AFF Sentinel Vol.4#44

Typical of their modus operandi, expressing a "crying need" for the "reforms" included in the Senate's version of the Farm Bill now under debate, earlier this year R-CALF accused GIPSA and Research Triangle International (RTI) with either "incompetence or bias or both" in their "failure to recognize a broken market." They called for legal action against packers, making their charges against one small part of the RTI study, before requesting any explanation of the science.

Earlier this year, in a release attacking GIPSA, RTI and the study*, R-CALF claimed the conclusions of the entire study - an exhaustive economic investigation of the effects of Alternative Marketing Agreements (AMA)** in the livestock markets - was invalid "because they had not been based on legal expertise." Apparently, R-CALF believes lawyers do everything better -- including economic studies.

As is typical, R-CALF's claims contained both ironies and contradictions. After complaining that GIPSA was incompetent and biased, it called for GIPSA to conduct more investigations of alleged packer manipulation of the markets. Then they asserted, in direct contradiction of their long-time claim that contracting and AMAs depress the cash market, that the data in this RTI study showed that prices received under AMAs were lower than the cash market. In other words, those rascally packers are "manipulating" things so that cash cattle are both too high and too low and AMAs are too high and too low. They're certain the packers are duping cattlemen into cheating themselves. R-CALF wants to "protect" those cattlemen who earn value-added premiums from repeating those "mistakes," by outlawing those options.

GIPSA disputed R-CALF's interpretation of the study results, pointing out in thorough detail that R- CALF had jumped to conclusions without considering the design of the econometric model designed to account for all the various dynamic components in the complex livestock markets. R-CALF had looked at one linear equation out of approximately 100 equations that simultaneously measure changing supply, demand and responses in the livestock complex. Without considering other equations -- and interactions -- R-CALF declared the study "invalid."

Later, another release claimed packers use cattle they own to keep their plants operating and thus drive open market prices down. They also charged packers use "anti-competitive practices" to "directly lower slaughter-ready cattle prices." They cited as "proof" February 2006, when "all four major meatpackers ... withdrew from the open market in the Southern Plains ... for two weeks. The packers made minimal, to no, purchases in the open market," using owned and forward contracted cattle to operate.

The facts: packers only own five percent of the fed cattle - totally inadequate to run the plants. As for contentions packers "control" or "own" AMA cattle, just remember who owns a steer in an AMA pen if it sickens or dies.

As for February 2006, packer margins had been thin for months going into 2006, one economist noted. Cutout prices were steadily dropping in 2006. Packers did reduce slaughter in an attempt to get higher cutout prices. They were successful by mid- February, and March saw much larger slaughter numbers. But did they withdraw from the cash market in February? No. Data showed packers purchased around 800,000 head of negotiated cash and grid cattle in February -- hardly a withdrawal. The two smallest weeks accounted for around 300,000 head. Weekly slaughter numbers never got below 515,000 and contracted and formula cattle could never fill that hole.

What about forward contracted cattle? They totaled just over 170,000 head for February, nowhere near enough to keep plants running at a plus-2 million head/month clip. Even if one adds the forward contracted cattle and the formula cattle, it would not have provided half enough cattle to run plants at even a short slaughter for the month. Formula cattle supply did not spike in February - varying little from January to May. The February forward contracted supply varied no more than 70,000 head from January or March and was smaller than April. February's numbers were less than a third of the cash direct cattle -- which supposedly didn't get bought.

Even in the short time frame R-CALF picked to prove a point, the numbers dovetailed with the results of the entire RTI study: the fed cattle the packers owned plus all the AMA cattle still only account for little over 40 percent of total slaughter, not enough for the packers to begin to operate profitably without cash cattle.

Another demonstration of populist, emotional reaction: "Shoot first, call a lawyer, ask questions later...ignore facts."