Experts weigh in on fed cattle markets at request of Congress |

Experts weigh in on fed cattle markets at request of Congress

Economist’s study, Part 1:

In a congressionally-mandated investigation into meat packer business practices by the USDA and the Federal Trade Commission (FTC), it was noted that the prices of livestock so frequently have no relation to cost of production, making cattle feeding a risky business and the fluctuations great enough to burden the feeders and consumers alike.

“Well-informed stock men are convinced that these erratic price movements can be explained only on the theory of ‘manipulation’ by packers, whom they regard as the beneficiaries of the changes.”

Of course, this investigation finding is part of a 1920 investigation, but echoes many of the concerns about today’s cattle markets.

In the summary of the findings in the congressionally-mandated study published last week by Texas A&M, the National Cattlemen’s Beef Association has identified the four major findings. Government intervention in cattle markets would be harmful, costing up to $16 billion in lower prices over the next decade; alternative marketing arrangements (AMAs) do not change the underlying supply and demand fundamentals; AMAs were initiated by cattle feeders to capture more value associated with improved quality; and price discovery is still robust even though less than 30% of the transactions are from cash negotiations.

According to Dr. David Anderson, a Professor and Extension Economist with the Texas A&M AgriLife Extension Service, wrote that “questions about the accuracy and volatility of livestock prices – and particularly about the relationship of market structure to those issues – have been thoroughly investigated and hotly contested for well over a century now – with, it seems, little prospect for resolution even now.”

Anderson said the proposed solutions to the market’s woes are diverse, but there is little agreement. At a two-day workshop presentation of the findings that comprise the book, a panel was gathered to offer feedback on the presentations. The panel, meant to be a diverse cross-section of the industry, included Michael Nepveux, an economist at the American Farm Bureau Federation; Shelby Horn of Abell Livestock, a commercial cow-calf/stocker operator with ranches in Texas, Florida and New Mexico; Don Close, the cattle market analyst for Rabobank; and Justin Tupper is the owner and operator of St. Onge Livestock Auction Company and Vice President of U.S. Cattlemen’s Association.

Gerald Schreiber, president of RCALF-USA said the analysis concluding that simply riding this out isn’t acceptable. He also maintains that the data used dating back to 2002, which he said was a very different cattle market with 60% of sales being cash negotiated.

“Now, this idea of regionalizing, which we’re absolutely opposed to because the High Plains- Kansas, Oklahoma, and Texas- are less than 10% negotiated sales,” Schreiber said. “Negotiated cash trade still sets the price for the whole market. That was my heart burn with that.”

The problem, he said, with AMAs or grid is those cattle, which are sold that way based on the belief they are higher quality cattle, are based on a floor based on less than 10% cash sales.

As for the organic efficiencies of the market referenced in the book, Schreiber said it’s just not so. With efficiencies in the market, he said consumers would be benefitting but, as it is, he said consumers and producers are both getting the short end of the proverbial stick.

Schreiber said the more negotiated cash trade, the more competition and that competition is what Justin Tupper said is key to price discovery.

Tupper, who was on the panel, said true price discovery is the second bidder.

“If you don’t have a second bidder, you don’t have true price discovery,” Tupper said. “If you have to give up efficiencies for competition, then we’ve lost again.”

No one loves more government, he said, but this is how the market has arrived at its current situation.

“Every one of those guys who say the don’t like government intervention I bet has taken a government check in the last year,” he said. “That’s part of life, I don’t love it, but it is what it is.”

The packers, he said, either need to be broken up or regulated to ensure that all of the market control doesn’t rest with the big four and to ensure that true market participants aren’t left out in the cold.

The untold story of the packers, Tupper said, is the control they wield on the retail side of the market. He said building more shackle space is a reasonable solution but if the packers exercise their market power and block that beef from finding space in the retail cooler, it’s all for not.

“Once you get that built, they’re going to buy that plant for 10 cents on the dollar and we just built the big four a brand-new packing house,” he said.

The cattle industry, he said, is in a time when the consumers can recognize the problem, and there is a political will to make change. Ideally, he hopes there will be a passage of a combination of Grassley’s and Fischer’s negotiated trade bills.

“If our own industry groups would get the hell out of each other’s way and let this go…and that scares me on both sides,” he said. “We have to get something passed and it’s going to have to be a compromise. It isn’t going to be everything RCALF wants, it isn’t going to be everything USCA wants, and it definitely isn’t going to be everything NCBA wants. Enough of those NCBA members have been rising up within, I think they’re catching enough flack to be changing the narrative in some shape or form.”

Economists’ study, part 2:

In 2020, Congress asked then-Secretary Sonny Perdue to utilize research centers and experts across the country to research current issues and trends in the cattle markets. The result is a 200-page book titled “The U.S. Beef Supply Chain: Issues and Challenges Proceedings of a Workshop on Cattle Markets” is composed of findings and conclusions from a who’s who of economists and experts that urges “extreme caution in making changes to a system that has grown organically over time to reward high-quality beef production in a way that acknowledges regional differences throughout the country.”

Bart L. Fischer, a research assistant with Texas A&M (TAMU) AgriLife Research, and Joe L. Outlaw, Regents Fellow, professor, and Extension economist with Texas A&M AgriLife Extension Service, who are co-directors of the Agricultural and Food Policy Center at TAMU, compiled the key findings from the evaluation.

With regard to concentration, Fischer and Outlaw said fed cattle pricing and capacity discussions must acknowledge the concerns over packer concentration.

“While not necessarily a popular position, most economic research confirms that the benefits to cattle producers due to economies of size in packing largely offset the costs associated with any market power exerted by packers,” they wrote. “Research indicates that there is market power, but its effect has been small.”

According to the key findings, among the cattle market economists consulted, there was general agreement that price discovery in fed cattle markets is still robust despite the fact that less than 30% of the transactions are negotiated (or cash). While some argue that imposing mandatory minimums on negotiated (or cash) transactions would improve price discovery in the fed cattle markets — accruing benefits to the cow/calf producer in the process — authors in this book argue it could have the opposite effect, potentially imposing huge costs that are passed down to cattle producers in the form of lower prices.

Despite still robust fed cattle price discovery, the economists noted that additional transparency in general would be good because it could help build confidence in the market.

The economists consulted in the study repeatedly stressed the cyclical nature of the cattle business. Though cattle supplies are currently outpacing available packing capacity, they warn that can change. This is particularly notable for anyone considering building additional slaughter capacity.

“As a result, expansion of small and regional packing capacity needs to be done in a way that is sustainable and economically viable,” they wrote. “While the program is still being implemented, the funding recently made available by the Biden Administration may help meet that demand for additional capacity.”


The beef cattle industry is one of the most — if not the most — complicated markets in agriculture, and stakeholders throughout the supply chain have a number of varied viewpoints.

According to Derrell Peel, the Charles Breedlove professor of agribusiness in the Department of Agricultural Economics at Oklahoma State University, who wrote the chapter entitled How We Got Here: A historical Perspective on Cattle and Beef Markets, the challenges facing the beef industry are not new, some even remaining the same over the past century. For the most part, Peel said the industry has avoided embarking on policies targeting issues that, according to Wayne Purcell, are more nearly peripheral in nature and often deal with the symptoms of economic problems rather that the causes. The exception, Peel said, is Mandatory Country of Origin Labeling or MCOOL, though the U.S. has repealed what he calls a detrimental policy.

In the emotional reactions that accompanied the Black Swan events of late, he said demand was fueled for legislative actions that he said attempt to jump to a solution without addressing the “complex structural and behavioral issues that brought the industry to the current situation.

“The risk is that these overly simplistic solutions will have long term detrimental impacts on cattle producers, the industry, and consumers, and jeopardize the ability of the industry to compete in dynamic global protein markets for a successful future,” Peel wrote.

Proposed solutions, he said, must carefully evaluate incentives, whether the desired outcomes are feasible or sustainable, and to understand the unintended consequences and undesirable outcomes of those solutions.

The complexity of the markets, he said, is likely part of the reason the industry has long been plagued by contentious issues. With cow-calf, stocker, feeder, packer, wholesale, additional processing, retail grocery, food service, and export all involved at varying scales and cost efficiencies, all contribute to what Peel calls an intricate set of markets. This is, he said, made even more complicated as the industry has grown and evolved, placing additional importance on international trade, value-added programs, beef imports, and beef demand.

Peel said producers have cycled through a veritable list of perceived villains over time including packer concentration/market power, price discovery, beef and cattle imports, and futures markets. Historically, periods of high cattle prices have significantly diminished producer concerns only to see them revived during typical industry dynamics. The turmoil of the past two years has revived all these concerns simultaneously and added a couple of new ones in the form of supply chains and cold storage.

Peel said it is worth repeating the words of Wayne Purcell:

“The big danger is that all the attention on short-run and highly visible issues will block recognition of the problems that are long run and structural in nature and, in the process, prevent efforts to move to programs and policies that have a legitimate chance of helping.”

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