DENVER, Colo. – The debate over whether packers should be allowed to
own livestock turned emotional during the National Cattlemen’s Beef
Association convention.
In the middle of the debate was a Senate amendment to the U.S. farm
bill that would prohibit packers from owning cattle for more than 14
days before slaughter.
The real issue, however, may be consolidation among packers, in which
four major firms control 80 percent of the nation’s kill.
“Banning packers from owning cattle or feeding cattle will not stop
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concentration,” said Keith Bales of Montana, who presented the
resolution calling for a study.
“The feeders have gone through a blood bath since Sept. 11. Do they
have the money to buy the cattle the packers are buying?” he asked.
“We should not endorse an amendment that was never discussed or known
about until it hit the floor of the Senate.”
NCBA policy adviser Chandler Keys said the issue was not debated well
in Congress. Support for the amendment could lead to other problems
later.
“You should not take this lightly. This is about whether you want the
federal government involved in your business on the marketing side,” he
told the feeder council meeting during the convention.
“It is very easy for the federal government to get into your business.
It is very difficult to get them out.”
Cattle producers who support senator Tim Johnson’s amendment fear their
industry could go the way of the chicken business, where large
processors own and contract the bird production from conception to
consumer. A similar situation is evolving in the hog industry.
Others said the ownership issue could kill the progress made in
value-based marketing arrangements and contracts set up between packers
and producers.
According to the U.S. Department of Agriculture’s marketing service,
packers own six percent of the available cattle. Forward contracts
account for four percent of the total, 37 percent are sold through
negotiated live sales and 53 percent are sold through a formula
agreement.
“Captive supply statistics are sometimes viewed with misperception,”
said John Van Dyke of the agricultural marketing service.
A producer may have an agreement with a packer through a value-added
contract, but the producer still owns the cattle.
These agreements can be confusing for those attempting to learn the
cash value of their live cattle.
Joann Waterfield of the Packers and Stockyards Administration said the
law permits packers to enter alliances, offer grid pricing or feeding
arrangements.
Part of the debate is linked to different opinions over definitions.
For example, it’s not clear what captive supply means.
Under this system, packers know what they are to receive in advance of
slaughter.
“It is very important that when we start talking about captive
supplies, that we are talking about the same thing,” she said.
Economist Wayne Purcell of Virginia Tech university said a ban on
packer ownership is not going to improve prices paid to primary
producers.
Heavier packer interest in partnerships has led to the development of
490 new beef products in the retail meat case in less than 10 years.
This value-added impetus is credited for the increased beef demand of
the last two years.
Another voice against the legislation came from lender Gordon Arnold of
Rabobank International.
The company finances six of the 15 major feedlots in the U.S. and is
involved with five of the top packers.
He said eliminating packers as owners could cause a drain on equity
within the cattle industry.
About $300 million US in equity would have to be replaced if they
pulled out. Feeders would have to come up with that money, which could
be difficult during a period of near-record losses for that sector.
“When you take that large chunk out of the market, you’re going to
create volatility,” he said.
In the end, cattle producers requested further study of the issue.