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January 2009 Archive for Out to Pasture

RSS By: Steve Cornett, Beef Today

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Change for chumps

Jan 27, 2009

By Steve Cornett

For beef producers of a certain age, Congress could hardly have broached a more loathsome issue than another dairy buyout. Now? With cattle feeders losing $150 or $200 per head on every steer they sell?

Gosh, you can feel sorry for dairy farmers losing money without being chump enough to think that’s a good idea.

Yeah. I said “chump.” That’s one of the official terms for anyone who might consider such an idea. Such a person is correctly referred to as a chump. A dum-dum. 

It would come at about the worst possible time for the beef business, on the heels of this long bout of losses. You’d expect cattlemen of all stripes would get up in arms about a program that uses their taxes to subsidize dairy farmers to dump their beef into their already wrecked beef market.

Sure enough, all it took was the whiff, a mere sniff, of such an action, to stir up the National Cattlemen’s Beef Association last week. The dairy lobby sent feelers to the House of Representatives about including a dairy buyout in the stimulus bill. NCBA, bless their souls, came unglued immediately.
President Andy Groseta reminded Congress of the consequences of the 1986 buyout. You may not remember that awful time, but many of us do, and we don’t ever want to see it again. It came right after the industry had clawed its way out of a backlog of overdone fed cattle. And just as it looked like profitability would return, the government paid dairy farmers—some of them millions of dollars—to haul their cattle to the slaughter house. That added some meat to the market, but more harmfully, it crushed the beef industry’s already cracked morale.

I remember interviewing one dairyman who had taken a big chunk of cash from the government, sold his land on the outskirts of some town in California and plopped down seven figures’ worth of cash to buy out some poor broke rancher in Missouri. It was, as I recall, hard for me to remain polite to the guy.

Andy Groseta must remember it too. “The 1986 buy-out resulted in a 25% decrease in the price paid to producers for beef cattle and sent the cattle markets to the lowest point we have seen in the last 30 years. In total, the beef industry saw a $1 billion loss from the buy-out in 1986,” Groseta reminded Congress in a strongly-worded letter.

Within hours, state associations in Texas, Kansas and Nebraska had followed Groseta’s warning with their own, equally troubled missives to Washington. “We believe free market, supply and demand principles work best and government should not be benefiting one ag sector at the expense of others,” snorted a letter endorsed by the board of the Nebraska Cattlemen. “Additionally, the beef industry is currently suffering the largest profitability losses in history and this is not a good time to be forcing additional supply on to our markets.”

Were I writing those letters, I think I would have been tempted to end them with a snide little “uh, duh!” 
This is not to argue in favor of low milk prices, and the fact is that the laws of supply and demand being what they are, if the dairy industry needs to kill 320,000 head of cows to reduce milk supplies enough to return them to profitability, 320,000 head of Holsteins will probably die. Unless, of course, the dairy lobby succeeds in talking Uncle Sam into more subsidies to raise prices enough so they can buy more cows to ask the government to buyout later.
That would be the one I would expect. The dairy lobby has a proud track record of that sort of thing.
Anyhow, not since the Farm Bureau warned us of a “cow tax” have I seen as many cow people as upset by words from Washington.
Who we didn’t hear from was the boys at R-CALF and the United States Cattlemen’s Association, where there is apparently too much concern about implementation of the COOL law for folks to pay much attention to such matters as the government dumping extra beef into the chain.
You might have guessed that those guys in the protectionist groups had been unhappy with the Bush Administration’s final rule implementing COOL. Their main concern is that it doesn’t require all U.S.-product to be labeled as such. The rule would allow a packer who killed even one animal a day at a plant to label that whole day’s product as a product of U.S., Canada, Mexico.
That change got Canada to drop their WTO suit against the COOL law, but it failed to suit the folks who believe that many consumers will be willing to pay extra for U.S. beef. They may be right, though it seems nobody in the post-harvest chain believes it is worth the expense.
But for now, it’s all gone premature on us, because Obama quickly put on hold all Bush rules that have not taken effect. There seems to be a good chance that the new administration will reopen the COOL regulations for another round of public comment. As the R-CALF folks point out, the new president was among the senators who asked the Bush administration to tighten down on the multiple-origin rules. 
So we shall see what happens next. One gets the idea that with so many chumps in Washington the days that we may spend a lot of the next few years wondering what happens next.

Steve Cornett is editor emeritus at Beef Today. You can reach him via e-mail at scornett@farmjournal.com.

This column is part of the Beef Today Cattle Drive e-newsletter, which is delivered to subscribers biweekly and includes beef industry analysis, market information as well as the latest beef headline news. Click here to subscribe.


Optimism on the left

Jan 20, 2009

            A big question is where Barack Obama will try to lead the cattle industry.
            During the campaign, he sounded a bit animal rightsy and a bit anti-trade and a bit populist and a bit anti-big business and more than a bit environmentalist.
            But then he is, as his preacher mentioned, a politician and so who knows?
            Anyhow, the guys at R-CALF and their splintered-off U.S. Cattlemen’s Association, have cause to be optimistic that with Obama and a heavily Democratic Congress, “the environment is now right to implement some of the issues we’ve been working on for 10 years,” to quote the former organization’s Bill Bullard.
            That’s one reason you have not seen the sort of hue and cry you would have expected when the final COOL rule came out. There is a lot about the final rule the protectionists don’t like, but they saw no need to waste their rhetoric on the Bush USDA.
            They will try, first, to get the new USDA to revise the rule, and, should that fail, they will look for changes from what they think will be a friendlier Congress.
            Bill Bullard is also optimistic about making “progress”—his term, not necessarily mine—on other structural issues. Obama was among Senators who supported a ban on packer ownership of cattle, for instance, And among those concerned about JBS imposing such a large footprint on the industry.
            Obama seems, early on, to be moving toward the center on a lot of non-agricultural issues. However, his environmental picks may point toward programs that professional cattle producers might find onerous. If those come, they will be welcomed          by some sectors within agriculture who perceive anything that hurts “corporate agriculture” as good for “family farmers.”
            Those rather visible folks might provide an Obama administration with all the political cover then need to make drastic changes in the way cattle are produced in this country.
            The more I study them, the more convinced I am that Michael Pollan’s ideas will be important in the next few years. That means the cattle industry and beef production will be viewed as a problem rather than a beneficial segment of the economy.
            That  attitude—that current beef systems generate too much carbon and provide too much cheap beef—mixed with the “family farm” and “localvore” movements, might make the next four years very “interesting” for people who hope to do beef business as usual.

Beef market's unbubble

Jan 13, 2009

By Steve Cornett

We are in a historically bad cattle market. Talk to the old guys and they say it is worse than the '80s and reminds them of the wreck of the early '70s.

Unhedged cattle sold last week—and most of them are now unhedged, the futures market having gone to ground with the hedge fund funny money—lost $200 to $250 per head, and it’s been that way for weeks.

Last week, the U.S. produced 4% less beef than the year before, and fed cattle sold for 8% less money. Taken alone, those figures tell you that beef demand is not healthy. But, it’s hard to pin it all on the supply-demand equations.

The cattle market, like the general economy, is having a psychological rough spot.

It’s not just the losses past that worry the old timers. It’s the prospect of losses future because, as Don Close of Texas Cattle Feeders Association put it last week, “if you don’t know what’s wrong, you don’t know how to fix it.”

The market is well under anybody’s predictions, and it’s not because there are too many cattle. Granted, there is a world of cheap protein to compete with, but the root problem is this stupid general economy. Consumers are scared to spend. They’ve tapped out their credit. They’re scared they going to lose their jobs,  maybe even their houses.

Overseas customers are not much better off and the drop credit—composed mostly of stuff sold into export—is more than 30% lower than it was a year ago.

That has taken more than $30 off the value of a fed steer. On top of that, Close pointed out that the reduced demand for high end beef cuts has hurt even more. He estimated that the drop in rib values alone since mid December has erased nearly $80 per head in value.

And, with warnings of deflation littering the pages of the Wall Street Journal, nobody—neither packers, retailers nor restaurateurs—wants to buy anything he hasn’t already sold.
Gosh, we knew oil and real estate and grains were in bubbles, but nobody told us that beef was in one, too. But as the bubbled up commodity markets crashed last fall, cattle and beef were sucked into the vortex.

This time of year, you can always hope for somebody else to get a blizzard and put a bottom under prices. Within a few weeks, the surviving cattle feeders will be selling cattle they’ve fed on cheaper corn and their breakevens will fall further below the $1 they’re currently needing. So maybe they’ll get some relief then.

But short of that, Close’s point is dead right. Bad as demand is, it’s hard to see a good reason for beef to be so cheap right now.

I guess we’re in an unbubble. Or whatever you call the opposite of a bubble, where the irrational exuberance Greenspan used to describe an overheated stock market has been replaced by irrational despondency.

It will end. Such periods always do. And they are always followed by strong markets and grand recoveries.  

But you may have to grit your teeth a while.

Steve Cornett is editor emeritus at Beef Today. You can reach him via e-mail at scornett@farmjournal.com.

This column is part of the Beef Today Cattle Drive e-newsletter, which is delivered to subscribers biweekly and includes beef industry analysis, market information as well as the latest beef headline news. Click here to subscribe.


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