090105 Packers Are All But "Stealing" U.S. Cattle

January 5, 2009

By Stayton Weldon, R-CALF USA

Media reports indicate that U.S. cattle feeders have lost $3 billion from the sales of fed cattle in just the past 11 months, and the U.S. Department of Agriculture estimates that feeders lost an astounding $23.82 per hundredweight for fed cattle sold in October and $22.70 per hundredweight for fed cattle sold in November. This represents losses on each animal sold at $298 and $284, respectively.

Someone needs to stand up and holler, "Foul!"

In a report issued by the CME Group on Nov. 24, the multinational meatpackers' gross margins for 2008 far exceed their average gross margins earned during the years 2002 through 2006. USDA also reports the spread between what U.S. cattle feeders received for their cattle and what U.S. consumers paid for beef was wider from August through October than at any time in our industry's history. A widening spread between what the cattle feeder receives for cattle and what consumers pay for beef indicates the marketplace has become inefficient, non-competitive and unjust for both cattle producers and consumers, and that's exactly what is happening.

In October, the share of the consumers' beef dollar received by the U.S. cattle feeder fell to just 43 cents, which is lower than the share they were receiving in 2002 when fed cattle were selling for less than $67 per cwt., well below the cost of production.

What this means is that the U.S. fed cattle market has become so manipulated by the corporate packers that they are able to all but steal cattle from hard-working U.S. cattle feeders and then sell the beef produced from those cattle at record prices to wholesalers, which it turn sell the beef at record prices to unsuspecting consumers. Retail beef prices from August through October were higher than at any time in history - while cattle producers were losing their shirts.

The tremendous losses in our fed cattle market has impacted, and will continue to impact, the prices for lighter-weight cattle sold by cow/calf producers and others. Additionally, these losses will accelerate the continuing exodus of independent feeders from our industry. During the 10-year period from 1997 to 2007, our industry suffered a loss of 19,000 feedlots.

That means there already are 19,000 fewer buyers for lighter-weight cattle than there was just a decade ago. The current fiasco will certainly worsen this negative trend.

The National Cattlemen's Beef Association, which receives millions from the mandatory beef checkoff program paid for by hard-working U.S. cattle producers, blocked every effort by independent cattle producers who tried to correct this problem in Congress last year, before it could reach the disastrous proportions we're now experiencing. NCBA made certain that corporate packers were able to keep the tools they use to manipulate the live cattle market. These anticompetitive tools are known as captive supplies and they include packer ownership of cattle and formula contracts that do not contain a negotiated price.

R-CALF USA has warned the industry for years that if we do not reform captive supplies, our industry will continue to shrink until independent cattle producers can no longer afford to stay in business without obtaining a production contract from a beef packer. This already has happened to the once independent hog producers, by way of vertical integration, and this would be the end of economic independence for U.S. cattle producers.

I urge my fellow cattle producers to vote with your pocketbooks and vote now, before it's too late. Quit supporting the packer-aligned trade associations with your membership and contributions, and immediately join and support the trade association n R-CALF USA n that exclusively represents your interests: the interests of independent live cattle producers.