Not the Same: Miller, Wall agree that cattle and beef industries are not correlated
While they didn’t agree on much, Corbitt Wall and Kathryn Miller heartily came together on one big point when addressing the South Dakota Farm Bureau crowd last month: the beef industry and the cattle industry are not the same.
Wall, a market analyst who records a daily “Feeder Flash” market report video for DV Auctions, said that this lack of correlation presents a problem for the cattle producer.
Miller, the Chief Operational Officer for a regional Texas-based packer, said it’s just a fact we need to get comfortable with.
“There is no way in this industry that you can tie the value of fed cattle to the value of beef,” she said to S.D. Farm Bureau convention attendees in Rapid City, Nov. 21, 2020.
“For packers, the cost of goods is the cost of cattle. They are related commodities, but not the same thing,” she said. “We will always stay unhappy if we try to correlate them,” she added.
Wall had earlier pointed out the discrepancy between boxed beef prices and cattle prices particularly during Covid. At one point, boxed beef went up about $250 per hundredweight and packers were reportedly making about $2,500 per head, while cattle feeders were losing $200 to $300 per head on cattle. “We’re not in the same business, guys,” he said.
Miller said cattle producers need to stop “pointing their finger” down the chain at packer monopolies, fake meat companies and uneducated consumer, and start looking in the mirror and the cow book to make positive changes.
Cattle feeders are poor negotiators, she said, and often don’t understand what they are offering when trying to sell a pen of fats. She said the feeders she buys from don’t know the quality of their cattle, make unreasonable demands regarding shrink, don’t understand how the grid works, how retail pricing works, and so on.
“We have to up our negotiating ability,” she said.
“Packers don’t care if cattlemen are profitable,” she said.
Miller was countering points made earlier by Wall, including his belief that the cattle industry is headed down the same road as the hog industry which has become almost fully vertically integrated. Ironically, Wall indicated that the more vertically integrated the industry becomes, the less negotiating power the cattle producer and feeder possess.
In 2005, according to USDA reporting, over half of the nation’s fat cattle were sold in a negotiated trade or “bid and buy” situation where both the buyer and the seller have a “say” in the final price, said Wall. By 2017, in the southern plains, that number had dropped to just 2.6 percent. “So 97.4 percent of cattle were sold (in formula agreements) based off what the 2.6 percent brought,” he said.
“How hard would it be to manipulate the price on 2.6 percent of cattle? It wouldn’t be hard at all, especially when you knew you’d get to buy 97 percent of them based off that price.”
Wall explained that Iowa and Nebraska, where it is much more likely that a smaller famer-feeder rather than a corporate feedyard will feed and market cattle, the percent of negotiated trades is higher. And again he seemingly agreed with Miller on the fact that these feeders are not professional negotiators. He indicated that they could easily be taken advantage of by a packer buyer, especially because the bids are so few and far between, and because often they are only marketing 1 or 2 or a few pens per year. “There is more likelihood of them (smaller feeders) caving to an early bid. It’s more likely that a bigger commercial feeder will be more savvy in negotiations,” he said.
If and when a feeder sells cattle at a price lower than the cattle are worth, it will have a devastating impact on prices for all cattle that week and in the weeks moving forward, but as he mentioned, this in itself is incentive for the packer to drive that price down.
“The packers use them and abuse them (smaller farmer feeders),” he said. “I equate it to tipping the waitress when you’re on vacation. You’re never going to see her again, and you’ve already eaten. You have no reason to tip well. But the gal at the Greasy Spoon where you get your eggs and coffee every morning, you’ll take care of her.” Comparatively, he said the packers are much more likely to make things work for the bigger corporate feeders who they get larger numbers of cattle from.
Wall also pointed out that without the use of any active bidding such as at an auction market, or at the very least, the “bid and buy” conversations between a packer buyer and a feeder, that there is very little opportunity for the market to move upward week to week.
“Cowboys are no match for the packers. They win every week,” said Wall.
Miller said the cattle industry is given more help than any other industry – with the Packers and Stockyards Administration that is intended to protect against bad checks, etc.
“My biggest problem with the beef industry is we keep talking about boogeymen. The boogeyman of vertical integration, the boogeyman of the packer the boogeyman of the consumer,” said Miller.
Cattle producers need to be more respectful and inclusive of consumers, particularly on social media, she said. “When we go on social media, we often make consumers feel weak or mock them. If you grew up in New York City, there is not reason you would understand cattle digestion. We have to think about what we put on social media and how that portrays not only our individual brand, but the brand of agriculture,” she said.
Increasing our exports is likely the only way to increase beef sales or improve the financial situation for cattle producers, said Miller. She believes the domestic market is essentially saturated.
Wall pointed out the help that Teddy Roosevelt provided for industries including steel and others that were suffering under monopolistic power.
“He was a monopoly buster. He would break the monopolies up. It wasn’t fair to the smaller competitors when nobody could compete with them,” he said.
Six packers controlled about 50 percent of the business in 1904, which wasn’t healthy for consumers, suppliers, or the other packers, said Roosevelt. Today, four packers control about 80 percent of the marketplace.
American consumers are far less aware of the origins of their food than they were at that time, because food is so plentiful, said Wall, which means the cattle industry doesn’t necessarily have the support of the American public.
Senator Grassley’s 50/14 legislation or Senator Deb Fischer’s Cattle Market Transparency Act would both help improve the market situation for cattlemen, said Wall.
He also urged producers to consider fall calving in order to more evenly spread out the cycle of cattle ready for slaughter.
Miller said no bill would help the cattle producer’s bottom line. “It doesn’t matter what legislation you put in front of Congress, the fundamentals of the industry will be the same,” she said.
“Conspiracy theories about vertical integration aren’t going to help us,” she added. “Until we find a way to leverage supply and demand in a healthy and constructive way with consumers, we’ll struggle,” she said.
Economist Dr. Robert Taylor’s April, 2022, cattle report, Harvested Cattle, Slaughtered Markets, offers some unique solutions to the buyer power that many believe is depressing live cattle prices.