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Cattle Price Collapse Questioned

Cattle Price Collapse Questioned

1/12/2016 2:55:00 PM/Categories: Popular Posts, General News, Today's Top 5, Livestock, Livestock Markets, Cattle, Ag Issues


by Todd Neeley DTN Staff Reporter

OMAHA (DTN) -- The recent collapse in cattle prices has the attention of the U.S. Senate Judiciary Committee's chairman.

In a teleconference with agriculture reporters Tuesday, Sen. Charles Grassley, R-Iowa, said cattlemen in Iowa have told him there are few market reasons for a price drop of around $50 in the final months of 2015. R-CALF USA formally asked Grassley's committee last week to consider opening an investigation into the cattle market.

Though the senator stopped short of saying price collusion is a possible explanation, he said it may be time for the committee to consider holding hearings.

"If the accusations are credible, I think I would have a responsibility to look into this," Grassley said. "Any violation of antitrust laws I'm very willing to look into. It has been a long time since the judiciary committee was involved in such issues."

Iowa cattlemen, he said, pointed to the end of country-of-origin labeling, or COOL, as a possible explanation for price drops. "It is still low," Grassley said about prices. "COOL is out of the way, and the cattlemen I talked to didn't seem to have a reason for the price coming down.

"It ought to lead DOJ (U.S. Department of Justice) to do its job of enforcing antitrust laws and watching over it. I've always felt most people working in the antitrust division at DOJ didn't have a lot of understanding of agriculture."

In the formal request letter to Grassley's committee, R-CALF USA said the latest price drop should be investigated.

R-CALF USA President Bill Bullard told DTN Tuesday he has been invited to brief Grassley's committee staff. The U.S. Department of Justice and USDA have been "unresponsive" to the group's concerns, he said.

"I will soon be making a presentation to them in hopes that a hearing will be scheduled," Bullard said. "We have known for a long time that our markets are broken, and if you look at the history of U.S. cattle prices, never before have we witnessed such a collapse... What we know with certainty is that this was not a natural phenomenon."

Chase Adams, communications director for the National Cattlemen's Beef Association, said R-CALF's accusations are without merit.

"We continually look at the market and work with our stakeholders to ensure the markets are working to meet their needs, including reauthorization of mandatory price reporting, and we don't see any merit in this request," he said. "It is only another misguided attempt to gain relevance."

In its letter to the committee, R-CALF pointed to market fundamentals in 2014 and in the first half of 2015 that supported "historically high" cattle and beef prices. The fundamentals included "tight" cattle supplies and growing beef demand. "Government and private economists alike predicted higher prices well beyond 2015, and there were no observable disruptions to the favorable market-sustaining fundamentals at any time during 2015," the letter said. "Yet, cattle prices collapsed."

During the third and fourth quarters "cattle prices collapsed farther and faster than during any time in history and the unprecedented volatility in the cattle futures market rendered it useless for price discovery purposes," R-CALF said. Independent cattle feeders suffered losses exceeding $500 per head.

"Industry analysts cannot explain the wholesale collapse of the cash market or the intense volatility and collapse in the cattle futures market," the letter said. "Describing the collapse and volatility with vague terms such as market meltdown or psychological upheaval, analysts appear unwilling to state the obvious: that something caused a severe anomaly in U.S. cattle markets that caused significant harm to U.S. cattle producers and U.S. consumers."

'IT'S COMPLICATED'

DTN Livestock Analyst John Harrington said there are a number of factors that led to first the rise in cattle prices in 2013-14 and the recent collapse.

The short answer: It's complicated.

The many possible factors include poor exports, a strong dollar, large beef imports, rising supplies of competitive meat, record carcass weights, declining packer capacity, and delayed consumer resistance to record-high beef prices, Harrington said.

"Does any one factor explain the imploding market? Of course not," Harrington said. "Indeed, I'm not sure all of them taken together can. But they all probably played some role in fueling a bearish psychology that at times seems bigger than the market itself.

"I think you have to look at more than three to four months -- look at the bigger picture. For example, cattle profits soared in a crazy way from late 2013 through 2014. You could have made the case then that bullish fundamentals and speculation didn't quite add up, that bullish enthusiasm really exceeded sound marketing reasoning. My guess is that the seeds of 2015 destruction were planted to some extent by the crazy bullishness of the two preceding years."

R-CALF said as cattle prices tanked, "meatpackers were making what one analyst called gangbuster profits and consumer beef prices remained at or near record highs. Not surprisingly, meatpacker-aligned commentators pointed fingers at cattle feeders, accusing them of causing the price collapse by feeding their cattle too long.

"But this is nonsense as only a small percentage of cattle are not directly controlled by meatpackers and some of the remaining independent cattle feeders reported that meatpackers were purposely delaying cattle delivery dates."

BIG LOSSES

R-CALF said a $41.35-per-hundredweight price decline equals a loss of $516.88 per head for each animal sold -- based on a 1,250-pound steer.

"This alarming price decline is confirmed by Kansas State University, which projected losses of $547.24 per head on steers sold in November," R-CALF said in the letter.

"This level of loss represents an unprecedented extraction of equity from the U.S. live cattle industry. While KSU data show chronic and persistent losses to U.S. cattle feeders during the past 15 years, the losses in 2015 are irrefutably extraordinary."

Some 1.53 million head of fed cattle were sold to meatpackers in November 2015, the group said. As a result of the price drop, cattle feeders lost about $837 million in November alone.

"Evidence shows that other participants within the beef supply chain are capturing a significant share of the consumers' beef dollar that a competitive market should be allocating, and previously did allocate, to the producer," R-CALF said in the letter.

"This, R-CALF USA believes, is strong evidence of antitrust and anticompetitive conduct by the nation's four largest meatpackers, which are the supply chain participants that are purchasing the vast majority of live cattle directly from U.S. cattle producers at prices well below what a competitive market would prescribe."

Read the full R-CALF USA letter here: http://tinyurl.com/…

 

 

 

© Copyright 2016 DTN/The Progressive Farmer. All rights reserved.

 

 

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10 comments on article "Cattle Price Collapse Questioned"

22
6

Amy Blair

1/12/2016 7:42 PM

Cattle prices fall every time they open up the borders to outside meat...stop giving our money away to China and keep it In The US. China can eat their own beef


1
7

Steve

1/12/2016 10:35 PM

Yes that what happens when drop two bombs o. Market first the shut down cool country of origin label so u don't no where your beef comes from. Then they import of cheap beef


8
1

dave

1/13/2016 6:53 AM

What about the ripple effect. This didn't only cause a hardship on the fed cattle sector, it created losses in the background business and cow calf as well. I see all sides and know. We own a livestock market, feed lot, and cow calf herd. I can tell this caused hardships in all sectors


4
1

Roy Lemmon

1/13/2016 1:36 PM

someone should also look into these hedgfund fellas trading paper on the CME. With no cattle backing up their contracts. These hedgfund traders swapping out money, they cause some large sell offs for no reason.


2
0

JC

1/13/2016 2:03 PM

Truth be told it's the US dollar it being so strong that it shuts down exports plain and simple, beef market has been dictated by exports for a very long time.


2
0

Dean A. Smith

1/13/2016 5:27 PM

The cattle prices dropped prior to the repeal of COOL. Supply & demand drive the market & a slight rebound occurred after the COOL repeal.


2
0

Robert Seerup

1/13/2016 10:07 PM

I want nothing but US meat Please don't tell me i'm eating Chinese.


2
0

David

1/14/2016 4:16 AM

Finally, lawmakers are looking into market manipulation by meat packing cartel. Shame on NCA....nothing but a lap dog for the Meat Packers Association.


13
4

Ruthann

1/14/2016 4:52 AM

This is not rocket science.

Anytime, you have tight supply of anything, prices go up, or a large supply, prices go down.

So, with the US having the SMALLEST cattle herd in 2014, that was comparable to the that of the 1950's, although our population had doubled since that time, prices went up for cattle, and should have remained so, even if our exports decreased.

However,when our government announced their intention to repeal COOL back in June 2015, cattle prices began to slip.

Then the closer we got to being able to import Beef from Brazil and Argentina in Sept 2015, things rolled down hill even faster.

Meanwhile, our imports from Australia shot up 33% over 2014 levels.

Now you go figure this: who in their right mind goes out and buys more Beef if our own supply is more than adequate because of decreased exports, or consumer demand softened some, like the experts have claimed? Why go out and buy even more Beef than the previous year, from Australia, if you already have enough already?

I'll tell you why: because you stockpile this Beef until a law prohibiting it being called USDA Beef is repealed, and after that you can merrily go and mix this Australian Beef and who knows what else in your meat, and still sell it at record prices to consumers. That's why.

Meanwhile, because you don;t need domestic producers Beef as much, you limit the days your processing plants run, and back up domestic live Beef animal numbers, because you already have enough product to get you by until the law is repealed and you can use all that Australian Beef you got stockpiled.

As all this happens, prices for live domestic cattle go down, while prices in the meat case remain the same, or possibly even slightly increase. Now you tell me how that can happen?

All this can be tracked, by comparing live cattle market prices with each news release, starting in June 2015, when Congress declared Mandatory COOL was going to be repealed.

Yes, price fluctuations happen in any market, but the dramatic price drop in live cattle prices at the end of 2015 had no realistic base to cause it.

Right now prices have stabilized some, just because those that control the Beef processing industry are smart enough to not get too greedy, and really make it obvious as to what they did, and trigger an Antitrust investigation.

You just wait until they think no one is looking, and can flood our cattle market with Beef from Canada and Mexico now. They did this before, and I watched this happen as semi loads of cattle rolled by our place by the DOZENS all the time from Canada, prior to COOL. Except this time, it won't be as obvious, as this Beef product will be coming in Refrigerated trucks now instead, almost indistinguishable from most other semi's already on the road.

Just wait and see, unless this manages to get stopped somehow.


0
0

Behind-Enemy-Lines

1/26/2016 2:22 PM

The argument that exports/imports numbers lead to the big change in beef price holds no water. According to the USDA 'US red meat and poultry forcasts' http://www.ers.usda.gov/publications/ldpm-livestock,-dairy,-and-poultry-outlook/ldpm-255.aspx the amount of Beef/veal imports were down 203 million pounds during 4th quarter 2015 (615 M) vs 4th quarter 2014 (818 M). Exports were off slightly at 590 million pounds in 4th qtr 2015 vs 644 million pounds for the same period 2014 for a change of 54 million pounds. That is a net change of 149 million pounds that should have bolstered beef prices not drove them down.

The logical conclusion then must be that US beef production was up? Wrong, total US beef production for the year was down from 24,252 M lbs in 2014 to just 23,700 M in 2015. If the cause of the price drop was from other protein competition then those markets should have seen similar price reductions with the increase in their production numbers. The poultry industry (chicken & Turkey) average price actually went up over the year starting 1st qtr 2015 at $1.966, 2nd qtr at $2.127, 3rd qtr at $2.101 and the 4th qtr at $2.037.

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