HUNTIN' DAYLIGHT -- BLAME CHANGES NOTHING

by: Wes Ishmael

You know what I wish and have for years: the world and the cattle business could be more like it was when I was growing up, or at least what my memories perceive those times to be.

There were lots more cows and more people who had first-hand knowledge of the joys and heartbreak that went with them. Towns like where I was born were agricultural communities; cities were few and far between, destinations you had to plan to get to. Even the values of folks outside of agriculture seemed more like the ones shared by those directly involved in it because there were lots more blue-collar jobs than desk jockeying.

The world today, the cattle business today, is nothing like that, of course, and never will be again.

Blame the retailers. The 20 largest food retailers and wholesalers accounted for about 82 percent of total sales last year, according to Supermarket News.

Blame the packers. Year in and year out, the four largest firms harvest around 80 percent of all the fed cattle in the United States.

Blame the feedlots. About 2.6 percent accounted for 85 percent of all the fed cattle marketed last year. One third of 1one percent of feedlots accounted for 60 percent of the fed cattle marketed.

Blame cow-calf producers. There were only 656,475 operations with beef cattle, according to the 2007 Census of Agriculture (five percent less than in 2002). 35,000 of those produced 75 percent of the total value of U.S. sales of cattle and calves.

According to the mid-year USDA Cattle Inventory report issued in July, there are 31.7 million beef cows, two percent less than a year earlier. The total cattle inventory of 100.8 million head is also two percent less. The estimated total calf crop of 35.4 million is the smallest since 1950, according to the Livestock Marketing Information Center. Yet, beef production continues near record high levels. So, blame efficiency, too, relative to declining domestic beef demand.

It doesn't matter much which is the chicken or the egg.

As the industry contracts, so does its infrastructure—fewer sale barns, fewer trucks and drivers to haul cattle, fewer large animal veterinarians, less money for university livestock research and extension and all of the rest.

Whatever sector of the cattle business you're involved in today, from commercial cow-calf production, to seedstock production, to feeding and packing, it's about market share. To a large extent, the train for newcomers—except through acquisition of established enterprises—left a long time ago.

That could change dramatically. The global food supply needs to double in the next 50 years. Baby Boomers are just gearing up to transfer the most wealth in American history.

But, that's how it is today because the business is driven by the market, a living breathing entity that goes where it must in order to survive. Consequently, those who serve that market must adapt to its evolution, subsidize their involvement or exit the business, by choice or otherwise.

Treating the Symptoms

That's why the proposed regulations issued by USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA), presumably aimed at increasing market fairness and competition, are as laughable as they are potentially ruinous to so many independent producers.

If you're unfamiliar with the proposed regulations issued for comment June 22, see www.gipsa.usda.gov. They include requiring that buyers submit sample contracts for publication on GIPSA's website, limiting marketing arrangements between packers and dealers and removing the need for suppliers to prove harm in order to sue buyers.

“On the surface, this rule has the potential to take the beef industry back 30 years by stifling the innovative efforts of U.S. cattle producers to add value and enhance the quality and safety of their products for consumers in the United States and abroad,” said Colin Woodall, Vice President of Government Affairs for the National Cattlemen's Beef Association (NCBA).

According to a review by the National Pork Producers Council (NPPC), the rule would dictate the terms of contracts, restrict marketing arrangements, require reams of paperwork, create legal uncertainty and limit producers' ability to negotiate better prices for the animals they sell.

“That's a recipe for stifling innovation, driving up costs, forcing simple contract disputes into court and – given those adverse consequences – compelling packers to own their animals rather than to contract with farmers like me to raise them,” said Sam Carney NPPC president.

NCBA and NPPC were among leading livestock organizations that requested USDA extend the comment period for the proposed GIPSA rule by 120 days. The original comment period was only 60 days.

July 26 USDA extended the comment period 90 days to November 22. That was after members of Congress from both sides of the aisle expressed dismay at the rules, saying they went beyond the intent of what was authorized in the current farm bill.

If you happen to support the proposed rule, by now your anger is starting to boil because you believe the GIPSA rules are long overdue. Best as I can tell, the primary argument of cattle producers in support of the new regulations goes something like this: there are fewer feedlots and packers, so they have more buying power. Plus, they tend to pay more for cattle in volume. If I'm a small producer who can't sell in volume I'm at a market disadvantage and that's the fault of the packers and the feedlots.

By the way, scads of credible research indicates captive supplies related to increasing feedlot and packer concentration and marketing agreements have a net positive effect for producers rather than a negative one. Take a look at GIPSA's own Livestock and Meat Marketing Study.

According to National Farmers Union (NFU) president, Roger Johnson, “Extension of this comment period gives leverage for packers to offer lower prices to producers as a fear mechanism, which we have seen in the past with rules such as Country of Origin Labeling. NFU is an organization of producers and opposes the further extension of this comment period.”

Markets are True

If there's one thing the market hates, it's uncertainty. Using the Country of Origin Labeling rule as an example, yep, feedlots were paying less for cattle they feared couldn't be documented correctly, because packers were going to pay less. It wasn't about trying to scare their suppliers into submission; it was about following the market that said those cattle were worth less because of the new rule, which incidentally was supposed to help market beef and increase domestic beef demand. Obviously, that didn't happen.

As for the proposed GIPSA regulations, according to an open letter from USDA Undersecretary Edward Avalos July 26, apparently to clarify the rules, “This rule does not limit or prohibit marketing agreements, the use of premiums or other value added activities. This rule does not require anyone to do business with any particular person or require packers to pay all producers the same price.”

But the rule does throw the door open to buyers and sellers being able to sue one another without proof of harm. It does place confidentiality and privacy at risk.

As Woodall said, “The rule poses serious privacy concerns and provides no guarantee that producer's private information would not be exposed to the general public, including competitors. The rule also places all producers in jeopardy of litigation by their competitors or the government. Opening the cattle markets to trial lawyers is not in the best interest of the marketplace, and we do not support litigation as a means of securing producer profitability.”

Few likely will be eager to pay one supplier more for their cattle than someone else knowing they could spend all their profits defending themselves in a court of law, even though they could prove why those cattle were worth more in terms of gain, cost of gain, reduced morbidity and all of the rest. Litigation means they could win the battle and lose the war.

Producers willing to follow the demands of the marketplace have been able to earn significantly more than those who haven't. Just look at the price spread on same-weight, same-sex cattle in the same sale. Expecting calves of differing value to sell for the same price is as ludicrous as expecting stockers, feedlots and packers to pay the same price for all cattle.

Blame whoever you want.

Artificial impediments to the market, like the proposed GIPSA regulations, can be constructed; they can even alter the market for a time. But, trying to change the market is akin to damming up the Pacific Ocean. Ultimately, it will go where it needs to, whether any individual or industry sector decides to follow.







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