State of the industry
May 26, 2016
Two men speaking for America's cattle industry may have helped shape the future of the industry last week.
National Cattlemen's Beef Association president, Kansas feeder Tracy Brunner was the first witness before the Senate Agriculture Committee during their May 26, 2016 hearing on the state of the livestock industry. The witness testimony will be considered as senators formulate a plan for the 2018 farm bill and learn more about unprecedented market volatilty.
While NCBA has focused on the cattle market in the last year, no government regulatory action is desired by his group in that regard, Brunner said. In fact he said that the conversation about updating the Grain Inspection, Packers and Stockyards Act during 2008 Farm Bill talks was disconcerting, and that his group encourages USDA to enforce the current GIPSA rule with no changes.
NCBA does not support a ban on packer ownership of cattle either, he said. "Only five to six percent of cattle are packer owned. This is not the source for the downward market."
“We must keep in mind that in the years to come, the ability to produce an abundant, high- quality, safe and affordable food supply will be more important than ever. The U.S. livestock industry currently lands at the top of such producing nations and we must do everything in our power to remain.” Joe Goggins, cattle industry speaker in Senate hearing
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"The cattle industry today relies on transparency of price discovery to send clear signals up and down the supply chain," he said in written testimony.
Interpretation of price signals has become more difficult as a result of new technology and the transition to automated trading. A working group composed of NCBA members and CME representatives is intended to look into these challenges.
The other cattle industry speaker, Joe Goggins, auctioneer, seedstock producer and auction market owner from Montana, said in a one-on-one interview that the cattle industry is sometimes guilty of resisting new technology. "We have to embrace new technology, but make it workable," he said.
High frequency trading on the futures board has presented challenges and is believed to be part of the reason for drastic and unexplained drops in feeder cattle as well as fat cattle futures, he said.
The amount of equity lost throughout the industry in the past year sets a historical record, he believes. After record highs in 2013-2014, unexpected and severe market drops left the industry without answers. "It's mind boggling," he said.
Goggins, speaking on behalf of the United States Cattlemen's Association, said "There is a severe disconnect within the cattle market as to the true fundamentals of what should be driving the prices versus what prices are actually being offered."
"From the producer to the feeder to the packer, everyone agrees we need a new way to price cattle," he said.
The dive in cattle prices over the last year is due to over supply of proteins on the market, and an increase in the value of the dollar, said Brunner, causing imports to surge and exports to drop.
Goggins echoed those thoughts, saying that imports were up 500 million pounds and exports down 250 million pounds over the past year.
More international trade starting with the passage of the Trans Pacific Partnership would bump up cattle prices, NCBA believes, helping retailers increase the value of cuts considered undesirable in the U.S., like tongue and short plates.
Brunner also discussed China's request for country of origin labeling of beef following several BSE cases in Canada. NCBA does not support COOL, though, and hopes to find a way to work around this and still gain access to the Chinese market.
Goggins was more hesitant about trade and said that the U.S. can't continue to give access to gain access, and that the U.S. should ensure that protections are in place against dumping from other countries.
Many independent and younger feeders are borrowing most of their financing, and are being forced by their lenders to hedge at least 75 percent of the cattle they are feeding, Goggins said, making them vulnerable to market volatility. "They establish a hedge position and it moves $15, and they blow through all of their available cash just to hold their positions. It takes too much money to play. Younger producers can't afford it and can't stand the risk," he said. He worries that the market is moving toward a situation where risk will become so high that feeders and producers won't own cattle, but will just manage them. "You will be a servant on your own land."
Goggins asked the committee members to pay special attention to transportation issues, including interstate shipment of beef and the need for an exemption for livestock haulers regarding a "rest" rule which requires truckers to stop and rest for 10 hours after 11 hours of being logged in. This would pose animal health and animal welfare problems, Goggins said, and believes the committee will consider working on an exemption for livestock haulers. (See the May 7 issue of TSLN for more on this topic.)
Both Brunner and Goggins discussed the need for reform of the Endangered Species Act and the Waters of the U.S. rule.
Brunner said the ESA is broken and cited a mere 1.4 percent recovery rate for listed animals. Another problem is the ability of groups radical groups like the Center for Biological Diversity and WildEarth Guardians having the ability to abuse the Equal Access to Justice Act in order to be reimbursed for all of their litigation costs, when they sue the federal government over species' management or listing. Goggins cited similar concerns over federal grazing issues.
"We must keep in mind that in the years to come, the ability to produce an abundant, high- quality, safe and affordable food supply will be more important than ever. The U.S. livestock industry currently lands at the top of such producing nations and we must do everything in our power to remain," concluded Goggins.
GMO labeling was an underying topic throughout the hearing. Organic Trade Association members were lobbying congress that same day for legislation that would not allow meat, dairy and egg products to be labeled as GMO-free if they had eaten or come from an animal that had eaten genetically modified feed. Ronald Truex, representing egg growers said that eggs from chickens that eat genetically modified feed are not genetically modified and should not be labeled as such.
Vice Chairman of the committee, Senator Stabenow, (D-Mich.) said to Brunner about GMO labeling: "it's important to know that you are exempt."
Ronald Truex, Chairman of the United Egg Producers, Dr. Howard Hill, Past President of the National Pork Producers Council and John Zimmerman, National Turkey Federation rounded out the witness list.
To view the full testimony or dowload written testimony, click here.