A number of industry news items crossed my desk and brain waves this week. Here’s my abbreviated take and ponderings on a few of them:
• USDA and FDA may not make any significant changes relative to lean finely textured beef (LFTB) but, as is always the case, the consumer dictates the marketplace. Thus, many are speculating that labeling may be added to the marketing of LFTB as a result of this public image catastrophe that the product and process suffered over the past few weeks.
I find it fascinating that those who herald the efficiency of the marketplace and labeling in this regard are some of the same folks who vehemently opposed voluntary labeling as it relates to country of origin labeling. It’s increasingly obvious that the disconnect within the industry isn’t based on the ideological lines it’s argued on, but whether or not you support modern agriculture. It’s a tug of war between those who feel they have benefitted as a result of the changes that have occurred in the marketplace and those who feel they have been disadvantaged. The diatribes against packers, large feeders, large retailers, etc., only make sense when taken in this context.
• The more one reads about the MF Global bankruptcy, the sadder it becomes. The regulatory agencies failed but, most importantly, a lot of individuals breached the trust that had been placed with them, and the result was that many honest people were really hurt. While debacles like the Enrons and MF Globals of the world are rare, it’s hard to fathom how they could have reached the statures they did.
• Burger King has been struggling as of late, even recently losing its number-two position in the fast-food hierarchy to Wendy’s. The chain’s big response seems to be to emulate the dominate player in the industry – McDonald’s. While everyone is hopeful this approach will improve Burger King’s position in the marketplace, it’s an ironic approach, since Burger King was most successful when it was seen as an alternative to McDonald’s. If you’re going to do the same thing as the most dominant player in your market, you’d better do it considerably better or more cost effectively. In the marketing world, “me too” strategies are generally regarded as white flags.
• The growth in export markets for U.S. beef products has been tremendous. We can thank increased access and recovery of market share lost due to BSE, as well as stoking of demand. The bad news, however, is that part of the increase in exports is simply due to a decline in the value of the U.S. dollar.
• The farm press was buzzing this week as a result of the surprises contained in USDA’s Prospective Plantings report. Corn acreage was the big winner, coming in over estimates, while soybean and wheat came in below pre-report estimates. The corn acreage came in at 95.9 million acres, nearly 1.2 million acres higher than the average of the estimates. That’s the largest number in more than 70 years.
What’s surprising to me, however, is that these numbers were considered a surprise. Soybean prices have rallied over the last couple of months, but corn production has been working economically for farmers and is expected to continue to do so. In addition, wheat acreage was up, except in areas where producers had other options; again, not a big surprise.
Overall, the livestock industry had to like the numbers. If U.S farmers can hit trend-line yields, that means a corn crop of at least 14.4 billion bu.; that’s more than 1 billion bu. larger than any crop ever produced!
The logic of producers seemed to be validated by the corn market, which actually rallied after the prospective plantings report. Yellow corn seems to be the new black gold.
• The Eastern Livestock fraud fiasco provided a little satisfaction for ranchers last week as Tommy Gibson and Eastern’s former CFO Steve McDonald pled guilty to Kentucky state charges of engaging in organized criminal activity and 172 acts of theft. Both are expected to receive recommended sentences of 10 years. Grant Gibson (Tommy’s son) and Darren Branger, Eastern’s accountant, also pled guilty to facilitating the criminal syndicate.
Unfortunately, while they will pay nearly $1 million in restitution to Kentucky producers, there are still ranchers in nearly 30 states holding $130 million in bad checks, according to current estimates. It doesn’t appear that anyone quite understands where all that missing money went at this point. Nor is it understood how GIPSA failed so miserably. The other question is that while the bank appears to be first in line with the cattle liens, when and what did they know?