I stumbled into a January 1967 issue of WLJ and, lo and behold, there was an article on the front page titled, “Cattlemen seek to shun price takers’ role.” Even 53 years ago, cattlemen didn’t like how the market worked. Does this storyline sound familiar?
Because of two separate issues over the past eight months that were really beyond anybody’s control, the market for fed cattle got beat up. I’m talking about the Holcomb, KS, Tyson fire, and the current coronavirus slowdown. What these two issues have shown us is that markets do work, but also just how thin our beef infrastructure is, which is privately owned.
Anyway, 53 years ago cattlemen realized they needed leverage to make respectable prices on their fed cattle at the time. At the 70th annual convention of the American National Cattlemen’s Association (ANCA), True D. Morris, a former undersecretary of agriculture, said at the time that cattlemen are price makers and he gave 10 examples: 1. We breed better cattle to fit the market. 2. We feed and finish cattle that will attract active bidding. 3. We program sales to coordinate with seasonal highs in demand. 4. We negotiate sales contracts at prices that will assure profits. 5. We increased use of futures markets to manage risk. 6. We are flexible and know when to carry calves over or take them to feed when current prices are unsatisfactory. 7. We have more grade and yield selling. 7. Price-making doesn’t mean the highest dollar; it’s the net profit that matters. 8. We rely on sales agencies that get the most dollars; not friendship or tradition. 10. In time there is apt to be more concentration of sales through single agencies or corporations to get more market leverage.
Now that the industry has accomplished most of those goals, we’re still not happy. And we’re the least happy about price discovery in the fed cattle markets, as we see it on the surface. We know that large feeders have alternative marketing agreements with large packers. We have no idea what they are because they are proprietary. And there are different agreements for each relationship. Four major packers and 30 feeding companies handle 80 percent of the capacity.
We, as an industry, have witnessed extreme examples of supply and demand over the past six years. What have we learned? Supply and demand fundamentals still work; it’s a law of nature. Right now, we have a life-threating virus killing our production capability, and it’s nobody’s fault. Nobody is holding a gun to retailers to force the beef cutout to $450.
The final resolutions at this ANCA Convention, in brief, were to impose tariffs on beef imports; to reaffirm the “buy American” philosophy—which sounds like mandatory country-of-origin labeling; to launch a major effort on shipping fever, freeze branding, getting packers out of the cattle feeding business. They urged cattle feeders to market cattle at the lowest possible profitable weight. This was before the National Cattle Feeders Association merged with ANCA.
Then they gave ANCA staff the authority to investigate the effects of concentration of chain store bargaining strength. The growth of formula pricing. The lack of bargaining power in the cattle industry. And the lack of sufficient enforcement of present laws. That 53-year-old issue of WLJ goes on and on about marketing issues. Some have changed and some we never accomplished.
So, 50 years later, we’re still talking about the same things—imports, wild market swings—they even proposed a law that would prevent the market from moving 50 cents in a week. Sound like price fixing? The cattle industry needs some creative marketing. We still use auctions for price discovery on calves and yearlings. We use grid marketing to value the good carcass. Over 80 percent of what we produce is Choice or better. Price signals work. Then some cattlemen decided the best way to battle concentration is with more concentration, the formation of large feeding companies and alliances.
Yes, the market sucks. It’s nobody’s fault, except for those dam futures speculators. We have too many cattle for the packing industry’s capacity, which changed overnight. It will change again. How, nobody’s sure. But in desperate times we start to take desperate actions. Like this 30 percent negotiated cash purchases with 14-day delivery idea that’s going around. Do you think that will change the market?
My first thought is how many packer buyers will be needed; I know they don’t work for free. Getting an army of packer buyers out on the road may cost $2-3/cwt. One thing I’m absolutely sure about is that we don’t want government involved in cattle marketing. It didn’t work very well for the dairy industry.
Now I suppose we’re going to see a government investigation into the big packers for price fixing and other stuff. They better look at small ones too. They are also receiving the benefit of high beef prices. — PETE CROW
