranchers are busy caring for calving cows and praying that their calf check this fall will be enough. ❖




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