Market direction

Sep 17, 2010

Cattle markets remain good after Labor Day, but last week, things became a bit unsettled after a good rally in the corn market. Feeder cattle have lost a few dollars, but yearling trade at $110 with $5 corn isn’t all that bad. But it makes you think a little harder about the direction of the markets.

Bull sales have started on the West Coast and they have been very strong, with most reputation breeders seeing higher average bull prices than last year. The market has captivated producers’ minds most of this summer, which it should, but there are some important issues you need to be very aware of.

These proposed rule changes to the Packers and Stockyards Act (PSA) are important to you and the cattle industry. In the big picture, I see very little that will create a benefit to cow/calf and yearling producers or feeders.

The livestock industry has developed a very dynamic market for cattle over the past 25 years. The value for various quality levels of cattle has been well defined and I would have to assume that most producers have a fairly good idea of what their cattle are worth. For feeder cattle and breeding stock, the live auction market has constantly proven its value. However, fed cattle moved away from the auction marketing method a long time ago. There may be a handful of markets selling fed cattle, but it is certainly not enough to make the market for that class of cattle. With the advent of high-volume packing plants, purchasing of fed cattle at auction has lost its value. It is not an efficient way for the packing industry to buy cattle when they have to run 5,000 head or more in a day through a plant.

There are more ways to market fed cattle today than at any time in history. Most packers are looking for specific types of cattle with specific production protocols in order to satisfy a multitude of consumer markets. Branded beef is alive and well.

This debate the industry is having about market competition, market fairness, packer concentration and contracts is quickly becoming less about the market and how the industry operates and more about social issues. When the New York Times opinion page comments on the USDA competition workshop held in Fort Collins, CO, last month, ranting about captive supplies and fewer people in agriculture, you can bet it’s not about economics. I wouldn’t think the New York Times or many of their readers really care about whether the producer raising their food made a buck, or whether a big packer processed it. At the end of day, most consumers are thinking about safety, nutrition and value, and beef already has a high score in those areas.

The proponents of the PSA proposal have been trying various strategies to advance their cause. In the past, we could contain the conversation about industry structure within the industry. Competition and fairness in livestock marketing has always been on folks’ minds ever since the first hoof was trailed halfway across the country to the railhead to be shipped to terminal markets. Any problems were worked out within those who participated in the industry. That has apparently changed. Now the strategy for winning your cause is through the court of public opinion, where things take on a life of their own. The creation of Country of Origin Labeling (COOL) was hotly debated within the livestock industry. But it made its way into law because it was promoted through the court of public opinion. This was an R-CALF issue and they created allies with Consumers Union and other consumer groups to promote COOL. This time, they have alligned with Food and Water Watch, the food workers’ labor unions and other groups you wouldn’t think would care about livestock marketing.

That tactic has made it a political issue. Unfortunately, Congress is completely tuned in to the emotion of the population and is unable to determine the difference between right and wrong. But they can read the mood of public opinion and determine whether they will get re-elected or not, which is all that matters to most of them.

It’s ironic that the government can spend so much time investigating an issue like captive supply and contract marketing. USDA and others have produced countless studies which show there is little harm and a lot of good created by the use of contract marketing arrangements or other industry marketing arrangements. Now, those studies are being ignored to the detriment of the industry. — PETE CROW