Please, We Want No New Subsidies
Commentary by Bill Bullard, CEO, R-CALF USA
|The conventional organizations, which I collectively call the meat lobby, purport to represent American cattle farmers and ranchers and the downstream beef industry. This meat lobby has maintained a steady, drumbeat-like mantra for decades: Get government out of agriculture. And, of course, with all their lobbying pressure and contributions, they successfully kept the government out of the U.S. cattle market for decades. And by doing so, this influential meat lobby put the biggest corporations and their powerful corporate boards in charge of overseeing the cattle market. Some of you will say that’s bologna, that the biggest corporations cannot control the cattle market because it’s a “free” market fully responsive to the fundamental law of supply and demand. Well, that would be nice! Let’s look at just one example of a cattle market phenomenon and then you can decide if it was a good idea to keep government regulation out of the cattle market, and whether because we did so, we unwittingly handed the keys over to big global corporations. |
Here’s the background: The United States slaughters about 26 million fat cattle each year. Last year about 20% of those 26 million cattle were purchased in the competitive cash market, where cattle sellers offer their cattle for sale and beef packers make a cash bid for their purchase. That means roughly 5.2 million cattle were sold last year in that competitive cash market, which, importantly, is where price discovery occurs for the entire cattle industry. This means every week roughly 100,000 fed cattle are sold in the competitive cash market – the industry’s price discovery market. Now you would think that if the cattle market was a “free” market where competition is the controlling force, then the four largest beef packers would be bidding against each other throughout the week for those 100,000 cattle purchased in the cash market. And let’s put this in perspective. You’ve seen semi-trucks pulling cattle trailers, known as bull racks, down the highway. Those bull racks haul roughly 40 head of fat cattle. This means about 2,500 semi-trailer loads of fat cattle are sold in the cash market each week. The point is that that’s a relatively large number of fat cattle that are being sold in the cash market each week to the four largest beef packers that together slaughter 85% of all fat cattle in the United States. Wouldn’t you think that competition for all those fat cattle would be fierce, that every day of the week the four large beef packers would be trying to outbid each other to get all the cattle they need from the cash market each and every week? I would submit that that should be the test for whether or not there should be any government regulation in the cattle market. If the four packers are competing fiercely every day of the week for their share of the 100,000 fed cattle to be slaughtered each week, you’d have to conclude that at least this part of the cattle market is functioning well.
But wait: Economist Nathan Miller from Georgetown University who co-authored the academic study, Buyer Power in the Beef Packing Industry, stated that, “Most transactions in the cash market clear within a few hours late in the week.”
Now this finding is consistent with the allegation we made in our historic class action antitrust lawsuit against the four big packers. We point to evidence and allege that most of the big packers’ cash cattle purchasers were made on Fridays. And in talking to cash market sellers across the country, I’ve heard that the weekly cash cattle trade generally happens during a very narrow window of time on Fridays. So how does that happen in a competitive, free market? How do the four largest competing beef packers know when the trading window in the cattle market opens each week? And just how is this competitive when thousands of cattle sellers must sell a 100,000 head of fat cattle each week in a very narrow window of time at the end of the week?
Common sense tells us that an independent cattle seller who has 10 semi-trailer loads of cattle to sell each week will have very little bargaining power when he or she must sell those 10 loads during the same narrow window of time that all 2,500 truckloads of cattle must be squeezed through that time-constricted bottleneck. So, there it is. The competitive cash market…our industry’s price discovery market, is largely relegated to a market in which huge volumes of cattle sold by thousands of cattle sellers are squeezed through a virtual, time-constrained bottleneck and sold to just a handful of big packers. We want no new subsidies. Our solution is to ask Congress to begin regulating the cash market. If you disagree, then what’s your solution?