R-CALF USA say changes needed in cattle industry to avoid vertical integration

 

By Orland Geigle, Prairie Pioneer

via Farm Forum (SD) - Sep 17, 2019

 

“Changes need to be made in our industry,” R-CALF USA CEO Bill Bullard told a crowd of about 200 ranchers and farm/ranch-related individuals at a meeting on Sept. 12 at the Moose Club in Mobridge. “If we don’t make these changes, we will end up just like all the other vertically-integrated livestock and poultry industries.”

 

Throughout his presentation, Bullard used statistics from the USDA. In 1992 he noted that there were 268,000 hog farms in the United States. By 2012, that number was down to 68,000 hog farms. In that same time frame the average size went from 300 head to 1,200 head per farm.

 

“As the number of farms decline, rural communities are hollowed out,” he stated.

 

This strategy, of eliminating a large number of hog farms, was pursued to allow vertical integration of the hog market. “The packers do not own the hogs, but they control the market,” Bullard stated.

 

The cattle industry is the last frontier that is not yet vertically integrated, Bullard said. R-CALF was founded in 1999 to help fight that trend (vertical integration).

 

Effects of NAFTA

 

In 1990 there were about 925,000 independent beef cattle operations in the United States. In 1994, when the North American Free Trade Agreement (NAFTA) was passed, the number was about 900,000 producers. That number went down to about 725,000 producers in 2018.

 

In 1975 there were about 45 million cows in the United States. With the implementation of NAFTA, that number went down to 29 million cows in 2014, which was a 70 year low for the industry.

 

In 1996 there were about 110,000 feedlot operators. That number has dropped to about 28,000 operators now, which represents a 75 percent loss in the number of cattle feedlots. “Over the last 19 years, the average return for feedlot operators has been a loss of $20.80 per head per month,” Bullard stated.

 

Bullard noted that Ag Secretary Sonny Perdue recently moved to eliminate some Grain Inspection, Packers and Stockyards Administration (GIPSA) rules that helped enforce the Packers and Stockyards Act that was passed in 1919. The effect would allow large cattle feeders some positive benefits, Including a $25 per head bonus on cattle delivered to the packers.

 

R-CALF fought against this, but Bullard noted that the rest of the cattle industry lobbying groups was in favor of the move. “They told us we were just a fringe group,” he added.

 

The return on a cow/calf pair for the cattle producer was $50 per bred cow per year from 1987 to 1994. After the implementation of NAFTA, that number has fallen to $37 per bred cow per year. There was a spike in the return, especially after the full implementation of mandatory country of origin labeling (COOL), but following the elimination of COOL in 2015 the return fell dramatically.

 

Prior to 1994, the producer share of the consumer beef dollar was about $.60. That fell to $.42 in 2009 and the new normal seems to be less than $.45. “This is the result when the natural competitive market forces are disrupted,” Bullard stated. “Some get a bigger share and others get less.”

 

From 2009 to 2014 (during the years of partial or full implementation of COOL), the price for 1,300 pound steers going to market had increased steadily to $170 per hundredweight, with fresh beef prices increasing accordingly. With the elimination of COOL in 2015 the fed cattle price collapsed and is now at about $112 per hundredweight. However the retail beef price paid by consumers is remaining at the near record levels set in 2015.

 

“Somebody is making record profits,” Bullard said, “but it is not the cattle producers.”

 

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