Packers, producers each seek profit

By LORI COPE | East Texas Edition

Shane Sklar (left), ICA of Texas executive director, outlined the organization's 2005 goals to those gathered at the Northeast Texas ICA membership meeting. The region's group is led by Greg Ragsdale (center), president. Also speaking at the meeting was R-CALF CEO Bill Bullard (right). -- Staff photo by Cope

Dec. 16, 2004 - The business end of cattle from the packers' view and the producers' view is the same - profit. Yet, the packers' avenue for profit does not follow the producers' avenue, and that's why cattlemen need to stand united, according to Bill Bullard, CEO of R-CALF USA, an organization that works to "ensure the profitability and viability of independent U.S. cattle producers."

Bullard was the featured speaker at the Dec. 2 Northeast Texas Independent Cattlemen's Association (ICA) membership meeting. He presented a wealth of information, and among the topics were two key issues - cattle imports and country of origin labeling (COOL) - from the packers' and producers' points of view.

As with any profit-driven business, packers set long-term goals and plan how they are going to arrive at them.

First of all, the packers, such as Cargill, want to accumulate a large pool of live cattle inventory to prevent volatility in the market, and to do this, they want cattle in Canada and Mexico to be able to come into the United States. Plus, the packers do not want mandatory COOL, because that would conflict with their first objective (large pool of live cattle inventory), according to Bullard.

COOL, a law within the 2002 Farm Bill, creates the situation where beef (and other edible products) must be labeled with the country from which it originated, and statistics show U.S. consumers want U.S. beef. Instead of country of origin, packers have looked at having the beef labeled with a branded product name.

"They want to seek out a branded product name, regardless of where the product came from," Bullard said. "They certainly wouldn't want U.S. consumers to think that U.S. cattle is superior from other inventory sources."

Yet, U.S. beef is superior than that from other countries, due to the stringent safety measures and checks within the industry, Bullard noted. If Canadian cattle are allowed to enter the United States, then consumers' confidence in beef's safety would decrease. And, labeling beef with the country of origin would be a good thing for producers, because of the "quality" reputation that's been earned.

Bullard, a former South Dakota cow/calf producer, also pointed out several "myths" that packers, and even some government agencies, want producers to believe.

Prices paid producers for their cattle would not go down with more supply. Bullard presented supportive statistics. He began by noting that in 1990, fed cattle prices were $77.70 per hundredweight. (This was the last time prices were high prior to the rise in 2003.)

"In 1996, we began liquidating our cattle herds, then in 1998, there was an increased demand for U.S. beef," Bullard said. "And in 2002, after five years of high beef demands (yet lower supply), you were rewarded with $67 cattle prices. You didn't benefit from a decreased supply."

On the other side of the cow hide, retail prices increased during those years. Bullard cited that in 1998, the retail price for beef averaged $2.77 a pound. It rose to $3.38 per pound in 2001 and $3.32 in 2002. "The retailers and packers benefited from the increase in beef demand."

Also on the subject of supply/demand and producer prices, Bullard pointed out that when beef import/export deals ceased because of BSE (found in Canada in May 2003), packers, such as IBP and Excel, could not send cattle they owned in Canadian feedlots into the United States. "It cut off access" to their captive supply, Bullard said. "When the border was closed, 8 to 9 percent of the total available U.S. beef supply stopped. No longer could they send cattle at intricate times."

A rule of thumb, he cited, is if there is a 10 percent increase in supply, you can expect a 15 to 20 percent fall in cattle prices. But producers didn't experience that kind of drop in prices.

At about the same time, Japan and Korea, the top U.S. beef importers, decided they would cease taking U.S. beef unless USDA could guarantee there was no Canadian beef in the U.S. supply; and later, when a BSE case was found in the United States in December 2003, more brakes were applied along export trade lines.

"It's a myth exports are the primary driver of domestic cattle prices," Bullard said, "because we still received high prices even with the exports stopped."

Plus, when foreign markets wanted guarantee there was no Canadian beef in the U.S. supply, USDA formulated an efficient export verification label in three weeks, even though packers and others had said such a country of origin labeling system would take years to develop. Disputes in cattle age/testing procedures kept the Japan trade dealings at a standstill.

When it comes to re-opening the Canadian border to cattle, and mandatory COOL, R-CALF is working to keep the border closed, and to have the law for mandatory COOL followed.

R-CALF currently has an injunction filed that seeks to uphold the decision to keep the border closed until Canada tests their cattle for BSE as well as the United States does their own. Bullard noted at the Dec. 2 meeting that USDA could file, in the Federal Register, its decision to open the border. The decision could take effect immediately, but it could have a 60-day time frame before it is put into action.

Another point voiced by Bullard is that packers are on a course to change the beef industry to make it vertically integrated, such as the poultry and hog industries. But with forage and space demands for beef production, the reality of that is not feasible. "They would need to convert feedlots into non-competitive subsidiaries of the packers," he said. "If that happens, we will see an erosion (of the industry)."

"That's in their business interest," he added. "But folks, you're in business to earn a profit too. ... This is not the time to sit on the sidelines. ... We have to be vigilant, ... and stand behind organizations" that work to improve the industry for the beef producers.