Captive Supply / Straight Talk by Martha Stevens - Rural America / In Motion Magazine

Martha Stevens is livestock farmer who lives and farms near Hatfield, Missouri. This article is part of an ongoing series by Martha Stevens - Straight Talk - commenting on the life and politics of farming in Missouri and the U.S. as a whole.

For several years farmers have expressed concern for the increasing numbers of livestock under contract, control, or owned directly by those within the packing industry. It is the general opinion that such ownership or control of livestock gives the packer undue control over prices paid family farmers. Calls for enforcement of Anti-trust laws in this regard, unfortunately, have been largely ignored.

In recent months, however, under increasing pressure from farm state legislators as well independent producers, the USDA did conduct a study. I have a problem with agency "studies," USDA or otherwise. Usually, after the committee reports its findings, the matter is dropped--no matter what the findings indicate. Apparently the powers that be think their job is over with the conclusion of the "study." Such is the case in the study on Captive Supply.

As a result of a recent investigation regarding livestock purchasing practices in Texas, USDA analysts concluded that captive supplies DO reduce market prices. BUT, they say there was no evidence that packers manipulate markets via forward pricing. Excuse me? Is forward pricing not a form of captive supply? How can they call it both ways?

This double talk and gobble-de-gook gets even more confusing when you read on to see that they found cattle sold in private deals tend to sell higher than those sold in traditional market sales. Interesting too, was the finding that those packers with the most private "deals" tended to pay less for animals through the normal market process. Does this agency mean to say that those special deals are not under the control of the packer with whom they were made? Can that packer not call in those animals whenever he wishes to fulfill his needs at his packing plant, thereby negating the necessity of bidding on cattle through the market system?

Now, the poor packers are crying the blues; they say they will lose their profit margin if they continue to pay in the $70 range for live cattle. That concern leaves me cold given the fact that packer profits have been settling records for some time. In the meantime, USDA data shows producers suffered a huge loss of the retail beef dollar even as some evidence shows that the packer is taking--and keeping--additional profits made possible through increased captive supply.

So, while we as producers may finally be enjoying a profit on our production, we would do well to also keep in mind that those packers are reaping even more mega profits; that a $70 live cattle market still results in a boxed beef price of about $119 for the packers. As producers receive about 60% of the boxed beef price, packers enjoy an additional $62 per head profit.

But we can’t complain that the USDA is doing nothing, can we? After all, they did interview feedlots and packers; they did "study" the issue; they did find a pricing discrepancy between non-spot purchases and animals going through regular market channels, yet they say, there was no "statistically significant relationship between quantities of non-spot paid cattle and spot market prices." Huh? Come again? NO RELATIONSHIP??

So, it’s just business as usual. The USDA did their study, and although they found that the price discrepancy does exist, they are not going to do anything about it. The study was just a lot of hype to make producers think the USDA is doing their job. I, for one, don’t buy it.

Today’s Quote: "I’m scared of the turn that agricultural economics has taken. What you have now is a contest to see whether the individual farmer will maintain his status or be enveloped into a massive corporation like Cargill."--Harold Beimyer