One thing about this cattle industry is that issues don’t seem to change much. Federal lands, Beef Checkoff and packer collusion never seem to change much. Last week our friends at R-CALF decided to, again, sue the packing industry for their devious ways: collusion to break the market to the detriment of mainly cattle feeders.
R-CALF took a different approach than their 2004 effort and enlisted a class action specialist law firm of Scott+Scott. Don’t know much about these guys except their list of class action suits is long. I even received a postcard from them or an affiliate claiming that Visa and Mastercard has been screwing me over since 2015 or so.
But the suit claims that packers instigated the market decline of 2015. Remember when cattle numbers were so low that packers had to struggle and compete to get cattle in their plants? They weren’t too picky at the time and didn’t discount those extra heavy cattle that come out of the eastern Corn Belt. Then cattle numbers started to build, and in the fall of 2015, packers started imposing the heavyweight discounts again. Some fed cattle were 1,850 pounds and larger.
It’s no secret that most fed cattle—70 percent nationwide—are purchased through a formula, which is generally the average price paid in the five cattle-feeding regions. Feeders would receive the weighted average price. So, cattle feeders would essentially receive last week’s average cash price. There are exceptions to this method. But in Minnesota and Iowa, farmer-feeders used the cash market for around 70 percent of their fed cattle sales, which is the strongest cash market in the country. Texas, on the other hand, sells about 5 to 7 percent of their fed cattle on the cash market. And you must realize that we’re talking about the difference between farmer-feeders or large corporate feeders.
I remember Paul Engler, Sr. of Cactus Feeders telling me that I don’t want to start each week with a fresh showlist of 25,000 head. Cactus is the largest cattle feeder in the nation and Five Rivers is about the same size. His comment made a lot of sense as to why they market on the formula. A farmer-feeder in Minnesota may have a load to sell, about 34 head per load. So, he’s going to go to the auction market, or he might forward contract to a packer based on a futures contract. They are selling the same product, in general, but are forced to do it different ways. Sorry, but economics of scale does play a role in how much leverage a feeder has. Everyone knows this going into the business.
The market period from the 2013 drought and the market adjustment in 2015 and beyond is the time period in question. Last year R-CALF was saying the market decline was because mandatory country-of-origin labeling laws changed and the importation of large amounts of lean beef ruined the market, which it may have to some extent.
This time R-CALF is saying it is pure packer collusion, and the four major beef packers conspired to break the market. Eyewitnesses, who were prior employees of the big packers, are testifying that the packers conspired to reduce their collective slaughter volumes to reduce demand for fed cattle. They allege the packers also conspired to curtail their use of the cash market during those times. Packers would coordinate their procurement practices with respect to the use of the cash market. They would import cattle from Canada and Mexico to reduce domestic needs. And the eyewitnesses say the packers conspired to close or idle slaughter plants and reduce overall slaughter capacity.
It seems that every 15- 20 years we must go through one of these industry-wide lawsuits just to make certain that meat packers aren’t destroying the market. It’s always a conspiracy-collusion issue, which seems very popular today.
Ever since the big drought in 2013, producers made a lot of money and packers made a lot of money. Everyone uses their leverage to benefit themselves when they can; it’s business.
But this is R-CALF’s second whack at this piсata and they’ve been destructive of the Beef Checkoff and a few other issues. Nobody knows just how many members they have, but their annual convention is pressed to attract 300 people. Bullard, R-CALF’s CEO is by far the greatest beneficiary of this organization. They will agree with the other cattle organizations on some issues but tend to go off the rails at some point. Like suggesting that beef exports only benefit the packing industry. Stay tuned. — PETE CROW
