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What To Expect Next PDF Print E-mail
Written by Steve Dittmer   
Friday, 09 September 2005
AFF Sentinel Vol.2, #44

New Statements Confirm Our Judgment

By now even the skeptics must realize the fallacy of R-CALF's claim that keeping the Canadian border closed was the only thing supporting cattle prices.

And the Canadian supply factor was further diluted by R-CALF's own actions. They forced a boost in Canadian packing capacity, increased the likelihood that Canadian calves would stay home in Canadian feedyards, ensured fewer U.S. border packers and financially weakened border feedyards.

If indeed the Canadian border saga is over - and that is not certain - people have been asking us what R-CALF will focus on now? For one thing, we've been telling people to watch for more obvious cooperation between R-CALF and the Organization for Competitive Markets (OCM) on packer ownership, so- called "captive" supply and contracts. OCM and R- CALF share the same outlook in these areas, as well as some key players. And OCM issued news releases of support when R-CALF won a round during the border case, others commiserating with it when R- CALF lost rounds.

Confirmation of this came recently when R-CALF issued a statement decrying the 11th Circuit Court of Appeals ruling. The 11th upheld the district court's overturning of the Tyson v. Pickett verdict, a case OCM was heavily involved in. The plaintiffs in the case had claimed Tyson was using contracts with cattle feeders to "manipulate" the price of cattle and drive down prices for cash cattle. The jury of citizens with limited business experience and no serious cattle industry background were convinced. In fact, the Appeals court itself noted that "the jury may have been swayed by more than the evidence," referring to the plaintiff's romanticizing of the independent cattleman. But the judge in the case said proof was lacking that Tyson was doing anything more than managing the supply of cattle to keep its plants operating efficiently, lowering procurement costs and matching "price to actual quality and yield." Horrors!

Ironically, it is common for cattle feeders to say one of the reasons they contract is to reduce their cost and time associated with marketing fed cattle. Another irony is that the alliances that R-CALF and OCM are trying to destroy are the very vehicles by which small and independent cattlemen can get the benefits of contracting that only big feeders could get years ago. Who is R-CALF and OCM really trying to help?

Rather than concentrate on R-CALF's overheated rhetoric, let's look at the flip side of their claims, the true implications of their positions.

They do not mention the upward pressure on cash prices that contracting a portion of the supply has. By reducing the supply of cattle available for spot or cash purchase, contracting actually can apply upward pressure to cash prices - provided the total supply is not too large.

More important, OCM and R-CALF, by trying to deny meat packers the same tools available to other businesses, are attempting to put the meat business - and cattle feeders, in turn - at a significant disadvantage. Most manufacturing today operates under some degree of the "just in time" (JIT) process principle. That means having just a few days' supply of raw material and parts on hand at any one time to keep a continuous assembly or manufacturing system going. The savings in inventory cost, warehousing, moving of material, etc., have been essential in keeping costs down, compared to years ago when weeks or months worth of assembly components were kept on hand.

And that's for manufacturing hard goods. OCM and R-CALF would like to force the meat industry - with a perishable product i.e. live cattle and meat with a limited shelf life - in the opposite direction! They would like to ban contracts and alliances that help put more planning in the process and reduce risks and surprises in favor of forcing all cattle marketing back to the cash market and/or auctions.

The result would be more risk for cattle feeders, who have a limited window of time for marketing their product. R-CALF members tend, more than the average, to be among those cow/calf operators who market most of their calves one or two days a year at their local auction market. That carries a higher degree of risk because all their eggs are in one or two baskets and subject to the health of the market within a few hours per year.

R-CALF and OCM would like to bring cattle feeders back to that higher risk neighborhood with them. They would disallow feeders' reducing risk, making pricing more predictable and, critically important, improving the overall match of raw material and end product that results in a better product for the consumer. Instead of encouraging the auction markets that serve these more remote areas to figure out how they and their customers can fit into the more advanced, consumer-oriented system, R-CALF and OCM encourage them to fight it. Of course, they also ask them to help finance the fight.

What the position of OCM and R-CALF is implying is: they want the federal government to discriminate against meat packers, as opposed to other businesses. They want to make it illegal for packers to plan and manage their business to efficiently satisfy their customers' needs. They want cattle feeders to have to sell a perishable, live product at its most vulnerable point of the production cycle in the smallest possible window of time, with the least predictability of price and cattle-to-product match.

Does this sound like a sure recipe for improving the beef industry and satisfying the consumer?

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Last Updated ( Saturday, 24 June 2006 )
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