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RSS By: Steve Cornett, Beef Today

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Goobers and Goliaths

Feb 09, 2010

By Steve Cornett

1. goober—Basically a goober is just a kindhearted, rather oblivious goofball. It's a term of endearment really. It comes from the ancient Scottish verb "to goub", which has to do with doing a dance and smiling sheepishly while doing so, exposing the goubs in one's teeth.
Source: t
he Urban Dictionary

Since the Cattle-Fax presentation at the NCBA convention last week, I’ve been dwelling on how their message is digested in different sectors. I’m particularly furrowed of brow over the way the folks I call the goobers—soft of tissues both cardio and cranial—react to numbers.

To overly summarize, we lost more cows and more cow people last year. Consolidation of operations continues. Cattle-Fax is looking for things to be better this year than last year but not as good as everybody wishes. They’re enthusiastic about the outlook for exports, but fretful about the impact of recession and joblessness on the far-larger domestic market.

So, just as a guy with some calves to sell later this year, I left encouraged. But as a Beef Today guy charged with thinking about the future of the business as opposed to my own little deal, I am perplexed by the chances of a well meaning, but Shrek-footed government, coming to “help.” Not now, guys. Please! We’re almost through this thing.

Let me reference a couple of points from the Cattle-Fax presentation that need to be considered as the whole agriculture industry prepares to do these public hearing cogitations on industry structure. You noticed that the Obama-Holder Department of Justice has filed to undo a done-deal merger between dairy giants Dean Foods and Foremost Foods?
 

The reason given isn’t that they’re scared Dean will use its market power to raise consumer prices. No, they’re concerned about buying power—Dean keeping milk prices too low for producers. Significant stuff full of portent for the beef industry as well as dairy. The idea of regulating corporate power to keep prices HIGH tests some pretty untested waters. And it has a lot of goober appeal.

The Dean move gives you an idea of where USDA and DOJ leadership want to go with the hearings they plan to begin next month.

And so back to the Cattle-Fax presentation. They said their survey last year indicated two-thirds of all the cattle on feed were owned by feedyard companies. Not by ranchers. Not by what we call investment feeders. By feedyards themselves. They said feedyards lost a calculated $2 billion, more than $100 per head, last year.

They lost all that money because they paid too much for feeder cattle. So if you sold 500 lb. calves last year, you can thank the overbuilt feeding industry for about 20 cents for every pound you sold.

That $2 billion didn’t evaporate. It was transferred into the pockets of cow-calf producers.

The feedyards are owning so many cattle these days because nobody else wants to. There’s too much risk. Unless you’ve got a vested interest—a feedyard or packing plant with fixed overhead  or a cow-calf operation with nothing but opportunity cost to risk—there’s just not enough upside potential to justify the huge investment.

Feedyards can write off some of their expense against their yardage and feed markups. So they can feed “cheaper” than you and I can, and so they can afford to pay more for feeder cattle than you and I can.

Moreover, they’ve got lots of savvy on hand. They’re good at getting fund managers and Chicago speculators to assume much of that risk. So, as the Cattle-Fax people will tell you, feeders didn’t really “lose” $2 billion last year. Some of that money came out of feedyard's feeding profits and a lot of it came out of Chicago.             

But, given the drop in corn prices, about all of it went for those calves.

This is something you should think about as you prepare to testify at those DOJ-USDA hearings. You may think that “big is bad,” and I’m not going to argue that big is necessarily good. But for years, I’ve heard some cattle people—the ones I call the goobers—berate two things: Futures markets and bigness among feeders and packers.

They seem to think that cow-calf producers are disappearing because of such powerful interests. How much faster would we be leaving the business if it weren’t for that extra 20 cents we snuck out of feedlot owners’ pockets last year?

I keep a spreadsheet primed on feeder cattle prices and breakevens. If ranchers and cow farmers had to make do with what an independent, would-be investor cattle feeder can afford to pay, cow herds would be melting away faster than a Houston snowfall.

I’ll concede that part of what’s going on is big guys buying market share; just outlasting the competition. That won’t be permanent. Left unchecked in perpetuity, the last feeding corporation might some day be able to dictate prices to producers. The day may come when the last packer can dictate prices to consumers and sellers. 

But no study has indicated we’re anywhere near that, and it’s not for lack of studies.  I just hope that enough people understand all this to help USDA and DOJ avoid the easy—and let’s face it, politically popular—answers.

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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COMMENTS (2 Comments)

CJ
When any business continues to lose money, that business usually finds new ownership or worse closes. The cow/calf producer has had a pretty good run for a few years. The cattle feeder, not so good. Now lets not blame them for giving too much for the feeders. They got caught in the grain trap when corn and beans went into orbit. Scary times prevailed and it appears some cattle feeders took the postion of the present administration in DC....lets buy/spend or way out of it! It did not work so good for the cattle feeding industry and it will not work for this country! Maybe the small to midsize cattle producer, both cow/calf and feeder may get the last laugh in the end?
5:20 PM Feb 9th
 
g fortune
Regulation of any industry to insure that one sector of any business doesn't abuse market power isn't a bad thing. 30 years ago there used to be lots of independent hog producers--It doesn't seem to be that way now.
Can you tell me what would happen if there was no regulation of any industry.

There shouldn't be any businesses or industries that are too big to fail. Anti trust laws should be enforced.

If my opinion on this topic places me on your "goober" list--then you can be at the top of my "BOOB" list.




12:18 AM Feb 9th
 
 
 
 
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