By Chase Carter, Organization for Competitive Markets
In the world of cattle marketing, the independent custom feeders play a key role in the continued profitability of the industry. Whether feeding customer or company-owned cattle, independent feeders provide efficient cattle feeding and care, professional marketing, and establish the weekly prices through negotiating with packers. But the independent feeders are being driven out of business by captive supplies, because packers freeze them out of markets in favor of packer-aligned cattle sources. Captive supply reform must be included in the 2006 Farm Bill to revitalize the industry.
When meat packers own their own cattle, or contract months ahead for delivery of cattle, the industry calls the arrangements “captive supplies.” The packer has “captured” the exclusive right to cattle delivery, there is no bidding when cattle are sold, and the prices are not reported. The Organization for Competitive Markets believes about 80% of cattle sold today are captive cattle.
This means prices are set by the 20% or fewer remaining cattle sold after negotiations with independent feedlots. The USDA reports these few transactions, which set the market price for the week. Packers use their captive supplies to avoid the open market, and to bid low because they have most of their needs met through “captured cattle.” Though extremely efficient, independent feedlots face far more uncertainty, worrying every week whether they can sell customer cattle because packer needs are full. Their customers lose money and do not return.
Just as Hurricane Katrina devastated Louisiana, Mississippi and Alabama with the convergence of rain, wind and floods; captive supplies devastate the independent cattle feeding sector with the convergence of market freeze out, low prices, and a financially demoralized customer base. The packers then claim we need to import Canadian, Australian and Brazilian cattle because of short domestic supplies.
These points were proven in the recent Pickett versus Tyson Fresh Meats case in Montgomery, Alabama. The jury saw Tyson data showing packer had 180% of their plant capacity locked in through captive supplies in some weeks. In other words, Tyson had all its cattle committed for one week plus 80% of the next week’s cattle. This access grants the ability to stay out of the cash market for weeks at a time and drive down the cash market.
The Packer & Stockyards Act was passed in 1921 to address these problems, but U.S. Courts have gutted the law. Congress needs to overrule the courts with new statutory language they cannot ignore. The USDA could fix many of the problems, but the revolving door and FEMA-like cronyism prevent this.
Imagine if the buyers of your cattle were actively bidding on them all week rather than a thirty minute window once a week. This true market process would not only raise the price of live cattle and increase the standard of living for the American producer, but would also benefit the whole of rural America. We need to get behind captive supply reform and get language into the upcoming Farm Bill that addresses this problem.
We need to tell our Congressman and Senators they are anti-agriculture unless they support competition over packer-controlled markets.
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Center for Rural Affairs
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