The beef industry finally had a seat at the big table, a full-on Senate Ag Committee hearing on cattle markets. The hearing took a lot of time, and it was about what I thought it would be—a complaint session on how much the packing industry has been making while cattle feeders were losing money in a period of great beef demand. What surprised me was that there was not a large corporate cattle feeder at the table.
Justin Tupper, who runs St. Onge Livestock, a market in South Dakota, spoke for USCA and said that we need more competition in the fed cattle business. He recalled that when he was a kid they would have four to five packer buyers bidding on their fed cattle. The most important issue for him was getting that second bidder to create competition, and he is correct.
One common complaint centered on Mandatory Livestock Reporting (MLR). Every member said the data could be collected better and analyzed differently. The confidentiality rule needs to be fixed to provide more transparency. Everyone would like to see MLR be a long-term budget item. Even though the program has been operating for 20 years, it has been subject to annual appropriations through budget reconciliation.
Everyone wanted to know more about formula-grid pricing, the base price and the grid price separated from the equation for more transparency. Everyone tells me that it’s different from region to region and feeder to feeder. Everyone seems to think the big feeders have special deals with the packers, and I suppose they do. The contract library was also a common theme—the need for posting various contract arrangements on USDA’s website.
Mandatory minimum cash trade was bandied about a lot; Sen. Chuck Grassley (R-IA) was big on that idea, but Iowa producers already sell more than 50 percent of their cattle that way. He was very passionate about his questioning, which makes me think he’s up for reelection in 2022. Farm state senators were aggressive questioners.
Mark Gardiner of Gardiner Angus Ranch, Ashland, KS, was steadfastly against any mandatory cash market thresholds. He recalled that in the 1990s the beef industry was losing market share; we were on a road to not being a relevant protein. Gardiner decided to produce better cattle, the kind consumers wanted. They didn’t want to produce average cattle at an average price, so they developed a value-based pricing system. Gardiner and several hundred other producers had to buy a portion of U.S. Premium Beef to get it done. Now USPB producers earn an average $92-per-head premium on their cattle. He also thought that if we had 1,000 beef packers today the fed cattle price would be about the same.
Glen Tonsor from Kansas State said the cattle markets are like a Rubrik’s Cube. You twist one block and it changes everything. He said that the Holcomb, KS, fire and the pandemic produced normal market responses, and Dustin Aherin from Rabobank agreed. Tonsor also said that alternative marketing agreements (AMAs) have produced operational efficiency for both feeders and packers. Gardiner said AMAs would be very important to small packers because they are more than likely involved in a niche market.
Then the debate started about doing more for small packers and building new plants. Aherin said it would cost $120 million per 1,000 head to build a new plant. He said cattle are not beef, and right now we have an input imbalance: too many fed cattle and too little labor to convert it to beef. As we’ve said before, the shackle space is there but not the labor.
Most witnesses were opposed to minimum cash trade and thought it would harm the industry. Tonsor thought that, if lawmakers wanted to break up the packers for more small plants, the industry would lose efficiency of scale. If you lose efficiency, you lose business. Most senators seemed to think that the industry wanted a minimum level of negotiated cash sales, which scares me a bit, because they just might do it.
Everyone agreed that MLR needed to be redone and funded long term and the contract library established, which I’m sure will happen. It’s good that the beef industry had their day with the Senate and were heard; how well is another story. These hearings tend to placate the constituents and life goes on.
We have had some unfortunate episodes affect the market. There is additional packing capacity being built. When that extra capacity is online, we will have a new market dynamic and business environment. One thing we can all agree on is that we need more rain. — PETE CROW
