Nelson: Leverage needed now for cattle value discovery
The cattle industry is abuzz with talk of financial pressures on ranchers and smaller, independent feedlots – feedlots that cash negotiate cattle and establish prices for the entire industry. Because 75% of these feedlots have gone out of business in the past 25 years, Congress is taking notice and the U.S. Senate Ag Committee held a hearing. While the hearing addressed many topics, one that received too little attention was the lack of leverage cattle feeders have when negotiating a price with the packer, resulting in lost cattle value.
Though we have some price discovery, cattle feeders have no leverage because too few cattle are purchased in the cash market to create robust competition. This prevents true value discovery and reduces cattle prices.
In 2015, Choice boxed beef price was $265 and cash cattle were $172. Today, Choice box price is $291. The 2015 scale would have cash cattle at $189, instead of today’s $125. On a 1,400-pound steer, that’s $896 less value than cattle producers received in 2015.
I participated in the Phoenix cattle summit in May. The groups ranked packer concentration as our industry’s No. 1 problem. Packer concentration increases market power for packers and reduces negotiating leverage for producers, which helps explain the significant loss of value cattlemen now suffer.
Without passage of S.949 (50/14 Spot Market Protection Bill), negotiating leverage will remain in the hands of concentrated beef packers. New slaughter capacity won’t be online for years and unless increased value is quickly returned to cattle producers, many more of the remaining 27,000 independent feeders will cease to exist.
One contract broiler feeder recently said, “Heaven help the cattle industry if it goes the way of broiler industry.” Without value returned to cattlemen – without the Grassley/Tester 50/14 bill – the integration of the cattle industry is just around the corner.
R-CALF USA Region VII Director (Iowa, Minnesota, Wisconsin)
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