A Few Thoughts by John Nalivka – beyond the numbers
This week, I intended to write about the ill-conceived decision issued by the Ninth Circuit Court against the Hanley family in Jordan Valley, Oregon regarding their Federal grazing permit in Idaho. I will follow-up on that important topic next week, but this week – upon reading the White House’s briefing paper entitled “Addressing Concentration in the Meat-Processing Industry to Lower Food Prices for American Families” dated September 8, I was somewhat stumped, to say the least, and consequently decided to present a few thoughts.
My reaction after reading the article and listening the press briefing was that there is more to this brief talking about “lower food prices for American families” particularly since we have all expressed how U.S. and global consumer demand has been a key driver, if not the key driver, to the strength of U.S beef, pork, and poultry prices this year. And of course, the impact of COVID and the tight labor situation on the packing/processing industry and capacity utilization in the plants. So, now I am told that high prices are because of packer concentration!
I recently commented to a client that, as analysts, we have become so accustomed to discussing demand in terms of total meat supplies and prefacing our outlook with the reservation that “large total meat supplies will be the limiting factor to higher prices.” We have had to change gears on that assumption as there has definitely been a positive shift in demand.
So, what’s up? Perhaps, in the haste to go after packers in order to gain producer trust, the government may be using consumer price inflation as a means for greater leverage against packers and get their foot in the door to a greater presence in the meat industry. I think we have now approached the point where the government will increasingly play an increasingly greater role – beyond enforcing the Packers and Stockyards Act – in U.S. meat and food production. I believe they were invited to the party. Again, I reference the title of that briefing – “lowering food prices for American families.” A little trip along memory lane – remember the price controls put in place by the Nixon Administration? The beef industry paid for that little bit of government involvement for years! In all honesty, there are few people who would disagree that we pay a relatively small price for a more than ample supply of safe, quality food in this country (my emphasis).
The briefing paper presented on September 8th presents far too many opportunities for the government to increase their presence in the meat industry. It should be required reading for cattlemen. As a cattle producer, you might ask whether more government really generate higher prices. Will more packing plants financed by taxpayer dollars create higher prices when the cattle cycle turns and herd numbers grow? There are many new plants financed by taxpayer dollars that didn’t make it 2 years. An invitation to “fix” the packing industry is only the beginning and reading between the lines of this paper may be a pretty clear roadmap to the future for the beef industry and cattlemen beyond just markets.
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As I have been thinking about the Biden Administration’s plan to “fix” the meat packing / processing industry so that “farmers” can receive a “fair” price and be profitable, I have come to the conclusion…