A meeting was held on Jan. 10, 2013, at the First Interstate Bank meeting room in Belle Fourche, SD, drawing sheep and cattle producers together to discuss trends in their respective industries. Opening the meeting, Bill Kluck, Mud Butte, SD, cattle and sheep rancher welcomed guest speaker Bill Bullard, R-CALF USA CEO, representatives from Senator Tim Johnson, Senator John Thune and Congresswoman Kristi Noem’s offices, the South Dakota Department of Agriculture, Grain Inspection, Packers and Stockers Administration (GIPSA), South Dakota Sheepgrowers and the American Sheep Industry.
What brought the producers together was the need to move forward with the investigation into the vast spread between the market value of a lamb when it is weaned and the value of the meat from that lamb on the shelf. Congresswoman Kristi Noem addressed this issue when she sent out a letter requesting an investigation into that spread. It is called the 2012 Congressional Sheep Market Complaint, and included the following points of interest for inquiry:
• Anomalous price collapse in lamb market.
• Cut-out to live spread in lambs increased as lamb prices decreased.
• Packers/processors manipulated on-the-shelf lamb supplies and prices to drive down live prices for sheep producers.
• Packers manipulated prices by purchasing and feeding lambs.
• Packers manipulated the market by restricting access to the marketplace for independent sheep producers while maintaining plant capacity with captive supply lambs (packer-owned lambs and contracted lambs)
• Structural problems in the lamb market have caused wild swings in prices.
• $10 million surplus commodity purchase
• Acknowledgement that lamb market price discovery and transparency are vital to the entire industry.
• Impact on Livestock Risk Protection Lamb (LRP-Lamb) policies.
• Request that USDA open more export markets.
Bill Bullard explained to the group that he has spent 12 years exclusively focused on the cattle industry, but during the past summer he caught wind that something was terribly wrong in the sheep industry. When he saw that the 2012 prices were about half of what the 2011 prices were, he investigated further and found that the live to cut-out spread didn’t make sense.
Bullard said, “Cattle producers and sheep producers have so much in common that it’s in our best interests to work with the sheep industry to get to the bottom of this.” With the experiences R-CALF USA has had in dealing with the many issues it has confronted since it’s inception, Bullard feels that experience could be put to use by the sheep producers.
“What has happened in the sheep industry isn’t because of a natural phenomenon or supply-and-demand fluctuations. Domestic production was falling when consumption was increasing,” stated Bullard, adding “The sheep industry is the canary in the coal mine for livestock producers in general. What happens in one segment of the industry can happen in any other.”
“The sheep industry is the first livestock sector to be off-shored,” said Bullard. “We import more than is produced in the U.S. There are record imports while the U.S. flock is decreasing dramatically.” He added, “Increasing exports isn’t the answer unless imports are limited. The idealistic goals of free trade haven’t worked for the independent producers in the U.S.”
Packer manipulation of the market is the most likely culprit in the lamb market free-fall that took place during the summer of 2012. The deregulation of the 1980s took off the packers limitations of ownership of cattle or sheep any time prior to slaughter, so there is no prohibition of packer ownership and no violation, per se, when the packers own such a large market share that they can manipulate the market.
“Four firms control 65 to 70 percent of all the lambs in the country and they can decide who has timely access to the market,” said Bullard. “Formula contracts are then offered to guarantee timely access to the markets, but they don’t guarantee price.”
“Neglect of anti-trust and GIPSA has allowed it to happen,” said Bullard. An investigation was finally opened in November by GIPSA to gather information and testimony from all segments of the sheep industry.
Since sheep producers generally don’t have direct contact with the packers, they deal mostly with rumors and hearsay concerning the reason for the price disparity. Sheep producers sell their lambs to feeders through order buyers, and often don’t even know where or to whom the lambs go. The feeders who buy those lambs, however, have to deal with the packers. “The feeders are losing as much money on those lambs as the producers are and it’s putting a lot of them out of business,” Bullard explained.
What needs to happen is for producers and feeders to get those allegations, rumors and hearsay, presented to the GIPSA investigators as they work to get to the bottom of the problem. “The sheep industry needs that smoking gun,” said Bullard. “They need evidence indicating collusion to manipulate markets by the packers through the direct ownership and control of feeder lambs.”
“GIPSA doesn’t view the captive supply issue as a violation of the rules,” said Bullard. Therefore, producers must do all they can to keep the investigation moving in the direction of making changes. GIPSA does have the power to subpoena any and all parties, including packers, in the investigation of allegations.
With the 2013 Farm Bill coming up, it is time to get the disaster in the sheep industry at the forefront, said Bullard. Congress must be convinced to remove the limits by the USDA on GIPSA enforcement of anti-trust laws and they will need to draft legislation to do it. “Right now they’re offering the same solution as they’ve offered for the last 30 years and that has to change,” Bullard said.
Producers have a voice in the issue and every sheep producer needs to contact the GIPSA investigators and give them their statement. Attendees of the meeting were given the opportunity to privately talk to the GIPSA representatives present at the meeting. These are some examples of information GIPSA needs for the investigation:
• Did your lamb buyers tell you the packers don’t need your lambs or that the packers are killing their own lambs and you will have to wait to sell yours?
• Did your lamb buyer tell you the packers are cutting back production in order to drive up lamb and mutton prices?
• Did lamb buyers or packers refuse to bid on your lambs?
• Did you have difficulty in entering a forward contract to sell your lambs?
• Did you have difficulty selling your lambs?
• Did anyone in the sheep industry tell you the packers have the power to keep lamb prices low and they intend to use their power to do just that?
• Did your lamb buyer impose any new restrictions on your ability to sell your lambs?
• Did your lamb buyer offer a price for your lambs that was good only if you would agree to hold your lambs for a longer period of time and deliver them later?
• Did your lamb buyer/packer offer a price for your lambs and then impose discounts to that price after delivery?
Most of the questions are more likely to pertain to the lamb feeders’ experience, so Bullard encouraged producers to track down their lamb buyers and find out who they are buying for. He suggests producers get names and contact information to pass along to the GIPSA investigators.
Time is of the essence, as the investigation is open now with no closing time announced. In order to save their industry, Bullard said that producers need to get involved and take part in this GIPSA information gathering quest.
The contact person for GIPSA is Tom Duggan, Business Practices Unit Supervisor, USDA-GIPSA, 3950 N. Lewiston, Suite 200, Aurora, CO 80011-1556 or contact him by phone at (303) 375-4263. F