Beef prices in the doldrums (again)

By Marilyn Bay Wentz

After flirting with profitability for over a year, cattle prices are once again in the basement.
Cattle producer and RMFU board member Charles Klassen, Crawford, Colo., in mid-June reports selling slaughter cattle for 64 cents.

“I figure I lost about $100 per head on that bunch,” Klassen said. “As it was there was only one guy bidding on them.”

Klassen is not alone. A recent Oklahoma State University study showed that cow-calf producers in the state had a negative return on their investment seven of nine years. In the two profitable years, the return rarely exceeded 2 percent.

By comparison, most packing companies and retail outlets routinely return 20 percent annually to shareholders. About five years ago, Monfort in Greeley, Colo., now a ConAgra company, cleaned house in middle management due to lackluster profits. While never definitively stated, it was common knowledge in the industry that heads had to roll due to annual profits only in the 11 percent range.

To pacify shareholders who have grown accustomed to 20-percent-per-year returns in their investments, packers and retailers have had to pay producers as little as possible, charge customers as much as possible and push processing in plants to a rate faster than ever before.

According to Mike Callicrate, a St. Francis, Kan. cattle feeder and outspoken opponent of concentration in agricultural markets, speeding up the kill and processing lines has decreased the quality of beef and increased the pathogenic risks. He also asserts that there is actually a shortage of beef grading prime. Yet, producers are penalized for “over fat cattle.”

When producers complain, they have generally been told by economists and packers that low prices are due to an oversupply of cattle in the U. S. market. In fact, the U.S. cattle herd dropped by 2 million cattle between 1987 and 1997.

Producers selling on the open market have always been price takers, rather than price setters, but when several different companies compete to buy their animals the laws of supply and demand apply. The problem is that as corporations buy out their competitors and form alliances from producer to processor to retailer, there is very little competition among companies wishing to buy the independent producer’s livestock.

In addition, over the last 20 years packing companies have gained even more control over their supply of cattle by a variety of means. These include importing cattle and/or boxed beef, operating their own feedlots, and offering contracts ahead of time to independent cattle producers. The result is that packing companies are obliged to buy fewer and fewer cattle in the open market, and the prices paid in the open market—when adjusted for inflation—are down significantly.

In 1975, cattle producers received 65 percent of the retail food dollar, packers 9 percent and retailers 26 percent. In 2001, the producer’s share had dropped to 40 percent, packers got 11 percent and retailers received a whopping 49 percent.

The new farm bill had a provision in the Senate part of the bill to ban packer control (including ownership) of livestock within 14 days of slaughter. This would have been one important step in reducing the stranglehold packers have on the beef industry. Unfortunately, the provision was removed in conference committee. Farmers Union will continue to support such a provision, which certainly has its proponents on Capitol Hill.

Returning the cattle market to profitability requires sweeping changes, the majority of which lawmakers are currently unwilling to make. The farm bill passed this spring does include mandatory country-of-origin labeling, which should provide a boost for U.S. meats.

Also, current laws need to be enforced and new ones passed to stop monopolization and vertical integration of the food processing and retailing segment. Producer-owned cooperatives and other direct sales methods should be pursued to return more dollars to producer pockets.

Consumer trends indicate that Americans prefer tender, flavorful beef that is raised humanely and with minimal antibiotics and hormones. Independent family producers are definitely in the best position to offer this type of product.

Farmers Union will continue to push for measures on the state and federal levels that will make beef production profitable.