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AFF Sentinel-Vol 20#04-Perhaps An Ugly 2024 - Part II

What Does USDA Plan to Do To Interfere with Cattle Marketing?

Steve Dittmer | AFF Sentinel

Colorado Springs, CO

Originally sent to subscribers 01/23/23

Edi. Note: Last time Chandler Keys presented some insights on the political approach likely by USDA Secretary Tom Vilsack in restructuring the fed cattle marketing system to suit his belief producers are being taken advantage of.

Keys noted that much of the opposition from the current marketing system comes from cow/calf producers, who contend feeders are doing “secret deals” with packers or are being “manipulated” by packers.

Yet there are a number of studies showing that the system that has evolved and has improved the product in consumers’ opinions.

As AFF has always held, consumers are at the very top of the economic structure pyramid of the beef production system. No money comes into the beef industry production chain but except that coming from paying customers at retail stores and foodservice facilities.

Vilsack subscribes to the left’s theory that big corporations, whether feed companies, fertilizer companies or packers, are guilty of “agricultural malfeasance,” that they have taken advantage of production agriculture. He has identified with the anti-trust movement and agrees with government efforts to stop mergers and acquisition, including in the livestock industry.

Of course, we’ve written about the Department of Justice’s (DOJ) dogged attempt to try and re-try and re-re-try poultry executives for alleged price fixing, failing each time. Keys noted the federal judge hearing the third attempt chastised the DOJ for continuing to pursue a losing case. A jury of working class people acquitted the plaintiffs each time.

It will be critical for the industry to keep pressure on Vilsack and USDA to not destroy the system that has created the product consumers want and want to pay for.

We would add that government involvement in markets usually is ill-timed and more likely to make things worse than better. It would be like government to damage the beef industry marketing system right when leverage has shifted in the supply and demand equation and cattlemen have the best hand to play they have had since 2014-2015.

Congress demonstrated their ineptitude in marketing and timing just recently, in passing the CHIPS bill to hand money and loan guarantees to major domestic and international corporations to build chip fab plants. Before the construction of plants could even be started, with a shift in the economy and manufacturing, the industry was awash in chips, slowing existing production and wondering how they were going to get rid of so many chips.

In the Q. and A. session, Keys clarified that regulations from agencies is more of a problem than legislation. From his experience in the packing industry, Keys said reverting much of fed cattle marketing to negotiated cash sales only would drastically slow innovation in the packing industry, likely narrowing the available contracts to maybe two options with no modifications. The contract library shaping up now is already a major project for packers.

Changing much of the market to negotiated cash would likely limit the options so that under new regulations and concern for “equity” and fear of “undue” preference, everyone would have to get the same deals and the differentiation important to carcass quality and consistency would disappear.

Asked about cash cattle prices, Keys said we all do need base prices to construct agreements on.

Billy Schmitz, chairman of the Colorado Cattlemen Marketing Committee, noted that the percentage of the market sold as cash is not shrinking at this time. The important thing is to make sure that a representative sample of cattle is being priced in the cash market.

Of course, the relative consistency of cattle cow/calf operators and feeders are providing under the present system makes this an easier chore than in years past.

Keys also reminded everyone the scope and breadth of the cattle industry hasn’t changed all that much in decades. There are roughly 750,000 producers with an average herd size of 45 head, with only some 2,000 producers running over 200 head. People with some land get into cattle because of the image, the relative ease of getting in compared to hog or poultry confinement and Schedule F tax reasons. The barriers to entry are just less with cattle.

He added that the cattle industry has always been more philosophically-based, driven by belief in free market principles and limited government. But the cattle cycle always puts pressure on those beliefs.

But the industry structure does mean that 70 percent of the producers control only 30 percent of the country’s cattle.

Those figures mean the cattle industry remains a geographically and economically scattered business. It does not have the organization or economic power of participants farther up the production chain.

We will delve more deeply into USDA’s Proposed Rule on Inclusive Competition and Market Integrity” and the bounty program with state attorney’s general in the near future.

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