Usual Suspects Pounce on Problem- The Thoughts of Steve DittmerFri, 27 Sep 2019 15:10:29 CDT
Steve Dittmer writes the following Opinion Piece about certain industry groups wanting a return of mCOOL. Steve is the Executive Director of the Agribusiness Freedom Foundation- you can read more from Steve on his blog by clicking or tapping here.
"Most everyone is familiar with the phrase made popular by Obama disciple Rahm Emmanuel: never let a good crisis go to waste.
"Those ag groups that consistently oppose the free operation of the markets and beg government intervention in the market are following that dictum. We have seldom had the kind of disruption in the cattle markets that Tyson’s fire in its western Kansas has caused. But those temporary disruptions which the industry has handled better than might be expected are being exploited by the government intervention types for all they’re worth. The last time we can recall such a disruption was the failure of Nebraska packer ABP decades ago, when many feeders held huge rubber checks for cattle.
"The packing industry has worked very hard to make up the substantial harvest and processing capacity lost literally overnight. Harvest levels have hovered near 500,000 to 550,000 head/wk. by substantially increasing Saturday harvest and running all out. Cattle feeders have had to ship cattle farther but kept up currentness better than many expected. The market gave up several dollars per head and then has gained back much of the drop.
"Not surprisingly, the initial response of the major players, packers and retailers, were what was to be expected in such a situation. Retailers bid up and bought up beef, knowing the supply was going to be smaller and erratic for the short-term. With a major plant out of commission and Tyson only able to shift so much production to other plants, cattle prices dropped for the first few days. The other packers ran full shifts and higher Saturday levels. The major limiting factor for them was labor supply. Contrary to the beliefs of some packer critics, one can’t just go down the corner or the border and grab new people, give them a knife and throw them onto the line.
"But as usual, packer critics spun the prices impacts as anything but normal. Packer margins have increased, as would be expected when the fixed assets are being used to full capacity and run six days/wk. But that work pace can only be kept up so long. Workers and equipment wear down. Nevertheless, Cattle-Fax data for the fourth week in September as harvest numbers even with a year ago. Cash prices had improved by several dollars/cwt. Compared to right after the fire.
"With the margins there for other packers to grab, we would expect them to go all out to get while the getting was good. This is likely a once-in-a-lifetime opportunity. In fact, Cattle-Fax also noted that some cow plants had converted to fed cattle for the time being, in order to capitalize on the opportunity and need for more fed shackle space.
"The whole movement and a planned rally was called not just to get President Trump’s attention but send a message to the Senate Agriculture Committee that held a hearing on the livestock situation on Wednesday, Sept. 25. The head of Purdue University’s ag econ department Jayson Lusk testified before the committee. He addressed some of these issues.
“Available evidence to date suggests the observed reduction in cattle prices and the increase in wholesale beef prices following the fire are not inconsistent with a model of competitive outcomes. An unexpected reduction in processing capacity reduces demand for cattle, thereby depressing cattle prices. The need to bring in additional labor to increase Saturday processing and temporarily repurposing cow plants for steers and heifers involves additional costs that pushed up the price of wholesale beef. These price dynamics are not surprising and are generally what would be expected from the fundamental workings of supply and demand.
“In general, a lack of availability of labor at processing facilities and in transportation have proved significant hurdles for the sector. When processors are unable to secure sufficient workforce to operate facilities at capacity, there is the potential to reduce demand for livestock and poultry, which has much the same price effects witnessed after the Kansas fire.”
"So what would the complainers like the government to do? The government can’t suddenly conjure up another 5,000-head plant out of thin air. That is really the only short-term tactic that could fix this situation. The “demands” of the complainer groups wouldn’t fix our short-term problem, nor would they work long term.
"The current brouhaha stems from a Montanan starting a twitter campaign to encourage cattlemen to contact President Trump and interest him in fixing the cattle markets. When Progressive Farmer asked the instigator, Joe Goggins what he wanted the President to do, he said he didn’t know what the solution should be but there is a problem in the cattle market.
"The Organization for Competitive Markets (OCM) and R-CALF jumped on the bandwagon but they definitely knew what they wanted: a return of mCOOL and a reduction of imported beef for starters. The fact that mCOOL is illegal, cost the industry oodles of money for no return, nearly all consumers didn’t care about the origin as long as the product was good and put a damper on the whole cattle chain still escapes them.
"As for imported beef, it is lean beef for grinding and processed meats which the U.S. does not produce enough of. Without it, not only would the price of ground beef jump substantially -- a mainstay of American foodservice and home cooking that is regarded as a convenience and budget-stretching staple -- the price of 50/50 trim would plummet with no lean beef to mix with it. That would lower the carcass price for packers and feeders.
"Beyond that, whether it’s imported lean beef or finished grain-fed cattle from Canada, the percentage of the total market is small and has an insignificant impact on prices. In fact, one of the lasting damaging factors of the U.S. disastrous experiment with mCOOL was the boosting of packing capacity and feeding in Canada, so that more fed cattle stay in Canada, trimming fed cattle numbers for packers that normally need them to keep lines operating at a profitable volume. If anything, American ranches have benefited from Canadian feeders buying more American feeders to feed up there. But hose subtleties are lost on some cattlemen hewing more to emotional outburst than facts.
"In fact, in a comment regarding Mandatory Price Reporting (MPR) reauthorization, NCBA was quoted in that same Progressive Farmer story, as wanting to see the results of USDA’s five-area marketing study so that “facts drive the decision making, not emotions.”
"Prof. Lusk also pointed out that for those consumers who do care about origin, there is nothing to prevent any packer or marketing group from tracking and sequestering cattle and meat and marketing their production as American beef. We saw an example at a regional supermarket in the high mountain valley town of Westcliffe last summer. Lowe’s Markets carry “All American Beef,” supplied by a group of ranchers and feeders."
Source- Steve Dittmer
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