The six to ten day outlook (June 23 to 27) believe it or not indicates average to below normal temperatures and above average precipitation for our area. Looking out eight to 14 days (June 25 to July 1) indicates normal precipitation and above normal temperatures. The drought monitor indicates intensification of drought conditions to Extreme Drought, especially in Southwest part of the state. Barton is still mostly in moderate drought with a sliver of the east abnormally dry. The dry pattern has re-extended through central and into parts of eastern Kansas. The heat and wind have greatly accelerated wheat maturation and depending on the unsettled weather pattern, harvest should progress rapidly. Today let’s finish the discussion of what is going on in the meat and poultry industry that has been in the headlines. Part I from last week would be helpful as it explains perfect competition, the Laws of Supply and Demand, and the purpose of markets/auctions.
A quick reminder first, the purpose of a market/auction is to establish the price of a good. Sellers sell more as the price goes up and buyers buy more as the price goes down. The goal of a market/auction is determine an equilibrium price where both buyer and seller are doing the best they can with limited resources. This relies on the four rules of perfect competition, i.e. free markets. These are in an ideal situation and we all realize in reality it’s not exactly like this.
1. Numerous buyers and sellers – so many that they are price takers not price makers. They can take or leave a price but the volume of buyers and sellers is so large, an individual or small group can’t control the price.
2. Homogeneous product – you can’t distinguish between producer A and producer Bs output.
3. Freedom of entry and exit – there are no barriers to getting into or out of producing a given item or service.
4. Perfect information – there are no secrets. You are price takers so there is no value in keeping secrets. All who want it, have access to all necessary information.
The one to focus on in our discussion is number 1 – numerous buyers and sellers. There are charges in the poultry industry of price fixing among the major chicken processors. Investigations are purportedly underway in the beef sector for the same thing and while the grumbling among producers isn’t new, what happened with the Covid-19 pandemic brought things to a head. As of now for beef it is simply am investigation. So what has happened?
Consolidation is what has happened in the processing industry. We still have numerous producers/sellers but the number of buyers/processors has concentrated into a handful in both industries as well as the pork industry. Fewer buyers for a perishable commodity that producers can only keep for so long are more at the mercy of processors for several reasons. And while there are small buyers, processors and individuals; these are dwarfed by the sheer volume of livestock out there. There are still markets/auctions for pork and beef but essentially none for poultry. And since a very few packers control the market, they can do more to set the price. In fact in the poultry and pork industry, many are contracted for before they are even born or hatched. What caused the indictments for the chicken industry was that several processors colluded to set prices.
Dr. Victor L. Martin is the agriculture instructor/coordinator for Barton Community College. He can be reached at firstname.lastname@example.org or 620-792-9207, ext. 207.