Out to Pasture: Some Light and Some Heat from Fort Collins

September 20, 2010 08:55 AM

SteveCornett circleThe schism in the cattle industry is evident, and now wider, since the Department of Justice’s August hearing on competition in the livestock sector. More than 1,300 people crowded into an auditorium at Colorado State University to exchange views—and hoots, hisses, jeers and cheers—on what government should do to impact the way cattle are traded. Nearly 700 more people were herded into overflow rooms to watch the action on TV.

The event turned out to be a combination Tea Party rally and town hall meeting—noisy, occasionally nasty and sometimes personal. But the proposed USDA Grain Inspection, Packers and Stockyards Administration (GIPSA) rule consumed the attention of all involved.

Issues of the day. The Obama administration picked speakers to populate three discussion panels, and few expressed comfort with the status quo.

The biggest disagreements revolve around packer concentration—the big four now account for more than 80% of beef production—and the way fed cattle trade. Several speakers expressed concern about the percentage of cattle traded on forward contracts. While most contracts are based on cash prices, many worry that as the number of cattle traded in weekly negotiated cash trade decreases, the market will be less representative and subject to more manipulation.

But feeders who rely on contracts say they are more efficient and crucial to their ability to use value-based marketing to deliver quality-based price signals to the market.

That is an argument that has been going on for years, even as contracting has continued to grow.
While the press tried to follow an admittedly difficult debate, the head of GIPSA, J. Dudley Butler, didn’t seem to have a problem. Butler, an attorney who has represented dissident poultry producers in the past, has been an opponent of meat processors for years. He thinks they have an
unfair advantage over individual producers, and the proposed GIPSA rule follows that line of thought.

Butler’s reputation—for a short time, he was a minority voice in National Cattlemen’s Beef Association policy discussions—is such that a lot of mainstream agriculturalists are hardly inclined to trust his judgment.

Also on the panel was Allan Sents, who runs a 10,000-head feedlot in central Kansas and, like Butler, is active in the Organization for Competitive Markets, a “national think tank focusing on antitrust and trade policy in agriculture.”

Sents believes contracts and formulas have their place but that they undercut the cash market so much that packers are able to manipulate cattle prices. He says the feeders and associations who oppose the rule are misconstruing its intent.

There are a number of miscon-ceptions that are skewing the debate, Sents said after the hearing.
“There are no provisions in the rule that limit or eliminate marketing agreements. There are no provisions that limit or eliminate the ability of companies to provide premiums to reward producers for providing a certain quantity or quality of livestock.

“There is nothing in the proposed rule that suggests GIPSA would review all business transactions or require transactions to be public. GIPSA is proposing that packers, swine contractors and live poultry dealers provide sample contracts and growing arrangements, not every transaction,” he said.

“Many doubt the sincerity of GIPSA regulators to hold to their intentions. Yet, unlike most agencies, these regulators have farm and ranch backgrounds. They have genuine concern for our industry and recognize their actions will be scrutinized. What they need instead of blanket acceptance or rejection is constructive comments to enact meaningful reform,” Sents said.

Another panel member was Bruce Cobb, manager of Consolidated Beef Producers, a Texas-based coop that manages marketing for feedlots in the Great Plains and markets 40% or more of the cash cattle in the country. He said his group has enough market data to convince him that contracts do impact prices.

While there are four major packers in the market, Cobb says most weeks one or more of them is out because of previously contracted cattle. He and Sents worry that as the cash market becomes thinner, it provides more power to packers and limits market access, forcing feeders to sign delivery contracts just to assure a timely market.

That, Sents argues, is what has happened in just a few years in the hog market.

On the other side. James Herring of Friona Industries was one of a few people who spoke with a contrary view. Herring’s partnership with Cargill Meat Solutions creates a value-based marketing chain, from feeder cattle producer all the way to Safeway shelves.

This requires investments that must be protected by contracts, he said. He believes the GIPSA rule will make those commitments more difficult. His concern is that if packers are forced to open their doors to anyone, they will revert back to buying commodity cattle and sorting off animals that fit branded programs.

That won’t hurt packers, Herring argued. It will hurt consumers and the producers and feeders trying to produce the beef that consumers want.

It wasn’t all about captive supplies, however. One provision would stop buyers from representing more than one buyer at a time. Some say that allows for price collusion, others say small packers could not afford representation otherwise.

R-CALF director from Wyoming, Taylor Haynes, argued food safety rules have put many small packers out of business, limiting access to affordable processing for niche and local markets. The relationship between big packers and retailers makes it difficult to get his niche market products onto grocery shelves.

The fallout. There is bipartisan concern in the House Ag Committee that might result in some changes before the GIPSA rule becomes final. On the other side of the Capitol, one group of senators sent a letter cheering regulators on, while another accused USDA of putting a thumb on the scales during organization of the meetings. Rep. Jerry Lewis (R-Calif.), ranking member of the House Appropriations Committee, asked why a cost-benefit analysis hasn’t been done. At Fort Collins, USDA Secretary Tom Vilsack implied that the public comment and input sessions were providing all the guidance needed.

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