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RSS By: Steve Cornett, Beef Today

Read the latest blog from Steve Cornett.

Cattle Feeders and Packers as Bogeymen

Jul 11, 2011

The last effort from these quarters generated a couple of well-deserved reprimands.  I couldn’t agree more about the price of land being inflated by non-cow demand. Land, especially land in pretty places, has never been priced by production value alone. It’s always overpriced.

I’m 350 miles from Dallas, but if I die tomorrow, some Dallas guy would probably buy this place from my kids. He would buy it for the same reason the Dallas guy across the creek from me owns his place, which would be hunting. Either that, or a neighbor expanding. Still, the Willie Nelson lobby would use my absence as more statistical evidence that the packers need to be whipped like bad mules because “another small producer has been forced out of business.”

My argument, the one I sought to forward by suggesting land price inflation suggests something other than cheap cattle is involved in consolidation,  is with that WORC-Willie Nelson faction, well-meaning folks who misuse the statistics in simplistic arguments supporting policies that might do more harm than good; with those who claim that the rise of Ted Turner’s buffalo ranches represents traditional producers being “run out” and then jump from that faulty premise to demand we put more paperwork burden on packers in the false assumption that will make them pay enough for cattle to keep Ted Turner and those Dallas hunter-investors at bay.

If you don’t understand the problem, you run the risk of chasing bogeymen. I don’t think Willie understands.

Much of the industry consolidation we’ve seen the last 80 years or so is no more “the big getting bigger” than the little getting out. It’s a matter of math. Presume that in 1990, you had five herds in the country. Two had 25 cows each, one had 50, another had 100 and the fifth had 1,000 head. The average herd size is 240 head.

Probably, only one of those producers is a full-time rancher whose livelihood depends on cattle prices and beef demand. The others have something else going on.

Now assume that the two smaller guys decide to grow ethanol or poultry houses or suburbs instead of cows. Come 2000, the “government-must-help” lobby will argue that 40% of cattle producers have been “driven out of business” and the average herd size has increased by 60% to 383 head. Consolidation!

Those are mathematical truisms, but hardly proof, or even evidence, that putting more paperwork in front of beef processors will change anything. In fact, history shows us that the more paperwork we require of processors, the fewer processors we get. And, obviously, the wider the farm-wholesale  spread.

Now, I would like to live in a world where cattle are so profitable that Ted Turner and his fellow magnate can’t afford to collect ranches the way they collect jewelry or pretty cars. But I can hardly imagine what cattle prices that would take, or who would buy beef at those prices.

As I’ve said before, the epiphany for me on this came when I drove a visitor along the bus route I rode when I was in school. These were more than statistics. I knew these people. I knew why they left and where they and their kids went. As we passed empty house after empty house, I realized that none of the missing farm families had “gone broke.”

They had died. They had sold out for inflated land prices and retired. They had tried farming a few years after their folks died and then realized their town job was a much better deal. Their land had been absorbed into other farms. There are exceptions, but by and large, producers are not being forced off the land. They’re being lured off.

I’d like for somebody to correct me. I don’t really like the future these trends portend. I think small farms have a social value beyond their economic value. But I don’t think we’ll ever get cattle prices high enough to stop this consolidation. The higher they go, the more the better guys can pay to get bigger; the lower prices go, the less incentive the rest of us have to hang on.

If we were some other business—like meat packing—we would recognize it as “buying market share” during good times and bad. I don’t like it any more than Willie Nelson. (Probably less, my senses being a little less blunted, if you get my drift.)But if I were inclined to ask the government to stop it, I’d look at policies that would actually help. Europe is full of regulations that sacrifice economic choice and efficiency to keep small operations viable. The GIPSA rule isn’t going to do that. Not for cattle, anyway.

Packers are not the problem. “Captive supplies” are not the problem. Competing meats are the problem. A bad economy is the problem. Weak exports are the problem.  Putting more restraints on big feeders and beef packers—the industry’s marketing arm--won’t help.

Again, my main argument is that the way you deal with the challenge of competition is not to demand government interference. It’s to get better at what you do. Find ways to adapt to the world the way it is. Make better beef. Or make cheaper beef. Or find better ways to sell your stuff. Chasing  bogymen-packers in the belief anything that hurts them will help you is pure folly.

 

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