News.MikeCallicrate.com | A NoBull News Service

Progressive Farmer

Chris Clayton

May 17, 2021

Cattle industry leaders are united — that’s just how angry they are about losses feeders are taking while packer industry profits continue to soar.

The major producer groups are calling for action by Congress, the Justice Department and USDA to address the imbalance in markets as feeders lose money while packers report high profits and strong demand for beef.

The leaders of the American Farm Bureau Federation, National Cattlemen’s Beef Association, National Farmers Union, R-CALF USA, and the United States Cattlemen’s Association issued a joint statement Monday expressing their frustration over repetitive issues that plague the industry: "packer concentration, price transparency and discovery, packer oversight, Packers and Stockyards Act enforcement, level of captive supply and packer capacity."

The joint concerns and demands for action came after leaders from the six organizations met for a day last week in Phoenix, Arizona, at a meeting put together by the Livestock Marketing Association. The cattle groups, NCBA, R-CALF and USCA — whose leaders and members have extended histories of vehemently disagreeing with each other — came together with AFBF and NFU on three major action items.

The groups called on Congress to expedite the renewal of USDA’s Livestock Mandatory Reporting Act, including formula base prices to be reported in the same way as negotiated cash trade. They also want the creation of a contract library to provide producers some insight into what packers are paying on certain negotiated contracts.

At the end of last year, Congress extended the price reporting act for one year. Leaders on the House and Senate Agriculture committees have maintained the industry is not unified on what needs to change in price reporting. Still, there are several members of the committees that have introduced bills to mandate negotiated cash trade levels to increase price discovery.

"We’re frustrated because Congress has to act," said Brooke Miller, a seedstock producer in Virginia and president of the U.S. Cattlemen’s Association. "We’re frustrated with USDA because they can’t or won’t enforce the Packers & Stockyards Act that we have. We’ve allowed our industry to become monopolized by four multi-national corporations. And I think everybody is frustrated on the production end of things right now."

CALLS FOR DOJ REPORT

The cattle groups also demanded the U.S. Justice Department issue a public investigation status report on the civil investigation started last year.

Tying into the push from cattle producers themselves, Republicans in Congress from several major cattle states wrote U.S. Attorney General Merrick Garland on Monday calling on the Department of Justice to continue an investigation into the country’s four biggest meatpackers as well. The lawmakers note it was almost exactly a year ago when the DOJ Antitrust Division sent civil investigative demands to the packers.

"Since that time, the American people have seen no public results from the investigation. In fact, there is no information to even suggest whether the investigation has concluded or is still ongoing," the groups said.

While the DOJ has been silent, last summer USDA issued its analysis of market problems in the cattle industry going back to the fire in 2019 at a Tyson plant in Holcomb, Kansas, as well as the market spreads last spring during the peak of the COVID shutdown of packing plants. USDA’s report last July said the department was continuing to work with DOJ on "allegations of anticompetitive practices in the meat packing industry." The USDA report last summer, though, also highlighted the need to reauthorize the Livestock Mandatory Price Reporting law. One of the problems with price discovery, USDA stated, "is the declining number of participants in the negotiated cash market."

Miller called last week’s meeting "historic," but it reflects the sincere concern that each of the groups has over the state of the cattle industry. Miller said cattle producers hope the meeting last week will become a catalyst for some actions either by Congress or the Justice Department.

"We’re having feeders continue to operate at a loss and go out of business, and that’s going to affect cattle prices all through the supply chain. And when the packers are making record profits and we have four packers basically monopolizing and controlling the market, we are at a critical stage right now," Miller said. "If we don’t do something bold, we’re going to lose a lot of independent producers, and it will completely change the face of agriculture in this country."

PRICE SPREAD

One of the major financial frustrations for producers remains the widened spread between dressed fed cattle prices that producers receive and choice boxed beef cutout value that the packers receive. Dressed fed cattle prices are at about $191 per hundredweight (cwt) right now while the choice boxed beef cutout is priced at $319.62 per cwt, putting the average spread now above $128 per cwt, which would have been a record spread before the COVID crisis last year.

From 2016-18, that average spread was about $21 per cwt. During the Holcomb fire in 2019, the spread reached a then-record $67.17 per cwt.

In spring 2020, as COVID-19 began hitting the U.S., and the country effectively shut down, boxed beef values rose while cattle prices were more volatile. Packers were operating at capacity until early April, and the spread between fed cattle and boxed beef quickly jumped back up to $66 per cwt. From early April to the second week of May 2020, the spread grew to a new record $279 per cwt.

While contending with those price spreads, cattle producers are also facing higher feed costs with the soaring cash prices this spring for corn, soybeans and wheat.

PACKERS ARE PROFITABLE

Along with renewing the price-reporting law and some update on the DOJ front, the producer groups also called for new investments and development in "new independent, local and regional packers." While some of that is happening in a few spots, USDA still has potential funds to release for those supply chain efforts. USDA on Monday extended a public comment period in the Federal Register on a report about supply chains that, among other things, included creating new markets and increasing supply chain transparency for commodities such as livestock.

Packers, meanwhile, are showing strong profits. Tyson Foods, in its second-quarter report released a week ago, showed beef profits at $445 million for the quarter, up $322 million from the same quarter a year ago. Tyson’s beef segment accounted for nearly 68% of the company’s total profit for the first six months of 2021.

Brazilian-based JBS last week also reported a profitable first quarter of 2021 with its USA Beef division generating $531.9 million in profit for the first quarter of the year, up $287.7 million compared to the same quarter a year ago. JBS noted in its report that demand is strong in retail and recovery of food service. JBS’ North American market "continues to be driven by a wide availability of cattle ready for slaughter" with higher placements in feedlots. "Therefore, despite the impact of the increase in the cost of feed, the price of live animals remains lower" than in the first quarter of 2020.

The two other major beef packers, Cargill Inc. and National Beef, are both private companies and do not release quarterly reports on profitability.

PACKER CAPACITY

DTN Livestock Analyst ShayLe Stewart said it’s also important to note slaughter levels. Last year, it made sense that packers were processing fewer cattle as they were just recovering from shutdowns and just beginning to implement the necessary precautions needed to try to keep workers safe. A year later, with multiple vaccines available, the packers are processing around 640,000 head a week when they could be processing 670,000 head a week. This points to some of the lack of competition right now in the industry.

"Their best strategy is to limit the amount of product available in the meat counter to keep boxed beef prices high and let fed cattle supplies build in the countryside to keep cash cattle prices low," Stewart said.

To view this story at its original source, follow this link:

https://www.dtnpf.com/agriculture/web/ag/livestock/article/2021/05/17/producers-groups-call-congress-doj