Q: What do you think are the major issues standing in the way of fair cattle markets?
This is a question with a bunch of assumptions. What I hear people complain about consists of a lack of price discovery in the industry, packer concentration, and the futures markets not functioning correctly.
Q: What would be the best solution to solve the issue of packer concentration?
One solution would be to have a packing sector with more distributed facilities; a larger number of medium sized plants. In this scenario, the plants would have the same ownership as we see now within the industry, just more plants. Another option would be to have more automation to lessen the reliance on labor, which would help avoid the issues we saw throughout the pandemic.
Q: What are your thoughts on Senator Grassley’s 50/14 legislation to increase negotiated cash trade?
A benefit to increasing negotiated cash trade would be a more liquid cash market that would provide increased certainty that the trade being observed is reflective of underlying fundamentals.
The reason we don’t have more cattle traded in spot markets is because there are benefits that go along with coordination in various ways for both sides of the exchange. When the packer has a dedicated supply of cattle, their efficiencies increase and they’re able to increase profits.
If the industry moves more towards a cash basis, you lose some of the ability to incentivize certain traits and characteristics like you see with contracts.
Q: What are your thoughts regarding cattle and beef imports?
We’re better off in a world with more trade, even if domestic producers have to compete with producers abroad. If we shut off imports, that will most likely cause some exports to be shut off.
Q: Do you think the cattle industry is in danger of becoming vertically integrated?
Becoming vertically integrated shouldn’t be labeled as a “danger.” The hog industry has seen vertical integration and a lot of those producers are protected from adverse price swings. Vertical integration comes with the tradeoff of stability. With that being said, there is no entrepreneurship in this system; producers can’t seek out other markets or make their own decisions when it comes to growing their animals.
Q: What do you see happening to the independent cattle producer if substantial changes aren’t made to achieve fair cattle markets?
It has certainly been a challenging several years in agriculture across all commodities. Many folks have pointed fingers at the processing sector being the cause of cattle market issues, but really the cause has been other random stuff.
Q: Any closing statements?
Every sector in the beef supply chain suffered losses through the pandemic. When times are tough, we want someone or something to blame. The only thing to blame for the cause of all these issues is Covid-19.