By Julie Tomascik
Editor
A new report unveiled this fall by the American Farm Bureau Federation (AFBF) provides an in-depth look at the extreme market volatility in the beef cattle industry.
Ten state Farm Bureau presidents, including Texas Farm Bureau (TFB) President Russell Boening, served on the Cattle Market Working Group and spent more than two months investigating factors that led to market disruptions.
Prior to the COVID-19 pandemic, American consumers were spending more on food away from their home. Once social distancing and shelter-in-place orders were implemented, consumer purchasing habits shifted almost overnight to meals at home. That impacted animal protein supply chains and shut down the food service demand channel.
Consumers began panic buying at grocery stores, and the surge in demand at the retail level happened quicker than the supply chain could react. Temporary closures and labor shortages at meat packing plants due to COVID-19 outbreaks also slowed and reduced production.
And prices for ranchers were dramatically impacted.
“The COVID-19 pandemic clearly disrupted markets and our processing systems, but cattle producers were also affected by the closure of the Tyson beef packing plant in Kansas after a fire late last year,” Boening said. “The working group invited input from economists, government staff, university staff and other industry experts to help us better understand these two events and the factors impacting the beef industry and our Farm Bureau members. We wanted to know if the markets reacted the way they should have and to see if anything could be done to alleviate future serious price swings like we saw recently.”
Key discussion topics included mandatory minimum negotiated trade, risk management and education, small capacity meat packing and the Grain Inspection, Packers and Stockyards Administration (GIPSA).
The group discussed mandatory minimum pricing regulations that would alter beef pricing dynamics.
Members of Congress have proposed various plans to improve market transparency with mandated minimum cash purchase requirements for packers.
The group reviewed the idea that, in the case regulatory action is required, rules that allow for variance in minimum purchases between cattle feeding regions would be an appropriate place to start considerations.
“Fed cattle marketing in the Texas Panhandle is accomplished very differently than in Midwestern states,” Boening said. “We don’t want to mandate anything in the free market, but if things don’t change to allow for increased transparency in the cash market and more robust price discovery, we don’t want a one-size-fits-all approach.”
That led the working group to a “triggered”-style mandatory minimum pricing idea that is set on a region-by-region basis. A mandatory cash purchase minimum would be prompted for packers if those in a designated region fail to buy a pre-determined number of fed cattle on the cash market in a given timeframe.
The group also discussed risk protection extensively, Boening said.
“Historically, not many cattle producers have used risk management tools,” he said. “But those tools, like the Livestock Risk Protection insurance, could be useful for producers of all sizes, especially if they could be adjusted to be more affordable for smaller producers. More education about the resources and tools available would be helpful, too.”
The group is also interested in AFBF working with the Chicago Mercantile Exchange to better address concerns for smaller producers.
Policy solutions that would allow smaller packing facilities to play a larger role in the food supply chain were among others issues discussed.
Several bills have been introduced in Congress to address the issue, but the group also considered creating incentives for smaller packing plants to become federally inspected.
“Big packers process about 80 percent of fed cattle in the country,” Boening said. “That means there’s not a lot of small to very small producers. Some of that’s a regulatory burden, because a larger packer can spread those costs out over a number of cattle. We understand the safety of our food is paramount, but the working group really considered several options and talked about ways to use innovative technology to help with the inspection process.”
Farm Bureau believes in the need for robust enforcement through GIPSA and supports strengthening the agency’s ability to enforce market rules. The working group recognized the need to continue to advocate for these policy positions to make sure markets are fair.
“This was a good opportunity to work with other state Farm Bureaus and to hear what members in other states are concerned about. We’re all facing similar issues, but we may have different ideas on how to provide solutions,” Boening said. “AFBF is well respected, so when you put together a working group from the 10 leading cattle states in this country, I think this report will have an impact. It was a great opportunity to represent TFB members and work with states to surface some ideas for our membership to look at in the policy development process going forward.”
In addition to TFB, other state Farm Bureaus represented on the working group were: Arizona, Iowa, Kansas, Kentucky, Mississippi, Montana, Nebraska and New York. AFBF Vice President Scott VanderWal of South Dakota served as committee chair.
Click here to view the full Cattle Market Working Group report. Other market analyses are available at fb.org/market-intel.