Cattle producers call for market reform
ABERDEEN, S.D. — A segment of the cattle industry is calling for reforms in the current cattle market in a last-ditch effort to keep producers in business. It is in response to the recent plunge in fed cattle cash and futures prices to lows not seen in a decade. Feedlot operators were losing from $150 to $250 per head while packers were reporting record margins ranging from $350 to $850 per head.
The pullback in cattle prices was tied to the Aug. 9 fire at the Tyson plant in Holcomb, Kan. It is the company's largest beef processing facility and slaughters roughly 6,000 head per day.
The market sold off with concerns there would not be enough capacity to slaughter cattle, which would cause a backup in marketing.
As a result, the U.S. Department of Agriculture launched an investigation. However, groups like the Organization for Competitive Markets and R-CALF (Ranchers-Cattlemen Action Legal Fund) want more done.
At a rally in Omaha, Neb., on Oct. 9, the groups asked for the resignation of U.S. Agriculture Secretary Sonny Perdue, plus market reforms such as breaking up the nation's four largest beef packers, reinstating mandatory country-of-origin labeling and possibly starting a producer owned packing facility.
Aberdeen cattle producer and order buyer Keith Eichler says the market action after the Holcomb plant fire just proves the cattle market needs reform and he hopes the USDA investigation proves that.
"You can't have an increase in meat (prices) to the retail people and to the consumer and a decrease to the producer at the same time," Eichler says. "It's wrong and we can blatantly see that."
Joe Vetter, co-owner of Herreid Livestock in Herreid, S.D., says the small independent cattle producer has no leverage against the packer anymore because of the lack of competition in the processing sector.
"They can collude, they can put their heads together and they can kind of dictate a market," Vetter says. "We really don't have a market anymore that reflects supply and demand, it's kind of dictation by the packers. Whatever they want to give, that's all they're going to give."
Mike Maher is a cattle producer from Isabel, S.D., and serves in leadership for the South Dakota Stock Growers Association. He says they don't expect the Grain Inspection Packers and Stockyards Administration investigation of the recent cattle market crash to accomplish anything, as they've conducted the same inquiries in the past with no results.
"They're going to just white-wash it and say they couldn't find nothing," Maher says. "We've been down that road several different times."
Plus, he points out there is a former National Cattlemen's Beef Association employee in charge of the investigation. Vetter agrees that proving collusion by the packers is going to be difficult. "I think even if we can prove it, someone is going to say 'well that's just the way it is.'"
Eichler believes promoting U.S. products would help the industry, as well as reinstituting mandatory country-of-origin labeling.
"This beef is made in America," he says. "We don't need South American beef. The Canadian beef is good and I'm not criticizing them, but first let's take care of America."
The National Cattlemen's Beef Association looked at reforms in the cattle market to curb the volatility in the futures after the open outcry trading floor went solely to an electronic platform. There was no easy answer then and there isn't one after the Holcomb fire. That's according to Myron William, who runs a feedlot operation near Wall and served on the NCBA Cattle Marketing Committee.
"We don't have enough shackle space and until somebody steps up and builds some new cattle plants and expands that industry, we're going to have to struggle with this," William says. Plus, he says the shortage of labor to work in packing facilities adds to the issue.
A big part of the problem is also the continued lack of negotiated cash cattle versus those that are sold via a formula or forward priced with the packers. Those so-called "sweetheart deals" are more common in southern feeding areas, but Maher doesn't think those producers will be quick to give up those arrangements.
"Packers, they're all tied in with the big feedlots and they own the cattle, or they negotiate it before and give them a small profit. So, we just don't have no competition left," he says. Williams says NCBA has been working to promote more negotiated cattle. "They're formula cattle. They have contracts with the feedlots and that's the way business is. I mean how do you fix that?"
Vetter says he's not sure how competition can be restored in the beef packing business. "Corporate America has just taken over in every sector and the cattle industry is no different." He says big money and politics are driving the marketplace and so the odds are stacked against farmers and ranchers.
Maher agrees, "Follow the money. They've (the packers) got a lot more money to spend than the ranches do."