The coldest, wettest winter in many years has finally given way to warmer, drier spring weather. That couldn’t come soon enough for beef producers and cattle feeders, especially on the Northern Plains and in the Corn Belt. Now they and the whole beef industry can look forward to the best two beef demand months of the years.
Domestic demand, especially at retail, continues to be strong despite higher retail prices than last year, and export demand is steady although below last year’s record levels. Retailers are busy placing final orders for beef items to feature for the week leading up to and over the Memorial Day (May 27) holiday weekend. This period historically records the biggest retail beef sales of the year.
Meanwhile, April feedlot placements of cattle were well above last year as feedlot conditions improved. Aggressive marketings must be maintained to prevent a backlog of cattle developing this fall, say analysts. Higher slaughter levels will help prevent a near-term backlog. Weekly kills increased sharply at the end of April last year and averaged about 650,000 head per week in May and June. They remained well above 600,000 head per week the rest of the year. These averages exclude holiday-shortened production weeks. The key to having kills at or above these levels will be beef demand at home and abroad, say analysts.
WLJ Publisher Pete Crow in his column last week examined some of the aspects of the class action lawsuit by R-CALF against the Big Four packers (Tyson Foods, Cargill, JBS USA, and National Beef Packing). My observation of the lawsuit is that R-CALF and the law firms they employed have got it horribly wrong in some of their claims, because the facts do not support their allegations.
The lawsuit alleges that the Big Four conspired to artificially depress fed cattle prices through various means, including in four ways. But each allegation makes assertions that are contrary to the facts. The complaint claims the Big Four collectively reduced their slaughter volumes and purchases of cattle sold on the cash market in order to create a glut of slaughter-weight fed cattle.
The facts contradict this claim. In 2015, 21.5 percent of all live cattle nationally sold on the cash market, an all-time low. The percentage increased to 25.6 percent in 2016, to 25.7 percent in 2017 and to 26.7 percent in 2018. This was entirely due to cattle feeders wanting to boost the cash market and had nothing to do with packer behavior. By the way, 61.1 percent of all purchases nationally were by formula, not 70 percent as Pete wrote. Iowa-Minnesota sold 57.1 percent of their cattle on the cash market, not 70 percent.
The suit also claims packers manipulated the cash cattle trade to reduce price competition among themselves. This included enforcing an antiquated queuing convention through threats of boycott and agreeing to conduct substantially all their weekly cash market purchases during a narrow 30-minute window on Fridays, it says. The latter point ignores the fact that late-week trade in the cash market has been the norm not the exception for years, and that last year and this year have seen trading quite often earlier in the week. The main trade last week occurred on Tuesday.
The suit also alleges that packers transported cattle over uneconomically long distances, including from Canada and Mexico, to depress U.S. fed cattle prices. Again, the facts contradict this. The only live cattle that enter the U.S. are from Canada for direct slaughter at northern plants such as Tyson’s Pasco, WA plant. The packers do not import any live or feeder cattle from Mexico.
Another allegation is that packers deliberately closed slaughter plants to ensure the underutilization of available U.S. beef packing capacity. This ignores reality and is a contradictory claim. Cargill closed its Plainview, TX plant in 2013 due to lack of cattle supply because of the extreme 2010-2012 drought. National closed its Brawley, CA plant in 2014 also because of supply issues. Tyson closed its Denison, IA plant in 2015 because it was a slaughter-only plant. But it increased slaughter capacity at its Dakota City, NE plant. Besides, closing plants boosts plant utilization, not the other way around.
The suit’s allegation about live cattle prices ignores the basic laws of supply and demand. Prices (basis USDA’s 5-area region) averaged a record $154.56 per cwt in 2014 as a result of tight cattle supplies. They averaged a record $162.43 per cwt in 2015’s first quarter and $148.12 per cwt for the year. They averaged $120.86 per cwt in 2016 but increased in 2017 to average $121.52 per cwt. They declined to average $117.12 per cwt in 2018 but in the first quarter this year rebounded to average $125.58 per cwt. The lower prices after 2014 were due to a steady increase in live cattle supplies as the beef herd and calf crop grew, not due to collusion by packers. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
