CALF_News_August_September_2021

12 CALF News • August | September 2021 • www.calfnews.net COVER STORY By Larry Stalcup Contributing Editor “If you’re in the middle of a tor- nado, don’t remodel the kitchen.” Derrell Peel isn’t commenting on a segment of Fixer Upper . That’s the Okla- homa State University Extension econo- mist’s feeling toward the growing calls to overhaul the way packers buy cattle by instituting government mandates. He is among those concerned about the major price disparity between packer returns and producer/feeder returns, or in better terms – losses. But Peel tells CALF News that mandatory negotiated cash trade won’t guarantee higher cattle prices for producers and feeders. “Better price discovery won’t make better prices,” he says. “If you do a thor- ough mandate that imposes new transac- tion costs, there’s a good chance you will cause prices to go lower.” He says the tsunami of market disrup- tions are partially to blame for price disparity, which has seen packers receive cutout prices that topped $300/cwt. or more, while fed-cattle prices struggled to hit below-breakeven $120/cwt. this spring and summer. Disruptions have included the large beef cattle supply that grew several years following the herd liquidation caused by drought from 2011-2014. That’s when packer capacity was considered too high. Several major packing plants closed, which eventually created a shortage of capacity as cattle numbers increased. In August 2019, a fire temporarily closed a Tyson plant in Holcomb, Kan. Wholesale markets increased while fed cattle markets slipped. The beef indus- try called for the Department of Justice (DOJ) to look into price manipulation by packers. That was all before COVID crippled fed markets even more, sending them below $100, while packers saw huge price increases in much of 2020. Fur- thermore, this year’s February deep freeze disrupted Midwest feedyards and packing operations. And JBS was recently hit with a huge cyberattack that forced temporary plant closures. Calls for more government interven- tion into how packers buy cattle escalated. They came to a head in May when rival cattle and other producer groups came together to discuss possible solutions. National Cattlemen’s Beef Associa- tion (NCBA) and Farm Bureau, which think much alike, sat at the table with R-CALF and Farmer’s Union, which typically take different roads. The Livestock Marketing Association ref- ereed, errr coordinated, the meeting in Phoenix. The group agreed to talk to their respective organizations about expedit- ing renewal of the U.S. Department of Agriculture’s (USDA) Livestock Mandatory Reporting, including formula-based prices subject to the same reporting requirements as negotiated cash and creation of a contract library. They demanded the DOJ issue a public investigation status report and conduct joint oversight with USDA over packer activity moving forward. They encour- aged investment in and development of Price Margins Don't Add Up in Favor of Producers Overreacting During Market Turmoil Could Be Risky FAR LEFT: “If you do a thorough mandate that imposes new transaction costs, there’s a good chance you will cause prices to go lower,” OSU’s Derrell Peel warns of price mandates. LEFT: KSU’s Glynn Tonsor sees alternative marketing agreements as necessary for rewarding producers for higher quality cattle. While packer margins for wholesale beef have been strong, producers and feeders have struggled to break even.