Cattle-state politicians have shown little willingness to do what’s needed to restore the competition that has been purged from the U.S. cattle market. We’re going on seven full years since cattle prices did a nosedive and retail beef prices headed for the moon
Yes, there’s been cattle price rallies since 2015, in fact there’s been five of them, and we’re experiencing the sixth rally right now. That makes six rallies in seven years. But what the data show is that the rallies are peaking at lower and lower price levels and the troughs between the rallies are growing wider and wider. That means cattle prices are being depressed for longer periods in between rallies that lose steam before they can reach the previous peak point.
You can’t explain that with supply and demand fundamentals. You can only explain it with the word “control,” a word that is the antithesis of “competition.”
To sum that up, what I just said is that your cattle prices are being controlled, they are no longer subject to competitive market forces.
So let’s look at how competition was purged from your cattle markets and how it was replaced with control.
In the mid-2000s, cattle prices strengthened during the two-year period that live Canadian cattle were barred from the U.S. while Canada was experiencing BSE outbreaks. Cattle feeders gained leverage in the marketplace and that leverage was sustained even after the Canadian border was reopened.
To match the feeders market leverage, the packers continued concentrating and began owning and feeding more of their own cattle. Recall when JBS owned 12 feed yards with a one-time capacity of nearly one million head. And Cargill owned 5 yards with a one-time capacity of nearly 300K head. That means a decade ago two of the largest four packers were feeding about 3 million of their own cattle each year. That means the packers owned about 12% of the cattle on feed.
This packer ownership of cattle allowed packers to tip the scales of market leverage back in their favor.
During the time of intense packer ownership, the packers began experimenting with a new and improved cattle procurement tool that saved them a lot of money. That tool, of course, was the alternative marketing arrangement or AMA.
With AMAs, packers could retain and exercise the market control accorded them through packer-owned cattle without having to invest in the actual purchase of those cattle. This turned out to be a sweet deal for the packers.
So relatively quickly, the packers divested their feedlot holdings and replaced their packer-owned cattle with their new and improved market leverage tool – their AMAs.
And very soon the packers learned they could use their AMAs on far more cattle than they could ever wish to own, and yet retain the same level of market leverage as if they did own the cattle.
And so it is today that the packers have purged the marketplace of competition with their AMAs and they now enjoy unprecedented control over the cattle market.
There will still be price rallies, and there will still be troughs, but the rallies will become less frequent and less spectacular, and the troughs will grow wider and wider.
Just go ask your friendly hog and chicken farmer how that’s working out for them.
But back to the cattle state politicians. They don’t get it. They don’t get it at all. They have no knowledge of the historical battle for market leverage between cattle feeders and beef packers. A battle the beef packers won hands down with their AMAs.
The politicians now think that AMAs are far more important than competitive market forces, and they’re willing to fight to help the packers keep them. And, worse, these politicians are not listening to us. They actually think there is a cattle market that just needs minor tweaking when, in fact, THERE IS NO MARKET.
Now is not the time to roll over, not the time to applaud the packer-aligned land grant economists who are doing cartwheels to preserve the competition destroying AMAs for the packers, and certainly not the time to quit.
No, now is the time for leadership, true leadership, and that’s going to require educating each of your two Senators and your Representative.
So please, go to our website at www.labelourbeef.com and grab the information you need to pick up your phone and demand real market reform: The 50/14 bill (S.949) and the mandatory country of origin labeling or MCOOL bill for beef (S.2716).
Good luck with your calls and thank you for your leadership.