US moves to ban packer ownership

[grassfarmer]

Here is a move that surely everyone can support - even ABP? The following press release by the producer (voluntarily) funded NFU contains the details.


US INTRODUCES LAW TO PARTIALLY BAN CAPTIVE SUPPLY IN CATTLE:

CANADA MUST FOLLOW SUIT
SASKATOON, Sask.—Today in Washington, Republican and Democratic Senators from several cattle-producing states introduced a bill to curtail captive supply in cattle markets.



Captive supply is a technique wherein beef packing companies use cattle they own, or cattle they control through contracts that do not contain fixed prices, to push down prices to independent sellers. Captive supplies allow packers to stop bidding in cash markets whenever prices rise above packers’ preferred level. Nearly every study on the issue has concluded that packers’ use of captive supplies leads to lower prices for ranchers and farmers.

Senators Mike Enzi (Rep.-Wyoming), Byron Dorgan (Dem.-North Dakota), Chuck Grassley (Rep.-Iowa), and Tim Thompson (Dem.-South Dakota) introduced the “Livestock Marketing Fairness Act” today in the US Senate. The bill, if passed, would outlaw captive supply contracts.

Specifically, the bill would require that contracts specify actual prices. Captive supply contracts omit fixed prices and, instead, base values on cash-market prices at the time of delivery. But packers can push down those cash-market prices and, thus, push down prices for the contracted cattle. Further, the bill would require forward contracts to be made public and traded in public markets where all can observe bidding and bid themselves. The bill would not prevent forward contracting, but it would prevent packers from using non-priced contracts as a tool to depress markets. Additional moves are likely in the US—either through legislation or regulation—to ban packer ownership of cattle, thus outlawing all forms of captive supply.

US President Obama has made a ban on captive supply a priority. In point 2 of his rural agenda, the Obama commits to “Pass a packer ban,” explaining that “When meatpackers own livestock they can manipulate prices and discriminate against independent farmers.”

“Captive supply is one of the most serious problems faced by cattle producers in Canada and the US,” said NFU Ontario Board member Grant Robertson. “Farmers are receiving prices that echo those of the Great Depression, and a big factor behind those low prices is packers’ using captive supply contracts and herds to depress prices,” said Robertson.

NFU Manitoba Board member Fred Tait said that the move to ban captive supply contracts in the US means that Canada must quickly follow suit. “We’re constantly told, by politicians and cattle organizations, that we have an integrated North American market. For that reason, US moves to increase farmers’ prices must be matched by similar moves here. We’ve integrated a lot of the bad coming out of the US; it’s time to integrate some of the good,” said Tait.

NFU Alberta Board member Neil Peacock said that the problem of captive supply is even worse in Canada than in the US. According to US researchers, between 1/2 and 2/3 of the cattle entering the big Alberta packing plants are packers’ captive supplies. And Canada only has two packers. “The combination of few bidders and high levels of captive supply is the main reason Canadian cattle prices are so low,” said Peacock.

The NFU has made a Canadian law banning captive supply a top priority. To advance this work, the organization has held dozens of meetings with farmers and ranchers in nearly every province in Canada. The NFU has met with provincial governments and made an extended presentation before the House of Commons Standing Committee on Agriculture, where there was significant consensus that captive supply was a major concern and must be dealt with. The NFU’s “The Farm Crisis and the Cattle Sector” is the most comprehensive study of cattle prices and profits produced in the past two decades. Copies at www.nfu.ca .

[per]

Hey good idea!

[PureCountry]

Hoorah! Ain't it funny how we're always behind the Americans on these things?

[jensend]

i'd like to see how the americans do it because i can't believe the packers will just roll over on this one. canada won't get it done in my estimation because we have nutless mp's and harper would not be sympathetic to producers on this one.

[farmers_son]

The Livestock Fairness Marketing Fairness Act would not ban packer ownership of cattle or captive supplies.

The bill would [if passed] require
• forward contracts for cattle, hogs and lambs be traded in public;
• require marketing agreements to have a firm base price derived from an external source;
• exempts producer owned cooperatives,
• packers with low volumes and packers who own only one processing plant;
• and ensures that trading is done in quantities that provide market access for both small and large livestock producers.

The packers would still have captive supplies in fact the Bill would enshrine captive supplies in law. At best this is a piece of legislation that does nothing and in my view that kind of legislation is worse than nothing.

Although it might be nice to have a public auction of forward contracts the packers will still own cattle and they will still have captive supplies and they would still control the price for todays live cattle as well as the price for contracted cattle. Really nothing will have changed.

For certain the U.S. packers will still have captive supplies even if the NFU wants to tell you different.

[grassfarmer]

T'was all contained in the post farmers_son. Heading "US INTRODUCES LAW TO PARTIALLY BAN CAPTIVE SUPPLY IN CATTLE" - note the use of the word partially.
Further on in the article "Additional moves are likely in the US, either through legislation or regulation, to ban packer ownership of cattle, thus outlawing all forms of captive supply."

This is good legislation because it is moving in the right direction. Canadian groups must come together on this issue and pressurize all levels of Government to follow suit with the American legislation. After all the talk about it being an "integrated N.American market" how could we do anything else? Which group or organization in Canada could possibly oppose this type of legislation other than one working directly for packers interests?

[per]

We could try something that might not work because of this and that or we can keep doing what won't work for sure. Nothing will work all by itself to cure the industries woes, but add some things together and the sum of it's parts will eventually swing the pendulum. Packer supply restriction plus producer owned plants plus producer value chains plus BSE testing plus an age verified herd plus a tracking system plus plus. What would 2004, 2005 look like if we had our ducks in a row. We will never know now but lining some ducks up would be a good idea today.

[smcgrath76]

How about requiring full price
disclosure instead? That would be
interesting.

[kato]

What would be the reason in the first place that someone would sign a contract that had no price on it? When you think about it, it makes no sense at all.

I think our government has no choice but to follow this lead. Otherwise we can see our entire country becoming the "captive supply" that is used instead. With Cargill having such a monopoly already you'd have to be living under a rock to not see it coming. How long would that happen before trade action followed? I would think it wouldn't be long.

If we don't adopt the same rules it can only mean some terrible times for us.

[smcgrath76]

Sorry for the confusion kato. I meant
full public disclosure on all
contracts. Remove the opportunity to
sign cattle up at slightly over/under
market to manipulate supply/demand.
Canfax is basically cash bid, not grid
or contract pricing.

[per]

Sean that would either work right off or be a stepping stone to actually restricting packer ownership. Any leap in that direction would be positive.

[farmers_son]

This paste comes from Alberta Beef May 2009. Roy Rutledge's column The Truth Hurts. I found it most interesting and touches upon the capitive supply issues as well as others.

The Truth Hurts
Roy Rutledge

In my last column in the ABM I criticized the NFU for its pathetic report, "The Farm Crisis and The Cattle Sectcw," I made some references to the CWB. Some who have read my crass comments have let me know that bringing the CWB into the picture muddied the waters and detracted from the point I was trying to make. Some thought it was unfair because the CWB did not have anything to do with this distorted analyses. No, they didn't. I shouldn't have used them as an example just because the NFU is their biggest supporter. I will try to be more specific this time.

To begin with the NFU analysis starts out by adjusting cattle and beef prices to inflation. That sounds plausible until you ask yourself: What agricultural products have kept up to inflation? If the NFU has the solution to that problem... that would be great. Let's hear it. Singling out one sector of agriculture is frivolous unless you have an underlying agenda for that sector, which they do come to, near the end of their ramblings. They want the check off money.

After the NFU makes its case using distorted figures and distorted statistics they point their finger at consolidation of packers, mega cattle feedlots, captive supplies and export over dependency. Sure these things are all happening but why didn't they examine how much the stock market holds sway over the cattle market? That is, fat cattle and feeder cattle. All of the major feedlots are taking positions on the commodity board every day for cattle, grain and the dollar. Then they bid on the cattle accordingly. There is very little speculation left.

The NFU also points their finger at the CCA for not trying to stop packer consolidation. Is it the CCA's mandate to interfere with business mergers or acquisitions? Consolidation is happening everywhere in every industry. All of the Prairie Wheat Pools, UGG and some smaller grain companies consolidated into Viterra. The NFU is a grain farmer organization. What did they do to stop it? It is a fact of life.

Why are there becoming fewer and fewer packers? Is it because it is a real lucrative business? If it is, there should be plants springing up all over the place. Capital would be easy to come by and we would all want in. I have never been tempted to invest in any new plants because I know that it is a low margin business, like most businesses related to agriculture.

Captive supply is a concern to a lot of people, mainly feedlot operators but they know that most of them wouldn't survive without packer contracts. As far as the cow/calf people or grasser guy like me goes, it is not a concern. When I have a bunch of cattle coming in off grass in the fall I have always enjoyed Lakeside Feeders and others bidding on them, driving the price up. Captive supply cattle do get sold by competitive bid at some or several points in their life.

One NFU solution is single desk selling. Single desk selling is also single desk buying. None of us wants to see fewer packing companies or fewer
bidders, but how is a single buyer likely to drive prices up more than several buyers? We have single desk buying for wheat and malt barley. Spring wheat in 1975 was $5.00/bushel. Using the NFU formula it should be $20.00 today. Durham should be $24.00/bushel today. It is hardly a third of that price today! Obviously, single desk buying is not the solution. The wheat farmer is even further behind inflation than cattle producers. Incidentally, who has more of a captive market than the single desk buyer /seller?

The report also singles out export overdependence. We produce more beef than Canada can eat. We also produce more grain than we can eat. The world price of grain limits the price of grain in Canada. We can blame US subsidies, the CWB or the man in the moon. The fact is we are an exporting country. We have to be able to compete on the world stage. The NFU solution to cattle/beef export overdependence is to limit producers to 140 head each. Yeah right! What is the solution to the grain export overdependence? Should we limit grain farmers to twelve foot cultivators, seed drills and 50 horsepower tractors?

The rest of the NFU solution to export dependency is to go back to the 1960 style of production. Going back fifty years sounds nice but it is naive to think it will solve anything unless the rest of the world turns back too. The NFU has a solution for that too. In bold letters they say "Taxpayer money should go directly to the farmer" Why? Obviously, even they know that their hallucinatory solutions are counter productive and uneconomical. I am not ready to become a ward of the government yet.

Dairy farms are supply managed. Yet, there are far fewer and bigger dairy farms now than thirty years ago. Consolidation. Chicken farms are supply managed. Same thing. Consolidation. Did dairy products or chicken products keep up with inflation? Chicken didn't keep up as well as beef.

I know some (most) of my stories get too long but I can condense the NFU report, "We want the check off money. We want the taxpayer (working stiff's) money. We want membership fees. Praise the Lord and send us your money".

The report is not a complete waste though, I would recommend that it be kept in emergency rooms in hospitals. When a poison victim arrives, he could read this report while waiting for the doctor. It will induce vomiting.

Roy Rutledge is a self opinionated, broken down old cowboy who ranches about forty miles from Dog River, SK.

[kato]

Sure, cattle haven't kept up with inflation, and neither has grain. One point he didn't get to was just how long can any sector of the economy fail to keep up with inflation before something gives? Just because other parts of today's agriculture are not keeping up either does not make any of it right. In fact it makes the whole thing worse. Are we to just sit and console ourselves with the fact that we're not in this alone? That every farmer in the country is falling behind?

The intention of the NFU report, in my opinion was to provoke discussion, and it certainly has done that. Maybe someone who doesn't like it will get mad enough to come up with a better alternative to what we've got now.

I also think there's an upper limit to this "bigger is better" philosophy. Just look at the economic crisis going around the world to see how quickly things fall apart when a very small handful of powerful corporations screw up. It affects the whole world.

[grassfarmer]

Stay tuned farmers_son, the next edition of AB Beef will contain an outstanding rebuttal to the pack of lies and hatred being peddled by Mr Rutledge. Not wishing to let the cat out of the bag but consider this - Mr Rutledge isn't actually a "broken down rancher from someplace Saskatchewan" he is a paid employee of Nilsson Bros. Now with that information in mind re-read the articles and see what the agenda really is.

[Willowcreek]

Yep-- things are looking rosier down here as far as having a producer friendly administration.. Besides having a Congress that wants to break up the "too big to fails"- and put some oversight on these conglomerates that were allowed to selfpolice and failed miserably - the new head of the Packers and Stockyards Administration of the USDA- J Dudley Butler- is an attorney with a reputation as a trust buster and who has taken on Tyson before in the chicken industry.
He also was an original member at the organizing of the OCM - Organization of Competitive Markets..
Those in D.C. predict “a much more aggressive” approach to the P&S law in the years ahead...

So far the indications coming out of D.C. is that the USDA/Administration is turning a cold ear toward NCBA and AMI- as they rid themselves of the Bushies- and paying heed to what the OCM and R-CALF are talking about...