It’s an unusual summer in Kansas. As we head towards the middle of July soil moisture conditions indicate no drought and only spotty abnormally dry conditions. Even the corn crop is rated almost 70 percent good to excellent. The six to ten day outlook (July 12 to July 16) indicates normal to slightly below normal temperatures and normal precipitation for our area. Decent for pollinating corn. The eight to 14 day outlook (July 14 to July 20) indicates normal temperatures and precipitation. Last week we discussed some background regarding perfect competition, demand and supply curves, and equilibrium, especially the concepts of numerous buyers and sellers combined with perfect information (open access to all information). Today, what has brought about the demand for changes in the cattle market by producer and other agriculture groups?
First the concern regarding prices and transparency has its origins going back over a period of time. While there are numerous smaller processors for cattle, they are a minor part of the meat packing industry. Depending on the source, there are three or four major packers in the U.S.: Tyson, Cargill (Excel), JBS USA (Swift) and National Beef. The concern is twofold. One, this isn’t the definition of numerous buyers and two, are they working together to “fix” prices. More recent events have brought new emphasis to these concerns. First, the Tyson meatpacking plant fire in Holcomb, August 2019. This shut the plant down until it was rebuilt and the plant processed approximately 6% of the nation’s beef supply. This had a major impact on finished cattle and consumer beef prices. Finished cattle prices declined while consumer prices increased. It took some time for markets to return to normal after this event.
Second, the effects of the pandemic. These are several factors here. While the supply of cattle wasn’t directly affected, packing plant disruptions occurred as COVID-19 shut down plants. There were also slowdowns in production as changes were made in operations to prevent the spread of infections. Additionally, buyer markets were interrupted. Much of the finished product would go to restaurants, school cafeterias, etc., which were either shutdown or went to takeout orders only. And consumer demand at retailers increased as people were at home. These factors caused a shift in demand, processing, and distribution. Add into that panic buying and shortages resulted across a variety of foodstuffs, including beef.
Finished cattle prices offered decreased significantly while consumer prices increased dramatically. The result of both of these events was a surplus of finished cattle resulting in lower prices on the hoof and an increase in demand creating a shortage that caused consumer prices to spike. In simple English, the finished cattle producer was losing money while the packer was making more money per pound from the shortage and nice profits.
The dilemma for those finishing cattle is different than for many other products. You can’t simply put cattle in storage until you need them as they must be fed. Finished cattle are a product that takes time, around 24 months total. When they are ready they are ready. The cattle industry maintains they are being taken advantage of and manipulated by the major packers and forced to sell at below true market price. And they are further being hurt as they are concerned the major packers are working together to control price.
Next week, what a market transparency bill is supposed to do.
Dr. Victor L. Martin is the agriculture instructor/coordinator for Barton Community College. He can be reached at 620-792-9207, ext. 207, or firstname.lastname@example.org.