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October 2010 Archive for Out to Pasture

RSS By: Steve Cornett, Beef Today

Read the latest blog from Steve Cornett.

Feeling Better about GIPSA

Oct 18, 2010

The GIPSA saga sagas on, but there is hopeful news to report.

I know. I’d rather talk about something else, too. It’s not like there aren’t plenty of threats from outside the beef industry that should be holding the attention of every lobbyist and leader taking dues dollars to serve the cattle industry.

Stuff our organizations should be paying attention to include:

  • The EPA’s proposed dust rules.
  • The growing influence of the animal rights agenda.
  • A serious movement to outlaw the use of antibiotics in livestock.
  • Stubborn trading partners.
  • Ethanol subsidies driving corn prices.
  • Immigration laws.
  • The death tax.
     

Each of those is a serious threat, most of them driven by the activists appointed to high positions in the Obama Administration. This, as we’ve discussed earlier, is an Administration that believes that cheap—read: “efficiently produced”— food is a problem. This is an administration that is not easily swayed by “added cost” arguments.

Every dues dollar you pay should be aimed at those problems. But if you buy the industry lobbyists a beer and sit down for a chat, they head straight into the GIPSA thing. It is an intramural squabble that should be way down the list of things to fret about. But one bunch of lobbyists thinks that packer concentration is a bigger threat than any--or even all--of the above. And the other side worries that if the proposed regulations take effect, the beef industry will be pushed backwards decades.

I’d like to drop it for a while and write about something else. But every time I turn off my typewriter, the government-firsters post a simplistic argument supporting the Obama Administration’s new rule.

I call their points “simplistic” because they never deal with the questions.

How is hamstringing beef packers going to help cattle producers get a larger share of the beef dollar when it’s perfectly clear that it is at the retail—not the packer—level that margins have expanded? It’s not greed, either, though the class warriors would have you think that. Retail, pushed by Wal-Mart, is probably more competitive than ever before. But labor, transportation and marketing costs have all exceeded the increase in cattle prices.

Cattle prices aren’t “keeping up with inflation” because of the remarkable increases in efficiencies we’ve seen in recent years. No little bit of that is probably due to the increased role of more skilled and professional producers. Those thousands of producers who’ve gone out of business were, after all, the weak links. Today’s cattle producer can thrive on lower inflation-adjusted prices than could those of 20 or 30 years ago.

The R-Calf leaders know that. These guys aren’t stupid. They know they’re being disingenuous when they blame beef packers for the loss of cattle producers in this country. Some of their followers might believe it, but the leadership has studied these issues enough to know what they’re doing. How much intelligence does it take to look around agriculture and see concentration is occurring in every segment—no matter how the product is marketed?

These guys are not going to voluntarily stop with this rule. They want to see the packers broken up. They think, or claim to think, that producers would be better served with a plethora of small packers.

One doesn’t have to be a fan of big packers to see the risks associated with the GIPSA proposal. The fact that Dudley Butler, the proposal’s daddy,  is a trial lawyer-turned activist-turned boss of GIPSA—should be one glaring clue about what’s up and why just about everybody but the Willie Nelson/WORC/R-Calf lobby is so concerned.

The fact that GIPSA wants to proceed without any sort of cost/benefit analysis is another clue. It’s the same technique the Administration used in pushing its health program through a reluctant Congress.

And let’s be frank here: A very high percentage of those who support the program are “former” producers. That is especially true on the chicken side, where most of the support for this proposal comes from failed contractors while a survey of active chicken growers finds solid satisfaction.

But it extends to the cattle business too. Fellow blogger Max Thornsberry, president of  R-Calf, used to have a grow yard. But he found that he couldn’t compete. He argues it’s because of big packers, but grow yards don’t sell to packers. Grow yards buy calves cheap and resell them to feedyards.

It would not be politically wise to admit your competitive disadvantage is that you can’t afford to pay as much for calves as more efficient producers pay. Better to blame the boogie man packers and hope to get the more successful operators reined in.

To borrow the race track analogy, if you can’t drive as fast as the other drivers, the only way you can win is to get the officials to impose a speed limit.

And the hopeful news?

The GIPSA supporters are starting to sound a bit frantic, presumable because their friends in the Administration have told them they should be. R-Calf put out a bulletin last week begging its members to “flood” congress with support for the GIPSA rule.

“The Packer Lobby (that would be NCBA and its state cattlemen’s organizations) has garnered support from 115 Members of Congress to help them kill the competition rule proposed by GIPSA (Grain Inspection, Packers and Stockyards Administration). They are trying to do what they successfully did to derail the first rule for COOL (Country-of-Origin Labeling). They are trying to get the U.S. House Appropriations Committee to cut USDA’s funding for the GIPSA rulemaking process. This threat is REAL.”

Actually, the congress members want a cost-benefit analysis. That makes a lot of sense, given the fact that previous studies of the captive supply/packer concentration have failed to find significant impact on cattle prices.

In fact, objective study after objective study has found that alternative marketing agreements—value based marketing—has a positive impact on fed cattle prices and consumer demand. The Obama folks have no evidence those studies are wrong. Instead, they resort to name-calling, referring to the authors as “packer friendly” and “packer lackeys.”

They don’t want the light shone on the Obama proposals for a good reason. The rules were put together by activists with their eye on politics rather than economics.

Study the thing. And if Obama’s folks won’t study it, cut the funding.

Let Me Clarify: Study GIPSA

Oct 07, 2010

Let me apologize for being unclear in an earlier post to Bill Bullard and his friends in the Obama Administration for writing in an unclear manner. Bullard, in a response, accuses me of disserving the industry by saying “it’s not packers who benefit” from value based marketing.  He replies,

"You can’t possibly expect your readers to be so naïve as to believe your claim that packers are not among the people who benefit from value based marketing. Even National Beef Packing Company, which is primarily owned by U.S. Premium Beef, attributes its significantly increased net income in part to an “increase in the average sales prices per head of approximately 14.8% during this reporting period,” meaning that it is receiving more revenues from the beef derived from each animal. It is fundamentally wrong to assert that value based marketing does not benefit the entire beef supply chain, from cattle producers to packers to retailers (consumers also benefit from the availability of high-quality beef). That is why other packers, including those not owned by producers, also have instituted value based marketing programs.”

Well, duh. I concede the point gladly. Of course packers and retailers benefit from value based marketing. I suppose he has failed to notice through the years that I—and about everybody else outside his clique—have been saying that over and over. I’m glad somebody on the Administration side has finally seen fit to acknowledge as much.

There is, however, disagreement on how the rule would impact the market. 

The R-CALF lobby  joins the Administration in arguing that packers will continue their value-based marketing programs, despite the fact that some of the packers have said they won’t assume the liability. A lot of people, including a lot of producers who know those packers far better than Mr. Bullard, his followers or the consumerist outfits he hangs with, don’t think they’re bluffing.

They don’t think packers will be willing to give up their trade secrets and open themselves to more lawsuits just to keep those programs going.

But they may be wrong, of course. There’s a good way to deal with that disagreement. Let a third party look at the facts.  Which, it so happens, is exactly what those 115 representatives who wrote USDA the letter this week are asking for.

“Such a broad rule that extends so far beyond Congress’ direction in the Farm Bill and that would precipitate major changes in livestock and poultry marketing requires a vigorous economic analysis. The analysis contained in the proposed rule fails to demonstrate the need for the rule, assess the impact of its implementation on the marketplace, or establish how the implementation of the rule would address the demonstrated need.” 

I am not as sure as others what the GIPSA rule would do. Looks like some good and some bad to me. It makes a lot of sense to get GAO or somebody without a rooster in the fight to study the thing.

One would presume that Bill will agree with that.  But, in the past, credible, third-party studies have not been kind to his political agenda. Which explains the latest R-CALF news release, filed in protest of the Congressial letter asking—let’s emphasize—for a simple a cost-benefit anaylysis before proceding with the proposed rules.

Mainstream agriculture “has infiltrated Congress so deeply that even the President’s own political party is refusing to carry out the President’s campaign promise to restore competition to agricultural markets for U.S. family farmers and ranchers and rural main-street businesses,” R-CALF frets. Once again, we hear that cattle producers are going out of business. And that, argues R-Calf is all the proof you need that packers must be punished.

Once again, we hear that cattle producers are going out of business. And that, argues R-CALF is all the proof you need that packers must be punished.

We’ll leave it to R-CALF to worry about the political problems facing the “President’s own.” But this GIPSA rule isn’t just about Obama. It’s about this industry facing a very important crossroads. We’ve talked earlier about the many reasons besides producers go out of business. This sort of decision deserves more than simplistic bumper-sticker hate  tactics.

Study the thing. Let’s get an idea what lies at the end of each of these crossroads.

That Can’t Do Attitude

Oct 04, 2010

There are different ways to approach a challenge. Any challenge.

I had a high school age hired hand helping me clean junk one summer. Stout kid; outweighed me 30 pounds probably. I’m a little scrawny guy and even then I was old. But what we found was that when we were moving junk, just lifting stuff, I could lift more than he could. Time after time he would say, “you’re going to need the front end loader” to move something. But often, I’d grab it and lift it.

We visited about that a lot. I think it’s because I knew the thing had to be lifted. He knew that if he couldn’t lift it, I would find a way to move it.

You can approach a challenge as something you can deal with or you can throw up your hands and say, “it can’t be done. I need help.”

Do you know what I’m talking about? Most people who’ve had hired help know what I mean. There’s a “hired help” attitude and an “owner” attitude.

Let me explain how it pertains today.

Back in the 1990s the bottom fell out of the pig market and hundreds of hog producers went out as well.

Now, presuming you are depending on small hog farmers for your living how do you approach a challenge like that? For some that challenge was answered with “it’s somebody else’s fault and we need government help to keep it from happening to cattle producers.” Their evidence is not convincing. They’re forever seeing cause where others see effect.

Meanwhile, others had the same problem but reacted differently. Near Jackson, Mo., Gerald Shinn, had a similar problem. His feed business, Performance Blenders, relied on pig and cattle producers. His reaction was different.

He began helping his cattle customers market their cattle. A lot of them fed cattle, and many others sold feeders. He recalls many of them didn’t know what marbling or yield grade were.

“They would put them in the pen, feed them 180 days and go,” he said. He began helping them aggregate their cattle into load lots to be finished in a high-tech commercial Kansas feedlot and marketed through U.S. Premium Beef’s grid program.

That was a decade or so ago, and there have been 150 of his customers take advantage of the program. They stay in the top 25% of USPB’s premiums and have taken home more than $60 per head over the cash market since the program started. These are small producers, mind you with limited opportunities by most standards. Most, he says, are 25 to 75 head herds.

But since they got into the program, they pay more attention to their cattle health programs. They pay more attention to genetics. And they make more money. One of his customers last year—armed with feedlot and packer feedback on his steers—averaged $1,700 on the commercial bred heifers he sold.

As the cattle go on feed, Shinn’s outfit calculates the value based on local auctions. Since the program started—thousands and thousands of cattle ago—Shinn says they’ve “lost” money feeding cattle only once—and that was the year corn prices went through the roof.

It’s the sort of program that offers independent producers a way to pull themselves UP to compete rather than trying to pull others DOWN.

And Shinn would be the first to tell you the main reason it works is because of the premiums and the ability to know those premiums are out there. Ask him what he thinks about the GIPSA plan to limit contracts and you can hear him go red in the face clear from Texas.

I know that you’ll find Dr. Max arguing on this very page that packers are getting so filthy rich that they’ll happily absorb the costs associated with the GIPSA plan. He argues we’re dupes to believe they will back away from contracts when the litigators show up at their doors. He says we’re “naïve” to believe their bluff.

But those packer boys were buying cattle all for one price and sorting boxes to different markets for years and years before cattle producers—PRODUCERS—finally talked them into trying some value based marketing. If anybody wants to throw around the word “naïve” I’d suggest he use it on somebody who believes they won’t be happy to do it again.

The people who benefit from value based marketing are not packers, but producers like those who work with Shinn and other innovators. There are other systems being tried and invented every day. Purebred breeders. Feeders. Innovative auctions. They’re  helping independents produce better cattle and better beef. They represent progress. Yes, it’s different. Not so easy maybe. A little more demanding perhaps.

Innovation and adaptation are seldom an easy lift. It will be too heavy a lift for many. But that kid finally learned he could lift more than me if he grunted more and gave up less. And he sure was proud once he did.

I’d like to hear about others who are figuring out ways to adapt. There’s no reason that small and independent producers can’t adapt and survive in this market. But that “adapt” is the key word. If you know of such a system or program, drop me a line at scornett@farmjournal.com or call me at 806-220-4588.

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