Fighting the Good Fight From A Smaller Perspective
We’ve received some very interesting, very thoughtful…and very frustrated e-mails from some Midwestern or “Northern” cattle feeders in response to our columns about the cash market ideas and Alternative Marketing Agreements (AMA) facts and figures from Stephen Koontz. No one argues with Koontz’s analysis of where we are and where we could go.
Koontz is an ag economics professor at Colorado State and a prime example of why our land grant and cooperative extension professors are so useful to our industry, compared to other professors and their contribution to our country’s problems, rather than solutions.
There are a few givens here. One is that many people are unhappy with the cash-fed cattle market. Some question whether the value for cattle determined by today’s cash market accurately values the cattle. Others are more concerned about the percentage of the total that is marketed by negotiated cash transactions. Many are scared of what could happen with minuscule or no cash market, as we’ve never been there before.
Of course, cash used to be the only market and folks were often unhappy then, too.
Another given. We can’t repeal the laws of economics, although some of the fringe groups seem certain that they can. Economic bedrock is bedrock. You can’t change it, just because you want to or you perceive something as “unjust.” If one believes in the free market system, that value is determined by demand, by merit, by consumer satisfaction, then economic principles are affected only by a government-enforced structure of contracts and private property that allows one to supply a need and protect one’s property.
That means one can’t change the fact that buying 5,000 head of cattle from 10 sellers is going to be easier, faster, and more efficient (cost less) than buying 5,000 head from 30 or 40 sellers. That is not even mentioning 30 more locations and likely many more miles.
There is another we consider a given that some might not. There is a difference between amplification and distortion. Some folks hold that the Holcomb fire and the coronavirus capacity crisis have just amplified the problems in cattle marketing that already existed so that we could see them better. Kind of like sticking your palm under a microscope. Same lines and creases, just more pronounced.
We disagree. Those two major events are not amplifications but distortions of normal systems that were unlike anything the industry had ever dealt with. The coronavirus problem was something the modern world had never seen before. That is not amplification. That is blowing up the world and then trying to figure out how to put it back together quickly, with new parts and processes. All the while trying to keep calm the citizenry that depends on a normally very complex production chain to keep them fed. A very basic need.
We read that retail meat purchases were running 40 percent more than normal at one point. That is an aberration that no hard goods manufacturer could handle overnight, much less our system dependent on lots of hand-to-hand combat to turn out a tremendous volume of meat.
That the packing industry is running over 90 percent capacity already, given sick workers, scared workers, absent workers, millions of dollars in new equipment, new procedures, shielding, crew health monitoring procedures, worker bonuses, closed schools creating family problems and lots we don’t even know about, is truly astounding.
So while it can be useful to “use” these two events to motivate the industry to wise up and fix some things, the two events and the flaws in our present marketing system have little or nothing to do with each other. It’s kind of like telling a seaside restaurant they have to use heavier tables because the last hurricane blew the old ones away.
Speaking of restaurants, we need to be figuring out how to help our HRI partners find ways to operate in this new world, some of which make sense and some of which are political, ridiculous, and nonsensical. There are new risks and fears. But we’ve been selling over 50 percent of our beef supply through HRI. We need to find out anything we can to help change our products, our packaging, perhaps more prepared items -- whatever it takes to help them adapt and satisfy customers, especially tailoring to more takeout.
Another given that not everyone might agree with has to do with the quality of cattle from different regions. We think most would agree that the “Northern” fed cattle tend to be high grading animals. But the Northerners seem to feel that some “Southern” cattle may be high graders and a considerable chunk will not grade high.
The facts are that the industry has made astonishing progress in a short time: 80 percent of the harvest is Choice, 6-8 percent is grading Prime. Folks, that is roughly 87 percent of the total. By our simple arithmetic, that leaves only 13 percent total that does not grade Choice or Prime. There aren’t enough 50 percent Choice loads in all of the South to change that 87 percent. So the claim by some that there are tons of plain southern cattle that won’t grade is outdated and not mathematically possible. Under our present incentives and marketing system, that is.
Now, regarding those transaction costs, we mentioned above. The Northern smaller feeders are proud of the cattle they produce. But they have one obvious problem as feeders. They are “fractionated,” as one of them termed it. It is just a fact. Some of the advantages they have are in feed access and costs and, for many, DDGs, they lose in small volumes.
Fortunately, it is something they might be able to control and fix on their own. It would not only give them leverage and better prices, but it would also smooth out the operations of feeding and packing in that whole region. That option would be to work together in some types of coops or marketing groups to plan, assemble and market much larger groups of cattle than they can on their own.
This is not a new idea, per se, but it is likely the only way to lower that transaction cost by giving them some leverage and the packer cost savings to pass on. But today’s technology in planning, tracking, adjusting for weather and cattle performance could make it much more doable, efficient and accurate than such efforts 20 years ago. So will better, more consistent cattle. And state and regional cattlemen’s groups, farm groups, elevators, and other groups could work together to do it themselves, without the government running things. Although some government funding and professional advice might be possible and useful.
Next time: the second half of Reflections...