I think we’ve had enough congressional hearings on cattle markets; the two we had last week have been almost embarrassing to the cattle industry. I don’t really understand how they choose folks to testify, but they are choosing the wrong folks. Some are pretty good and know their business, but others appear to come out of left field and are clueless on how this business works.
The fed beef market gained a few bucks on the cash market last week, while the futures markets were lower on the Cattle on Feed report. USDA said we had set a record on April 1 for cattle on feed, with 12.1 million head on feed. What the analysts didn’t like was the 1.99 million head placed in March. Drought continues to force cattle into feedlots.
Cash fed cattle sold as high as $148, while April futures closed at $138.50 Wednesday—a very wide basis I’d say. I wonder if the cash market advanced because all of the CEOs from the Big Four packers were testifying before Congress. I was preparing for a major packer bashing in the House hearing over their huge profits they made last year.
This market legislation is getting out of hand, and I wish folks would see that fed cattle marketing is changing before their very eyes. Packers buy cattle from cattle feeders; they buy cattle through alternative marketing agreements. Many of the cattle are Verified Natural, non-hormone treated cattle (NHTC) or some other attribute. Packers have a market for various types of cattle.
Shawn Tiffany testified before the Senate last Tuesday. He’s a custom feeder in Kansas and has a 75,000-head feedlot. He told senators that if he couldn’t use AMAs, it would ruin his business model. He feeds program cattle for his customers. It’s a three-year process from breeding time until the cattle are finished, so he needs to know he has hook space for his customers’ cattle that have special market attributes. He leases market access to U.S. Premium Beef so his customers can sell into a premium market.
Packers don’t buy finished cattle from cow-calf or stocker operators unless they are retained-ownership cattle. Cow-calf producers who produce NHTC or Verified Natural cattle produce them to fit the packer’s program, and AMAs come in handy on program cattle. I would like to have a market to go to when cattle are finished, even if I sell them as calves.
Cattle feeders are going to try and sell their cattle for the most money, and what they sell fed cattle for influences the price of feeder cattle, among other inputs. Still, most feeder cattle are sold at auction with negotiation processes occurring. How a cattleman sells his cattle is his business. Selling fed cattle and selling feeder cattle are two different marketing processes.
We have been told by several well-known ag economists that the volume of fed cattle sold on the cash market isn’t necessarily price discovery; it’s part of the process combined with several other market indicators—like when packers buy 25,000 head on a Monday, as they did last week, at higher money.
Mandating the level of cash transactions in fed cattle markets will be costly—if packers want to buy with an AMA, so be it. It doesn’t threaten the price a feeder is going to pay for your feeder cattle. The feeder cattle market is down because corn is $8 a bushel, and other feedstuffs are sky high.
Congress has a lot of decisions to make in both the Senate and House’s cattle marketing bills. All of the producers who testified endorsed enforcement of the Packers and Stockyards Act but were skeptical of creating a new office to monitor competition. Labeling was also an issue for some producers. There are a lot of little pieces that will go into these legislative proposals. My suggestion is to be careful what you ask for.
When you combine government and the word “mandate,” expect problems. It is in your best interest to keep government out of the markets and keep government out of your industry as much as possible.
Our main problem in the cattle industry is moisture; much of cattle country is in drought to the level we saw in 2013-14. We liquidated so many cattle then that Cargill closed a major plant in Plainview, TX, which better aligned the cattle and packing processing capacity. That plant alone had a major impact on the beef processing industry. Now, the government wants to hand out $1 billion to increase independent packing capacity. Meanwhile, pray for rain. — PETE CROW
