Gardiner: Report all cattle sale contracts
As an official witness during the Senate Ag Committee hearing on cattle pricing issues, Mark Gardiner of Kansas-based Gardiner Angus Ranch testified that he was representing beef producers who are committed to the industry to raise the safest and highest quality beef in the world.
“Today, our topic is complicated. The cause of this issue is not. A processing plant fire, a pandemic and a ransom ware attack caused extraordinary disruption in processing, resulting in a dramatic drop in the processed beef supply and a bulging oversupply of live cattle,” he told the committee during the June 23, 2021 hearing.
Testifying live from home across the computer screen, Gardiner went on to say that increasing packing capacity will cure the woes of today’s cattle feeder and rancher who, in many cases, are hoping to breakeven.
“Adding this capacity will take time. History tells us we will reach a point when ample processing will compete for a limited supply of cattle. When this happens, the market place will shift and the producers will have more leverage,” he said, and added that government mandates could damage the market by artificially manipulating pricing mechanisms.
In response to a question by Senator Hoeven of North Dakota about how best to balance the producers’ ability to use AMAs with the need to protect and improve price discovery, Gardiner offered support for an amendment to the Livestock Mandatory Reporting program that would require the reporting of all pricing deals including private arrangements between packers and feeders, sometimes called alternative marketing arrangements, AMAs, formula agreements or forward contracts.
“I think all of these things need to be included in there. I think the base price is the base price, just as I stated with wheat….if we do have that transparency…then it’s going to be a more robust price discovery. I will get disagreement as I have all afternoon, now I would suggest to you , if there wasn’t not a single AMA or a single formula, our price today would be the same. I’m all about robust, transparent, put everything into what creates this base price and that will allow us to hit these targets. One of the things I think about …as we talk among producers…this angst, this discussion, this worry that we all see in all of our families and our customers and just the whole industry, will lead us to a better place. I’m asking that the industry go there and not be mandated.”
Gardiner does not support a government mandate to require the big four packers to purchase a minimum amount of their cattle on the cash or spot market and take delivery of those cattle within 14 days.
“We need more processing, we need more shackle space, we need more buyers. I agree with all of that. The reason they are not there is because if we go back to those times that we all loved so much in 2014 and 2015, when we had record high cattle prices…was because we did not have enough cattle…those processors are gone from that time period. The growth and capacity for today is coming from this increased beef demand.
“If we had a thousand processors and they were all bidding on the cattle, my belief and I’ll say it’s my personal belief, the fed cattle price today would be the same,” he said.
Gardiner reiterated this point in an interview with TSLN. “That’s what I meant when I said if there were 1,000 processors competing today, they would still come up with a similar price. It might be a little bit more or a little big less, but it would be similar.”
He added that the cash price is too thin, and that a more robust market “where everyone can see it” would benefit the industry.
“It’s too thin. That’s why we want all formulas, all cash to be reported. We need that transparency to be in real time. If there is a sale, the market report is there the next day,” he said.
While Gardiner agreed that, for example, feeder calves selling on the same day might weigh the same, but the quality of the cattle will likely be different, and that the price is not necessarily going to be the same for those two sets of cattle.
“I believe that one price should not fit all,” he said.
He recalled a point when he himself was selling a pen of finished steers as a young man, and the packer buyer told him the steers were worth about 70 cents per pound. “I said, what about those roping steers? He said ‘They are worth the same. We use your cattle to sell them.’”
Gardiner says it was experiences like those that led himself and others to create a cattle marketing co-operative named U.S. Premium Beef which is now a 15 percent owner in National Beef, which is owned 51 percent by Marfrig, a Brazilian company.
At that time, around 1997, “we were in trouble,” said Gardiner of the US cattle and beef industry. “Nobody liked our product.”
He remembers negotiating the first grid deal between U.S. Premium Beef and National Beef.
“I said what makes you money? ‘He said that’s easy, the high quality cattle.’ I said, then we need incentives to pull those cattle through the system.”
“We’re constantly negotiating back and forth with National Beef. We’re part owners but if they want to change the grid, we’re in constant contact and we negotiate.”
“We got skin in the game by investing in it,” he said.
“There have been years that we didn’t get a penny from processing, in 2014 and 2015 they were losing money. Obviously the last couple years, it’s been the other way.”
U.S. Premium Beef is not a branded product that can be found in the store, although Gardiner said that concept was tried early on and failed.
“We weren’t very successful. We didn’t have a very big presence.”
Shareholders simply try to meet grid standards in order to achieve premiums for the cattle they market through the program which assures them slaughter space at National Beef.
Gardiner said he and his family raise cattle to meet grid specifications and they recently marketed pens of cattle that graded 100 percent choice, one being 70 percent prime, which resulted in a $9 or $10 cwt premium above the reported base price of about $124 cwt.
“People all over the great plains use those genetics to be more successful,” he said of Gardiner Angus Ranch bulls, which are marketed in four live auctions throughout the year. Although about 30 percent of the bulls are sold private treaty, the remainder of the 2,500 bulls the family sells each year is sold in a bid and buy situation.
When asked if he would find it troublesome if the ranching industry consolidated to the point that only four ranchers remained to bid on his bulls, Gardiner said he has worked his entire life for more bidders for all cattle.
“I know what the obvious answer is, we all want more bidders. I’ve lost big buyers before and I keep working to cultivate more. I wish there were more processors like there were when my dad was this age. But they aren’t there because they haven’t been profitable.”
Gardiner does not believe that the big packers participate in anti-competitive practices or illegal predatory practices that harm smaller processors. He doesn’t believe this happened in the past, either.
“They weren’t profitable is why they shut down. I don’t believe that there is criminal activity going on. They are highly scrutinized. They are audited. They are investigated all the time by the Department of Justice. I don’t know of any illegal activity,” he said.
The big four packers that control over 80 percent of the US beef slaughter do not need to be broken up, he said.
“I think this is America. They grew the way they grew. Do they have market power and presence? Absolutely. If you break them up, my fear is that we would have less buyers. It’s a hard business. It’s an expensive business,” he added.
As for a Brazilian company controlling two of the big four, he said, “It’s a global market. No American company chose to buy (Swift) when JBS bought it,” he said.
Gardiner said that he knows many ranchers and feeders in the northern states disagree with him regarding whether or not breaking up the packers would result in stronger cattle prices. “Neither of us know,” he said. “I would contend, we are not that far apart. We all want the same things. I just don’t think the government is the one that can show us how to do that. If there is a monopoly, or unfair buying practices, that’s not for me to say. That’s for the DOJ.”
“The leverage is changing as we speak. The cattle cycle combined with demand, I’m more bullish on the next 10 years than the last 10,” he said. “The fundamentals are there because of the quality of American beef.”
Mr. Justin Tupper
United States Cattlemen’s Association
St. Onge, SD
Mr. Mark Gardiner
Gardiner Angus Ranch
Dr. Glynn T. Tonsor
Professor, Department of Agricultural Economics
Kansas State University
Dr. Dustin Aherin
RaboResearch Animal Protein Analyst, Rabobank
Dr. Mary K. Hendrickson
Associate Professor, Division of Applied Social Sciences
University of Missouri
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