If I was a packer, I'd cancel every contract and formula I was offering today. If you believe in free markets you would, too.
If I was a packer — which I'm not, although anytime a discussion of free trade comes up and I side with capitalism, I get accused of being a puppet for packers and feeders and worse (so save your stamps) — I'd say, “You want to go back to the good old days where we buy them all live in the cash market? Suits me. But, don't ever suggest that we're not paying you for what your cattle are worth. Don't ever suggest some cattle have more value on average than others. That's what you said when you asked us for formulas, grids and contracts to leverage your supposed management and genetic differences and remove some price volatility from the markets. We did that. You sued us. So, let's just let the good old days of cattle trading be the end of it.
“What's that, you say you weren't part of the suit? You've used these devices to your benefit individually, as part of alliances, and selectively as an option to the cash market depending on how good or sorry the particular set of cattle was? Too bad. You should have talked louder when some of your peers put free markets on trial.”
That's what I'd say if I was a packer, in light of the jury decision in February that found Tyson (IBP when the suit was brought) guilty of violating the Packers and Stockyards Act (PSA) of 1921. The jury then recommended that members of the class-action suit receive $1.28 billion in damages. That's what I'd say even though subsequent legal maneuvering likely means the ultimate decision won't be known for some time.
Intent Or Outdated Laws?
There's nothing simple and clear cut about exactly what constitutes captive supply, and how specifically these supplies impact the market overall and over time. Nor is there any black and white evidence that the price floor would be higher today in the absence of all trading arrangements except for cash.
If Tyson was guilty (as the jury decided) of breaking a specific section of the PSA, was it out of intent or because the law is so archaic it doesn't recognize the modern realities of the marketplace — realities forged by a market left to find its own path as free markets should?
Did it ever dawn on anyone that rather than protecting the producer, the law used to convict the packer in this case may be so outdated that the legal decisions it allows work against producers rather than for them? Did it occur to anyone that limiting the way producers and processors can conduct business weakens the industry overall rather than strengthens it?
What is straightforward, in my mind at least, is that free markets — imperfect though they may be — are like free speech, as imperfect as it is. Either you have the right to speak your mind, or you don't, even though there is no such thing as 100% free speech.
Likewise, even though there can never be a completely free market — because the market itself will rob some of its own freedom — either you have the right to market how you choose to willing buyers and sellers, or you don't.
According to the decision handed down against Tyson, no one in the cattle business has the right to market cattle any way they choose. It will be left to courts and Congress to decide what is best for the market, rather than the other way around.
Thinking about forward contracting your calves this summer or early fall? Better think again. If the court is consistent, that would surely be breaking the law because you might be gaining an economic advantage over your competitor. Besides, you surely don't have enough sense to make a decision for yourself.
Considering running stockers on a gain basis? Hold on. Maybe the guy you're contracting with will be accused of controlling enough of the market to impact the feeder-calf and cattle markets. Obviously, lawyers and legislators who never set foot on a raw acre of land should have more say in your business than you, even though you're the one taking the risk.
Certainly, there are those in the business, presumably including those who brought the suit against Tyson, who will view this stance as sacrilege and heresy. That's fine. So far in this country, we're still allowed to express our opinions. That's the kind of freedom we'll sacrifice in the marketplace if the jury decision is allowed to stand.