Two cattle farmers had the ear of the Senate Committee on Agriculture for a few hours on Wednesday June 23, 2021.
Breeder and manager of St. Onge Livestock in South Dakota, Justin Tupper testified, as did Mark Gardiner of Gardiner Angus Ranch, Ashland, Kan., And chairman of the board of directors of US Premium Beef, a marketing company of beef that’s owned by National Beef, which is 51 percent owned by Brazilian meat giant Marfrig.
The two men testified about livestock competition issues at a formal Senate Agriculture Committee hearing in Washington, DC. Other witnesses included Dr Glynn Tonsor of Kansas State University, Dr Dustin Aherin, Animal Protein Analyst at Rabobank, Chesterfield, Mo. K. Hendrickson, Associate Professor, Division of Applied Social Sciences, University of Missouri.
In his five-minute opening statement, Tupper said the hearing was critical to the survival of the beef industry. “There is a crisis in rural America, we are losing producers at an alarming rate, while watching big feeder companies, packers making record profits and the threat of vertical integration hanging over our heads. “, did he declare.
“Producers in my state and across the country are experiencing devastating drought conditions, this is just one of the many challenges livestock producers face. While managing the land, borrowing money to keep operations going, tackling climate change and dealing with rising input costs in a declining bottom line. Most producers who sell calves at weaning are selling them for less than $ 1,000 per head… that’s less than 1% return on investment. An incredible risky business. For those who raise and sell even large cattle, from calving to completion, a finished animal is now worth close to $ 1,600 per head. Packers could buy that steer, process it and sell it for beef alone, not counting the by-products for about $ 2,800 per head today for a gross margin of over 80%. As cattle farmers, we understand and want the slaughterhouse to make money. It makes the whole system work, but since 2015 the gross margin for packaging companies has gone from an average of $ 100 to $ 200 per capita to well over $ 1,000 per capita. The slaughterhouses have made incredible profits, harvesting around 120,000 head per day as livestock producers go bankrupt and consumers pay double or even triple at the meat counter … Livestock producers … are reinvesting in their local community, buy and improve equipment, paying more for feeder cattle, reinvesting in land through conservation practices. The packaging company does not reinvest in the industry or sometimes even in the country. He explained that two of the four large slaughterhouses that process 85 percent of the cattle are owned by Brazilians.
“The increased control of supply by packers… has made active price discovery almost impossible. During my years as an auctioneer and operator of St. Onge Livestock, I have learned that the most important participant in true price discovery is the second bidder. In most cases in the big cattle business today we don’t have a second bidder, there just aren’t enough market participants. In the traditional days of the market, it was assumed that when the prices of canned beef increased, the packer would increase the line speed to increase his profits, instead he used limited line speed and space. ‘hooking up to earn the same or more money by harvesting fewer livestock. Thus, producers see huge losses in equity while the packer reaped huge rewards despite the least risk and the possession of the product for the least amount of time possible while exploiting the producers and ultimately the consumer. American cattle ranchers do not want and do not seek handouts. Producers cannot be sustainable or generational without being profitable.
“When there is an oligopoly with four packers controlling the industry, there are only two ways to level the playing field, we can either work to eliminate the occurrence of anti-competitive practices and market manipulation in the meat packaging business, or as we’ve seen in the past, in other industries, we can break them down so they can’t have as much influence in the market.
“These are critical times,” Tupper said.
Gardiner’s testimony followed Tuppers.
“Today our subject is complicated; the cause of this problem is not. A fire at a processing plant, a pandemic and a ransomware attack caused extraordinary disruptions in processing, resulting in a dramatic drop in the supply of processed beef and a massive oversupply of live cattle. This caused an unprecedented drop in cattle prices while simultaneously leading to a record rise in beef prices. All guided by the purely economic principles of the market.
“Today we have too many cattle and too little processing capacity. We have a volatile market, created by inevitable external factors, and not by a single market player. We have seen similar disruptions in lumber, automobiles and other goods. Now the solution to all of this is very complicated. Processors are increasing their capacity due to the demand for high quality beef. Adding this capability will take time. History tells us that we will reach a point where abundant processing will compete with a limited supply of livestock. When that happens, the market will change and producers will have more leverage. The question for us in the meantime becomes: what damage will regulation do to the market by artificially manipulating pricing mechanisms?
“Experience tells us that the unintended consequences of these actions can create more lasting havoc and even greater volatility for our industry. Let’s look at the history of our industry.
“From 1980 to 1995, we were the very image of a struggling industry. Consumer satisfaction was at an all-time low. And we were losing market share at a rate that put us in danger of being an irrelevant protein. This loss of market share and this discontent originate in the production sector.
“In other words, producers had to solve our quality issues early in the supply chain. What caused the disconnect between our product and the consumer? It’s very simple, all the cattle were bought on average, there were no incentives, a single price for all. Progressive producers needed and wanted to price cattle on a value-based system that paid for each animal based on value, not average. Superior cattle are more valuable; inferior cattle are less valuable. These incentives have enabled producers to respond to consumer demand signals.
“Today we have a record demand for beef. Producers design and negotiate these grids with processors. The transfer of information between industry sectors establishing pricing mechanisms that reward producers who deliver the beef the world wants. I would like to emphasize that the greatest profit and the greatest added value have been obtained by the smallest producers. They reaped the highest dollar value per head and gained market access.
“The unintended consequences of regulated government mandates such as SB 3693 and 543 could potentially have a negative effect on the beef industry. I am not aware of any data or research indicating that this proposed regulation will have a positive change on the price of livestock in the future.
“There is a lot of talk about spot trading. I see this as a basic price, no different from a commodity like wheat. I can call our local elevator and get the base price for wheat. If I meet the value targets with my wheat due to protein content or baking quality, I get paid for that extra value.
“Value-based marketing works on the same concept. We know that goals are valuable to the processor and the consumer. If we achieve these goals, we are paid for producing top quality beef. One possible price discovery that we might consider in the low trading spot market is to have all formula grid base prices and Alternative Market Agreements (AMAs) be part of the mandatory price reporting. . This base price must be inclusive. I remind you this is due for renewal on September 30, 21. Any changes we make are better implemented by industry than government mandates, ”Gardiner said.
MORE OPENING STATEMENTS, QUESTIONS
Dr Tonsor, Dr Aherin and Dr Hendrickson followed with their opening statements and then the floor was given to senators to ask questions. Many questions followed about how the beef industry can better serve consumers and avoid the disruptions in product availability that caused beef to run out of grocery store shelves during the pandemic as many cattle across the countries were overfed because the feeders couldn’t get an offer on them.
Responses have varied, with Tonsor, Aherin and Gardiner reluctant to approve the regulatory changes, although Gardiner supported the idea of updating the Mandatory Livestock Reporting Act (also known as mandatory price reporting) to include a price library including AMAs and other futures.
Tupper supported legislation that would require the Big Four slaughterhouses to buy a percentage of the cattle on the open market or for cash. It has been reported that currently around 25 percent of cattle are purchased this way. Senator Chuck Grassley of Iowa sponsored a bill requiring large packers to purchase 50 percent of their weekly production from the cash market and take delivery within 14 days.
Several senators indicated the need for legislative change that would provide more security to the food system, including the availability of products for consumers as well as financial stability for producers.