Sheri writes another pretty good article....While she is Canadian- she see's the problem on both sides of the border...
Canadian cattle industry still deep in crisis
By Sheri Monk
The Badger - Canada
November 13, 2009
The cattle industry has been plagued with turmoil since the BSE crisis of 2003, but the relief predicted by many never came when the U.S. border opened fully to Canadian cattle under Rule 2.
There are as many theories as there are analysts, but there is one overwhelming trend – Canada’s mother herd is shrinking and as the herd decreases, producers are being paid less and less for their cull cows and feeder cattle. And yet, consumers are paying as much, or more for ground beef – a common product from older slaughter cattle.
Pre-BSE, in 2002, consumers were paying on average, about $2.50/lb for ground beef. Producers were receiving approximately $50 per hundred weight for their cull cows.
Today, consumers are paying approximately $3.50/lb and producers are receiving around $30 per hundred weight on the cows. Adjusted for inflation, consumers are paying slightly higher prices for their ground beef, but producers are receiving far less.
Meanwhile, over the years costs continue to spiral upwards to raise cattle. In addition to routine and expected costs for medical care, vaccinations, RFID tags, brand inspection, auction fees, fencing and equipment, ranchers were dealt with a double blow of high feed costs and a higher Canadian dollar than in pre-BSE years. The cumulative result has been disastrous.
While many believe the crisis began with the discovery of BSE in May of 2003, others believe the stage was set years before. “I said years ago we were growing too fast,” said Charlie Gracey, a cattle analyst now in his 70s. Gracey served as executive vice-president of the Canadian Cattlemen’s Association for many years and currently sits on the board of Alberta’s Livestock and Meat Strategy. He has been both heralded and criticized for his opinions on the cattle business over the years.
Gracey says in the years before BSE, cattlemen were urged to increase their herd to grow the export side of the business, which made things much tougher after the prion disease first showed up in Canada.
“The herd is shrinking. We sold down the herd pretty rapidly. I think about six per cent from July 2008-09 and we continue to sell more females than males so the herd is still selling down. And in a way, that’s good news because we did overexpand. Our herd got way too big and of course it was forced bigger because of the BSE thing. But the downside of it is, if we continue to sell down, we’ll soon have trouble supplying the markets we hope to supply,” said Gracey. “Several things are hurting them. COOL is hurting them, so in one sense, selling down the herd is a bit of good news in the sense that it takes some of the pressure off how much beef we have to send to the States.”
Canada exports most of its foreign-bound beef to the U.S. and when the border slammed shut in 2003 after BSE, every politician and cattleman realized the danger of being too heavily reliant on a single export market.
Now Gracey fears Canada’s dependence on the southern market is again rearing its ugly head. “I’m also concerned about the other thing I’m seeing, we’re back in that pattern of selling a large proportion of our cull cows and bulls into the U.S. market. Now we were doing that before BSE in spades. We were selling way too many and as a result, we were shorting our supply of non-fed beef and as a result of that, we were forced to import more from Australia, New Zealand and South America. In BSE, we were forced to consume our own non-fed beef because we couldn’t sell it anywhere else. We learned how to do that and now we’re forgetting again.”
A National Farmers Union of Canada report released last week says cattle prices are continuing to shrink largely because of a lack of competing buyers. Earlier this year, Canada’s Competition Beurau allowed Nilsson Bros. to purchase Tyson Food’s Lakeside slaughter plant at Brooks, AB. The deal reduced the number of major beef buying competitors to two and NFU estimates say 85 per cent of the market in western Canada is controlled by one company.
“National Farmers Union has been saying it’s the packer that’s cleaning up. It’s not Sheri, if you look at the numbers, all of the increase in spread has been at the retail level.”
NFU’s Darrin Qualman disagrees and says packer margins alone are not indicative of profit because of how many other interests packers own, such as auction houses, transportation companies and feedlots.
“And it’s the cows that are so low. There’s a great line I heard second-hand and it said that calf prices are so low, a lot of people are looking at selling off their herd and the packers, in order to prevent the herd from selling off, are pushing down the price of cows so low, farmers will be disinclined to sell off their cow herd,” he said. “In 2002 for instance, every single month, prices are over $50 (per hundred weight for cull cows), with exception of two weeks in late November, weeks 45 and 46.”
Competition isn’t an issue only in Canada – the U.S. cattle industry is rife with controversy over a concentrated packing market.
Mike Callicrate is a near-famous fair market activist. His epiphany came in 1988, at the time, he owned two feedlots in Kansas. At a convention, the CEO of IBP (later absorbed by Tyson Foods) informed the Kansas Cattlemen’s Association the company had come up with a new idea to gain a market advantage over competitors ConAgra and Cargill, who would kill their own cattle –termed captive supply – when market prices were gaining. In order to compete, IBP designed a system called ‘the formula’, which utilized forward contract prices on cattle to avoid costs associated with captive supply.
A conversation with an IBP cattle buyer, whose parents were cow-calf producers, confirmed what he suspected. The buyer said that if something wasn’t done about the use of captive supplies, prices would continue to drop, and even his parents would be out of business.
“According to a former executive vice-president for IBP, they knew then it was much better to co-operate than to compete,” said Callicrate in a telephone interview with The Badger. “There were three very large packers and they did all they could to reduce competition. And of course IBP went on a buying spree and just simply either bought or forced smaller competitors out of business, leaving us today with four packers that control 85 per cent of the finished cattle market. So all of this talk about the market is really silly – there is no market. The market is managed and is purely just whatever they can get away with paying.”
Now based in Colorado, Callicrate owns Ranch Foods Direct, which specializes in supplying retail and wholesale organic and hormone-free beef. In 1996, Callicrate was one plaintiff in a class-action anti-trust lawsuit against Tyson Foods-IBP. A federal jury found in favor of the plaintiffs, awarding a group of 30,000 ranchers $1.28 billion in damages. The verdict was later overturned by the district trial judge and upheld by the court of appeals.
Despite the devastating loss in court, Callicrate refuses to weaken and comes armed with decades of facts and research to any showdown in an attempt to right-size the faltering U.S. cattle industry.
Recently, Callicrate and industry organization R-CALF, as well as several consumer advocacy groups engaged the U.S. Justice system to block a major beef purchase. Last year, South American beef entity JBS bought out Swift and Company before trying to make several other American purchases.
“We couldn’t stop them on the Five Rivers Feedlots, and we couldn’t stop them on the Smithfield Beef Group buyout, but we did get them stopped on National Beef,” said Callicrate.
The action prevented the Brazilian beef giant from becoming the largest packer in the U.S., though its other acquisitions now mean it is the largest packer in the world.
“It appeared that National Beef (U.S. Premium Beef) was simply going to take the money and run, rather than fight for their market share. How can you sell out your industry that way? U.S. Premium Beef was supposed to be about creating a fair market for their cattle producer members. Were they actually willing to sell out their children’s futures in the cattle business for a few dollars?”
Callicrate said that in addition to a lack of competition, the playing field of the cattle business and the power has shifted in recent years. “The price that packers pay today is determined by how much hell people are raising and how big a spotlight we’re shining on the unfairness. Right now, big retailers are actually dictating pricing terms to the big packers. So we’ve had a shift in power from the packers telling the retailers what they’re going to pay for meat while dictating to producers what they’re going to get for their cattle, to the big retailers telling the packers what they’re going to pay. Without a competitive market, packers find it much easier to buy cattle cheaper from weak cattle sellers than to sell meat higher to powerful retailers,” Callicrate explained. “That’s what’s hitting us right now.”
Gracey agrees, somewhat. “Yes, there are fewer of them (retailers). You would think a small number of packers would be able to withstand them, but they don’t seem to be able to,” said Gracey.
Gracey believes another hit to the beef market has been the widespread perception that raising beef is a waste of land. There are many arguments out there, but most centre around the idea that land used to grow grain can feed far more people.
“All of them are nonsense, but all of them are superficially persuasive. If you look at the last 20-30 years history on the prairies, the chronic problem has been low grain prices. If we hadn’t been able to divert some of that acreage into livestock production, we wouldn’t have been able to produce food grains for God’s sake. But there’s just no in-depth understanding of these things. There’s a superficial understanding that every pound of corn or barley that you feed to cattle is taking it straight out of the mouth of some starving child somewhere. And that tugs at the heart strings, but it’s pure bullshit.”
He also says the very idea of eating red meat is under ideological attack. “I think what we have overlooked is the continual assault on red meat consumption from all quarters and officially, from Canada’s Food Guide,” said Gracey. “I am not convinced that just simply advertising campaigns saying ‘eat more beef’ are going to work. You have to make people understand and make them feel good about eating a very good protein product.”
Callicrate says a large part of the problem in the U.S. is a justice system unwilling to side against corporate interests. “We also have a serious lack of any way of raising hell. We’ve failed in every single regard. The three options being legislation, litigation and alternative infrastructure (like producer-owned packinghouses). Think about the failures in the alternative infrastructural arena and you look at what’s happened in legislation – we have had our butt kicked on every single bill,” he said, adding that mCOOL legislation was weakened by packer influence.
One thing that Callicrate, Qualman and Gracey all agree on is BSE testing of cattle in Canada and America.
“What I advocated was testing for market access. If we test, will you take our product? I have been in favor of that since day one,” said Gracey.
Indeed, BSE testing is more cost effective than SRM removal, a cost the Canadian packing industry bears which its American counterparts do not.
There have been 16 cases of BSE in Canada, dating back to the first case discovered in 2003. America too has seen BSE. First in a Canadian-born cow exported to the U.S. and in two other, older cows, which were infected with a different strain of BSE. Yet Canada and the U.S. remain the only two countries in the world that have discovered BSE and not instituted some variety of blanket-testing to reassure domestic and foreign markets.
While the jury is still out officially on why that may be, it is widely believed the American packing industry is dead-set against it. And officially, all of the mainstream cattlemen’s groups in both countries are as well.
Despite the bad news over the past decade or so, Callicrate says he still has hope. The U.S. government says they will take a closer look at the marketplace and the Packers and Stockyards Act of 1921, which led to the breakup of the beef cartels in the midst of widespread allegations of market manipulation and collusion.
“We need to continue to seek justice. The Justice Department and the USDA (United Stated Department of Agriculture) need to do something. They’ve announced a series of workshops including a workshop on beef that will be held on August 26th in Colorado next year. I was shocked when I heard the workshop would be delayed by nearly a year. When I heard the schedule, I thought of the big news item here a couple of weeks ago about a young woman who was ****d – and you’ve used that analogy in your writings before – but this young lady was ****d on some campus while the crowd just stood around and watched. And I said, ‘This is how cattlemen feel.’ They are being ****d by these big meatpackers and retailers and the U.S. government is going to stand around for the next year and watch?”
thebadger.ca
By Sheri Monk
The Badger - Canada
November 13, 2009
The cattle industry has been plagued with turmoil since the BSE crisis of 2003, but the relief predicted by many never came when the U.S. border opened fully to Canadian cattle under Rule 2.
There are as many theories as there are analysts, but there is one overwhelming trend – Canada’s mother herd is shrinking and as the herd decreases, producers are being paid less and less for their cull cows and feeder cattle. And yet, consumers are paying as much, or more for ground beef – a common product from older slaughter cattle.
Pre-BSE, in 2002, consumers were paying on average, about $2.50/lb for ground beef. Producers were receiving approximately $50 per hundred weight for their cull cows.
Today, consumers are paying approximately $3.50/lb and producers are receiving around $30 per hundred weight on the cows. Adjusted for inflation, consumers are paying slightly higher prices for their ground beef, but producers are receiving far less.
Meanwhile, over the years costs continue to spiral upwards to raise cattle. In addition to routine and expected costs for medical care, vaccinations, RFID tags, brand inspection, auction fees, fencing and equipment, ranchers were dealt with a double blow of high feed costs and a higher Canadian dollar than in pre-BSE years. The cumulative result has been disastrous.
While many believe the crisis began with the discovery of BSE in May of 2003, others believe the stage was set years before. “I said years ago we were growing too fast,” said Charlie Gracey, a cattle analyst now in his 70s. Gracey served as executive vice-president of the Canadian Cattlemen’s Association for many years and currently sits on the board of Alberta’s Livestock and Meat Strategy. He has been both heralded and criticized for his opinions on the cattle business over the years.
Gracey says in the years before BSE, cattlemen were urged to increase their herd to grow the export side of the business, which made things much tougher after the prion disease first showed up in Canada.
“The herd is shrinking. We sold down the herd pretty rapidly. I think about six per cent from July 2008-09 and we continue to sell more females than males so the herd is still selling down. And in a way, that’s good news because we did overexpand. Our herd got way too big and of course it was forced bigger because of the BSE thing. But the downside of it is, if we continue to sell down, we’ll soon have trouble supplying the markets we hope to supply,” said Gracey. “Several things are hurting them. COOL is hurting them, so in one sense, selling down the herd is a bit of good news in the sense that it takes some of the pressure off how much beef we have to send to the States.”
Canada exports most of its foreign-bound beef to the U.S. and when the border slammed shut in 2003 after BSE, every politician and cattleman realized the danger of being too heavily reliant on a single export market.
Now Gracey fears Canada’s dependence on the southern market is again rearing its ugly head. “I’m also concerned about the other thing I’m seeing, we’re back in that pattern of selling a large proportion of our cull cows and bulls into the U.S. market. Now we were doing that before BSE in spades. We were selling way too many and as a result, we were shorting our supply of non-fed beef and as a result of that, we were forced to import more from Australia, New Zealand and South America. In BSE, we were forced to consume our own non-fed beef because we couldn’t sell it anywhere else. We learned how to do that and now we’re forgetting again.”
A National Farmers Union of Canada report released last week says cattle prices are continuing to shrink largely because of a lack of competing buyers. Earlier this year, Canada’s Competition Beurau allowed Nilsson Bros. to purchase Tyson Food’s Lakeside slaughter plant at Brooks, AB. The deal reduced the number of major beef buying competitors to two and NFU estimates say 85 per cent of the market in western Canada is controlled by one company.
“National Farmers Union has been saying it’s the packer that’s cleaning up. It’s not Sheri, if you look at the numbers, all of the increase in spread has been at the retail level.”
NFU’s Darrin Qualman disagrees and says packer margins alone are not indicative of profit because of how many other interests packers own, such as auction houses, transportation companies and feedlots.
“And it’s the cows that are so low. There’s a great line I heard second-hand and it said that calf prices are so low, a lot of people are looking at selling off their herd and the packers, in order to prevent the herd from selling off, are pushing down the price of cows so low, farmers will be disinclined to sell off their cow herd,” he said. “In 2002 for instance, every single month, prices are over $50 (per hundred weight for cull cows), with exception of two weeks in late November, weeks 45 and 46.”
Competition isn’t an issue only in Canada – the U.S. cattle industry is rife with controversy over a concentrated packing market.
Mike Callicrate is a near-famous fair market activist. His epiphany came in 1988, at the time, he owned two feedlots in Kansas. At a convention, the CEO of IBP (later absorbed by Tyson Foods) informed the Kansas Cattlemen’s Association the company had come up with a new idea to gain a market advantage over competitors ConAgra and Cargill, who would kill their own cattle –termed captive supply – when market prices were gaining. In order to compete, IBP designed a system called ‘the formula’, which utilized forward contract prices on cattle to avoid costs associated with captive supply.
A conversation with an IBP cattle buyer, whose parents were cow-calf producers, confirmed what he suspected. The buyer said that if something wasn’t done about the use of captive supplies, prices would continue to drop, and even his parents would be out of business.
“According to a former executive vice-president for IBP, they knew then it was much better to co-operate than to compete,” said Callicrate in a telephone interview with The Badger. “There were three very large packers and they did all they could to reduce competition. And of course IBP went on a buying spree and just simply either bought or forced smaller competitors out of business, leaving us today with four packers that control 85 per cent of the finished cattle market. So all of this talk about the market is really silly – there is no market. The market is managed and is purely just whatever they can get away with paying.”
Now based in Colorado, Callicrate owns Ranch Foods Direct, which specializes in supplying retail and wholesale organic and hormone-free beef. In 1996, Callicrate was one plaintiff in a class-action anti-trust lawsuit against Tyson Foods-IBP. A federal jury found in favor of the plaintiffs, awarding a group of 30,000 ranchers $1.28 billion in damages. The verdict was later overturned by the district trial judge and upheld by the court of appeals.
Despite the devastating loss in court, Callicrate refuses to weaken and comes armed with decades of facts and research to any showdown in an attempt to right-size the faltering U.S. cattle industry.
Recently, Callicrate and industry organization R-CALF, as well as several consumer advocacy groups engaged the U.S. Justice system to block a major beef purchase. Last year, South American beef entity JBS bought out Swift and Company before trying to make several other American purchases.
“We couldn’t stop them on the Five Rivers Feedlots, and we couldn’t stop them on the Smithfield Beef Group buyout, but we did get them stopped on National Beef,” said Callicrate.
The action prevented the Brazilian beef giant from becoming the largest packer in the U.S., though its other acquisitions now mean it is the largest packer in the world.
“It appeared that National Beef (U.S. Premium Beef) was simply going to take the money and run, rather than fight for their market share. How can you sell out your industry that way? U.S. Premium Beef was supposed to be about creating a fair market for their cattle producer members. Were they actually willing to sell out their children’s futures in the cattle business for a few dollars?”
Callicrate said that in addition to a lack of competition, the playing field of the cattle business and the power has shifted in recent years. “The price that packers pay today is determined by how much hell people are raising and how big a spotlight we’re shining on the unfairness. Right now, big retailers are actually dictating pricing terms to the big packers. So we’ve had a shift in power from the packers telling the retailers what they’re going to pay for meat while dictating to producers what they’re going to get for their cattle, to the big retailers telling the packers what they’re going to pay. Without a competitive market, packers find it much easier to buy cattle cheaper from weak cattle sellers than to sell meat higher to powerful retailers,” Callicrate explained. “That’s what’s hitting us right now.”
Gracey agrees, somewhat. “Yes, there are fewer of them (retailers). You would think a small number of packers would be able to withstand them, but they don’t seem to be able to,” said Gracey.
Gracey believes another hit to the beef market has been the widespread perception that raising beef is a waste of land. There are many arguments out there, but most centre around the idea that land used to grow grain can feed far more people.
“All of them are nonsense, but all of them are superficially persuasive. If you look at the last 20-30 years history on the prairies, the chronic problem has been low grain prices. If we hadn’t been able to divert some of that acreage into livestock production, we wouldn’t have been able to produce food grains for God’s sake. But there’s just no in-depth understanding of these things. There’s a superficial understanding that every pound of corn or barley that you feed to cattle is taking it straight out of the mouth of some starving child somewhere. And that tugs at the heart strings, but it’s pure bullshit.”
He also says the very idea of eating red meat is under ideological attack. “I think what we have overlooked is the continual assault on red meat consumption from all quarters and officially, from Canada’s Food Guide,” said Gracey. “I am not convinced that just simply advertising campaigns saying ‘eat more beef’ are going to work. You have to make people understand and make them feel good about eating a very good protein product.”
Callicrate says a large part of the problem in the U.S. is a justice system unwilling to side against corporate interests. “We also have a serious lack of any way of raising hell. We’ve failed in every single regard. The three options being legislation, litigation and alternative infrastructure (like producer-owned packinghouses). Think about the failures in the alternative infrastructural arena and you look at what’s happened in legislation – we have had our butt kicked on every single bill,” he said, adding that mCOOL legislation was weakened by packer influence.
One thing that Callicrate, Qualman and Gracey all agree on is BSE testing of cattle in Canada and America.
“What I advocated was testing for market access. If we test, will you take our product? I have been in favor of that since day one,” said Gracey.
Indeed, BSE testing is more cost effective than SRM removal, a cost the Canadian packing industry bears which its American counterparts do not.
There have been 16 cases of BSE in Canada, dating back to the first case discovered in 2003. America too has seen BSE. First in a Canadian-born cow exported to the U.S. and in two other, older cows, which were infected with a different strain of BSE. Yet Canada and the U.S. remain the only two countries in the world that have discovered BSE and not instituted some variety of blanket-testing to reassure domestic and foreign markets.
While the jury is still out officially on why that may be, it is widely believed the American packing industry is dead-set against it. And officially, all of the mainstream cattlemen’s groups in both countries are as well.
Despite the bad news over the past decade or so, Callicrate says he still has hope. The U.S. government says they will take a closer look at the marketplace and the Packers and Stockyards Act of 1921, which led to the breakup of the beef cartels in the midst of widespread allegations of market manipulation and collusion.
“We need to continue to seek justice. The Justice Department and the USDA (United Stated Department of Agriculture) need to do something. They’ve announced a series of workshops including a workshop on beef that will be held on August 26th in Colorado next year. I was shocked when I heard the workshop would be delayed by nearly a year. When I heard the schedule, I thought of the big news item here a couple of weeks ago about a young woman who was ****d – and you’ve used that analogy in your writings before – but this young lady was ****d on some campus while the crowd just stood around and watched. And I said, ‘This is how cattlemen feel.’ They are being ****d by these big meatpackers and retailers and the U.S. government is going to stand around for the next year and watch?”
thebadger.ca
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