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Articles from 2020 In May


5 headlines that will raise any rancher’s eyebrow

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Sigh.

Yes, I’m opening this blog post with an audible sigh.

Last year was marked by very tough weather extremes and the detrimental impacts of a trade war on the agricultural economy. I can’t count how many times I wrote, “I’m looking forward to 2020! This year can’t be over soon enough!”

And yet, here we are. Every day the media headlines get uglier, the discourse and polarization of political entities seem to divide us further, and every tragic death, loss of income, destruction of business, stripping of liberties — you name it — it’s all playing out on social media.

Somedays you just have to wonder — has the world actually gone mad?

So yes, at this point I just take a deep breath and wonder, and hope, that perhaps much of the ugliness will dissipate after this election cycle is over.

Sigh.

In the meantime, at home on the ranch, the best thing we can do is manage the things we can control, realign our values and priorities the best we can and keep a critical eye on what’s happening in the world around us.

I’ve been sitting on some of these headlines for a while now, waiting for some inspiration on how best to respond to them, but I decided to round them up into one blog post and give you a glimpse at what’s caught my eye in the last couple of weeks.

Why did the World Health Organization say that red meat “probably” causes cancer? How are plant-based companies seeking to disrupt the meat case and shut down packing plants for good? Which companies has PETA invested stock in recently, and what is their game plan? What does an animal sanctuary plan to do with 1,000 “rescued” chickens?

These questions will be answered in this roundup of five headlines worth checking out. Take a minute to browse these articles and let me know your thoughts.

1. “Why is the World Health Organization anti-meat?” by Tim Rees for Medium

“Obesity is preventable,” writes Rees. “Their advice conceived in a room that is utterly compromised hasn’t worked, of course it hasn’t. The WHO has failed categorically to prevent obesity from continuing to shorten lives and the quality of them. It’s failed because it’s allied to companies that sell nutrient deficient, junk foods which are usurping people’s relationships with real foods, especially red meat, that require preparation but repay in nutrient dividends that protect us from diseases of all kinds, including obesity.”

2. “Impossible Foods founder: We can repurpose the meat supply chain, minus the slaughter room” by Jeff McMahon for Forbes

McMahon writes, “The plant-based industry will need the millions of workers now employed in animal agriculture, the founder of Impossible Foods said, but the slaughter room has to go. Impossible CEO Patrick Brown described the slaughter-room as a feces-ridden public hazard, but he said the rest of the machinery and labor that produces meat can be repurposed.”

3. “PETA buys shares in slaughterhouses” by Sentient Media

“This crisis has shown that raising and killing animals in filthy factory farm conditions and butchering them in ill-regulated slaughterhouses creates breeding grounds for infectious diseases,” says Ingrid Newkirk, PETA president. “PETA is pushing major meat companies to shut down the slaughter lines and switch to plant-based meats that never cause a pandemic.”

4. “California animal sanctuary rescues 1,000 chickens from Iowa that were going to be euthanized” by Amanda Jackson for CNN

Jackson writes, “Animal Place chartered two private planes -- that was paid for by a donor -- to Iowa to transport the animals to their new home in California. Two of the animal sanctuary's staff members also made the nearly 30-hour drive to the farm to oversee the rescue.”

5. “Software to swallow — Impossible Foods should be called Impossible Patents” by Seth Itzkan for Medium

Itzkan writes, “Impossible Foods should really be called Impossible Patents. It’s not food; it’s software, intellectual property— 14 patents, in fact, in each bite of Impossible Burger with over 100 additional patents pending for animal proxies from chicken to fish. It’s iFood, the next killer app. Just download your flavor. This is likely the appeal for Bill Gates, their über investor. It’s a food operating system (FOS), a predecessor, perhaps, to a merger with Microsoft. MS-FOOD. The business model is already etched in Silicon Valley — license core technology (protein synthesis) while seeking vertical integration of supply chains, which, in this case, is not from coders to users, but from genetic engineers to protein seekers.”

The opinions of Amanda Radke are not necessarily those of beefmagazine.com or Farm Progress.

This Week in Agribusiness, May 30, 2020

Part 1

Note: The video automatically plays through all show parts once you start.

Max Armstrong starts off hearing from Steve Moest from High Plains Pork about the struggles his business faces currently. Mike Pearson is on the desk and chats quickly with Greg Soulje previewing the weather report. Dale Durchholz of Grain Cycles joins the show to talk about the weather’s impact on the 2020 crop and how ethanol’s return is lifting the market. Next they turn some attention to livestock.

Part 2

Dale Durchholz of Grain Cycles rejoins Mike to discuss the challenges with international trade. In the Colby Ag Tech segment Chad Colby is chatting with Matt Foes who’s describes how tech is helping out with cover crops and tillage.

Part 3

Max is talking to Mike Naig, Iowa Secretary of Agriculture to discuss the Iowa hog industry and the Iowa Disposal Assistance Program.  

Part 4

Max Armstrong checks in with Polly Ruhland of the United Soybean Board where they are developing many new uses for soybeans, including asphalt and tennis shoes. Agricultural Meteorologist Greg Soulje joins Max and Steve to look at the forecast for the week ahead.

Part 5

Agricultural Meteorologist Greg Soulje returns to take a look at the long-range weather picture.

Part 6

In Max’s Tractor Shed, Max is teasing us with a peak at the tractor for next week’s broadcast. Mike Pearson profiles Woodbury FFA in Woodbury, Connecticut, way out of the corn belt they produce maple syrup and raise tilapia. Member Aiden Usher tells us about their greenhouse program’s “Peddle it Forward” program. In Samuelson Sez, Orion Samuelson say that the “natives are getting restless” and is responding to viewer e-mails as he looks towards a return to whatever normal is.

Part 7

Max chats with Lisa Safarian of Bayer Crop Science who tells us how COVID-19  has challenged her work, both on a personal level and across the Bayer Crop Science.

 

Farm Progress America, May 29, 2020

Max Armstrong looks at the tight budgets facing farmers. Max offers insight from AgCareers.com, which shows that there won't be room for pay raises this year, yet there are ways to give employees a boost without busting the budget. And there are other opportunities from training to video streaming services are ways to give employees a boost.

Farm Progress America is a daily look at key issues in agriculture. It is produced and presented by Max Armstrong, veteran farm broadcaster and host of This Week in Agribusiness.

Photo: hauged/iStock/Getty Images Plus

7 ag stories you might have missed this week - May 29, 2020

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Missed some agricultural news this week? Here's seven stories to catch you up.

1. Shoppers are paying more for beef at the meat counter than they have in decades, while the companies that process the beef are paying farmers and ranchers low prices for cattle. The Department of Justice is investigating. – Politico

2. The two-year trade war between the U.S. and China has cut $1.7 trillion from American companies' market cap, according to the Federal Reserve. A new study found the trade conflict cut U.S. investment growth by .3 percentage points by the end of 2019. – Business Insider

3. Both corn and soybean planting progress are much faster than 2019’s historically sluggish start and maintain moderate leads over the prior five-year average, according to the latest USDA crop progress report. – Farm Futures

4. Los Alamos National Labs has developed a fuel that uses corn bran and other feedstocks instead of petroleum products. The fuel can be sourced directly from America's fields, rather than foreign sources. The fuel is made with a byproduct of the process for making corn-based ethanol. – Popular Mechanics

5. A University of Illinois assistant professor has developed a stress management program, HERD, to keep people healthy by finding positive ways of coping with stress. HERD stands for hobbies, exercise, relaxation and diversion. – Quad-Cities Online

6. Foremost Farms USA will close its Chilton, Wis., plant in July. The plant has 53 employees. The plant makes Italian cheeses including provolone, which is sold into the food-service market.  - Wisconsin Agriculturalist

7. A Pennsylvania State University Extension dairy educator monitored a dairy farm as it transitioned to an automated milking system. It took 12 hours to complete the first milking of all 60 cows. About a third of cows didn't let their milk down well the first day. By the fourth day, the system was running well. – Lincoln Journal-Star

And your bonus.

Take a virtual tour of the Lester F. Larsen Tractor Test and Power Museum in Nebraska, where you can learn about gasoline-powered tractor history, the story of the Nebraska Tractor Test Law and the tractors involved as well as the types of tests conducted at the lab and the instruments used in testing. – Nebraska Farmer

Bottom falling out of U.S.-China relations

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By Bloomberg News

With Donald Trump and Xi Jinping both focused on ramping up domestic support in the wake of the pandemic, the bottom is rapidly falling out of U.S.-China relations. And few in either Washington or Beijing seem in the mood to stop it.

U.S. lawmakers are pushing the president to hit China with sanctions or other measures for its increasing grip on Hong Kong and human-rights abuses toward minority Muslims in Xinjiang. China, meanwhile, has vowed to punch back at the U.S. while moving ahead with national security legislation over Hong Kong, which prompted Secretary of State Michael Pompeo to declare the city was no longer sufficiently autonomous.

And that’s just this week. Top leaders in the world’s biggest economies are sparring on everything from the coronavirus and 5G networks to Taiwan and academic research. Their warships are tailing each other in the South China Sea, their companies are facing obstacles to invest and their journalists have been targeted with tit-for-tat visa curbs.

The debate over whether the U.S. and China are in a Cold War will only intensify in the coming months as both leaders focus primarily on appealing to their own virus-weary citizens in a bid to retain power: Trump in the November election, and Xi during a Communist Party conclave in 2022 that effectively serves as a leadership contest.

“There is no off ramp for the moment for the U.S. and China, for the pretty obvious reason that neither is looking for one,” said Richard McGregor, a senior fellow at the Lowy Institute in Sydney and author of “The Party: The Secret World of China’s Communist Rulers.” “The U.S. feels it is playing catch up in muscling up to Beijing, a debate that will only be sharpened in a presidential election year. And China under Xi is programmed not to take a backward step.”

Officials in both capitals occasionally still pay lip-service to cooperation. At a briefing in Beijing to conclude China’s annual legislative session, Premier Li Keqiang said both sides should cooperate and respect each other’s interests.

“We have all along rejected a Cold War mentality,” Li said. “Decoupling between the two economies will do neither side any good and will also be harmful to the world.”

Still, political pressures in Washington and Beijing are quickly making it unpopular to call for a detente.

Trump, who won the 2016 election on the back of a campaign strongly critical of China, has made ties with Beijing a focal point in 2020. He’s sought to blame the virus on Beijing, said he didn’t want to speak with Xi and claimed the U.S. would “save $500 billion” if it cut off ties with China.

Trump has also sought to paint former Vice President Joe Biden as soft on China, prompting the presumptive Democratic nominee to also ramp up the rhetoric against Beijing. The anti-China measures that have been voted on recently in the U.S. Congress have all enjoyed near unanimous bipartisan support.

‘Suicidal’

Beijing’s leadership, under pressure since January for an initial slow response to the outbreak, has responded aggressively to any international criticism of its response, with foreign ministry officials and state media pushing alternate narratives alleging that the virus started in the U.S. Xi’s government has also irked the European Union with its heavy-handed pandemic response, and hit Australia on trade when it called for an independent investigation into the virus origins.

The rhetoric with the U.S. is becoming so heated among China’s hawks that some in Beijing are contemplating worst-case scenarios like nuclear war. Gao Zhikai, a former Chinese diplomat and interpreter for ex-Chinese leader Deng Xiaoping, said “it will be suicidal to expect that any armed conflict between China and the United States will be contained in conventional sphere for long.”

“Getting along with each other is the only realistic and honorable option between China and the United States,” Gao said. “No one in Washington should be allowed to indulge in any fantasy that they can keep battering China and hold China to ground without consequences.”

Competition Intensifies

The chances of outright military conflict between the two nuclear powers remains slim despite the heightened posturing. But threats of further visa restrictions and competing company blacklists undermining the few remaining bright spots in ties.

While talk of a U.S.-China Cold War ignores critical differences such as high levels of economic interdependence, the relationship is increasingly competitive in the military, economic, technological, institutional and even ideological realms, according to Charles Edel, a former State Department official and senior fellow at the University of Sydney’s United States Studies Centre.

“Competition is not the same confrontation -- nor is it a call to conflict,” Edel said. “Rather it is a reflection of the necessity of democratic nations to challenge the authoritarian model being promoted by China.”

Avenues for de-escalation are also increasingly sparse. With the exception of on-again, off-again trade discussions, there are no formal talks between Beijing on domains ranging from military-to-military relations to cybersecurity. Even beneath the surface, there are few signs of the kinds of backchannel contacts that have helped Beijing and Washington in the days going back to Henry Kissinger’s secret visit to Beijing in 1971.

‘We’ve Not Yet Seen the Bottom’

“There’s been no private communication and contact between the two sides. Where should we go from here?” said Zhu Feng, dean of the Institute of International Relations at Nanjing University. “This is a vicious cycle, pushing China-U.S. relations to the brink of losing control.”

Bonnie Glaser, who directs the China Power Project at the Center for Strategic and International Studies in Washington and has advised the U.S. government, said that Beijing has “written off the U.S.” and “they’re not listening anymore.”

“This is a worrisome time, especially as the U.S. goes into the presidential campaign in earnest over the next six months,” she said. “China’s just going to be a punching bag. So I think the relationship is going to deteriorate further and we’ve not yet seen the bottom.”

--With assistance from Jing Li.
To contact Bloomberg News staff for this story:
Peter Martin in Beijing at [email protected]
To contact the editors responsible for this story:
Daniel Ten Kate at [email protected]
Karen Leigh
© 2020 Bloomberg L.P.

Former National Hog Farmer editor Fleming passes away

Bill Fleming
Former National Hog Farmer Editor Bill Fleming, 1929-2020

William Dean "Bill" Fleming of Eagan, Minn., former National Hog Farmer editor, passed away May 13 at the age of 91.

Fleming became the third editor of National Hog Farmer, taking the helm in 1980 and staying until 1993. He was inducted in the Livestock Publications Council Hall of Fame in 1995. According to the LPC website, Fleming "graduated from Iowa State University in 1950 and first worked as farm director of an Iowa radio station. He spent 28 years with BEEF magazine and then as editor of National Hog Farmer. He is noted for his photography, writing and innovations he brought to livestock journalism."

He was born March 14, 1929, in Albert City, Iowa to William Earl and Esther (nee Swanson) Fleming.

He is survived by his daughters, Lisa Fleming and Karen Gray; grandchildren Evan and Kayla Gray; sister, Kathy (late Henry) Ehlen; and sister-in-law, Carol Fleming. He was preceded in death by his parents, wife, Joan E. (nee Breitbarth) Fleming, and brother, Donald.

Bill will be placed at final rest with his beloved wife, Joan, in Acacia Park Cemetery. A memorial service will be held at a future date. Klecatsky and Sons Funeral Home, Eagan Chapel, is handling the arrangements.                            

Packing capacity begins returning; will it be enough?

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Plenty of challenges remain for beef packers to resume what will pass for normal production in the post-pandemic era, but numbers suggest much progress the past two weeks.

Estimated cattle slaughter under federal inspection began to drop sharply the week ending April 10, with 536,000 head slaughtered, compared to 638,000 head the same week a year earlier, a difference of 102,000 head (-15.99%). Barring further COVID-19 complications, the week ending May 2 might be the bottom for slaughter: an estimated 425,000 head, which was 248,000 head fewer (-36.85%) than the prior year.

Jump ahead to the week ending May 23: Estimated slaughter of 555,000 head was 92,000 head fewer (-14.22%) than a year earlier. Trends are similar for the weeks in which actual slaughter under federal inspection data are available.

Depending on who’s running the abacus, individual packing plants are currently running from about 50% of capacity to near 90%. That’s relative to pre-pandemic capacity. Post-pandemic maximum capacity will likely be less, due to added worker safety measures to guard against COVID-19 infection.

Working through the backlog of fed cattle

Hobbled in a different pasture, although massive and burdensome, the backlog of market-ready fed cattle could be on the lower end of early estimates

Toward the end of April, agricultural economists Glynn Tonsor at Kansas State University and Lee Shulz at Iowa State University, estimated fed cattle carryover May 1 at 485,000 to 510,000 head. For June 1, they estimated 1.07 million to 1.34 million head. That’s in Fed Cattle Flows: Demonstrative Scenario Examples, which estimate the number of cattle on feed for more than 120 days and more than 150 days, as of April 1, utilizing monthly Cattle on Feed reports which account for feedlots with 1,000 head or more capacity.

“Too many producers being forced to delay feedlot marketings can quickly cause an oversupply of both market-ready cattle and over-fed, over-finished cattle and lead to an eventual market purge of heavy cattle at some point, which can drive prices down,” Tonsor and Shulz explained in their report. “It is important to remember that overall feedlot numbers are not burdensome; it is the supply of market-ready or near market-ready cattle that is burdensome relative to current slaughter capacity.”

However, in the May 18 episode of Agriculture Today, Tonsor explained it was possible to start June with fewer than 1 million head of fed cattle carryover if packers could maintain harvest levels above 500,000 head the last two weeks of May. Final harvest figures won't be available until mid-June. 

Still, working through the existing backlog will be arduous.

“Even if we were running at 660,000 head like we were a year ago, if I’m correct that we have north of 500,000 head carryover, you have more than a full operating week (beef processing) just to deal with the backlog. So, it’s not just days or weeks; it’s really going to take months to push through this process,” Tonsor explained.

Recent feedlot placements will help

“Combined March and April placements were down 867,000 head from last year. This suggests a significant drop in expected feedlot marketings starting mostly in September and into October,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

“Of course, the delayed placements from March and April will show up starting in May and will be heavier, but the delay will help feedlots have a chance to get current. The feedlot industry will spend much of the summer working through the backlog of fed cattle but the hole from March and April feedlot placements should provide a marketing window to catch up by this fall if not before.”

In the latest monthly Livestock, Dairy and Poultry Outlook (LDPO), analysts with USDA's Economic Research Service (ERS) estimated there were 20.54 million head of cattle outside feedlots April 1. That was 657,000 head more (+3.30%) than the same time a year earlier.

“The buildup in fed cattle supplies that are market ready is expected to have a substantial and lasting effect on fed cattle prices,” say ERS analysts. “Prices will remain low as the supply of market-ready cattle remains above the sector's ability to process them, and the supply issue is expected to linger through 2021.”

Consequently, ERS lowered this year's average price forecast for fed steers (Five Area direct) to $104.08 per cwt: $118.32 in the first quarter; $99 in the second and third quarters; $100 in the fourth quarter. The projected annual average price for next year is $109.

Recent cash prices are significantly higher than the estimate. The question, of course, is will those prices hold? Stay tuned.

Memorial Day shutdowns lower volume

There were 19,900 head of feeder cattle at the test auctions, which was half of last week because of the typical Memorial Day holiday week slowdown. Prices were either side of steady with less active bidding on the smaller numbers, but there were some lower and some higher prices.

Slaughter cow numbers were very low with only 3,000 head at test auctions due to Memorial Day shut downs. Prices dropped $1-3 lower on the heels of over a $3 drop in the cow cutout on Wednesday compared to the previous Wednesday. 

 

Drought throws a curveball at Oklahoma beef producers

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By anybody’s reckoning, COVID-19 has turned beef production upside down. Market volatility, packing plants closing or reducing output, shortages at the supermarket, you name it and it’s probably happened somewhere. That kind of up and down creates an environment that beef producers have never before encountered.

“To make matters worse, the [Oklahoma] Panhandle just went through 142 days with under a quarter-inch of rain as of May 17 and about 2 inches in six months,” said Justin Wagner, Cimarron County Extension director and agricultural educator. “In other parts of the state, many producers have been holding onto their cattle waiting for prices to increase, but we have no grass out here.”

Wagner has been working with Panhandle-area beef producers to work through options. Many cattle operations have had to get rid of animals at a significant loss. A few have even resorted to selling live animals to consumers direct off the pasture, when and where possible.

“Even that option is limited despite the fact that grocery store shelves might be nearly empty of product and prices being paid by shoppers for cuts of meat are rising,” said Wagner, who worked as a USDA meat inspector for three years. “There are government regulations when it comes to harvesting livestock. Producers still must partner with a meat processor such as JBS or Tyson Foods. We’re in the mecca of meat packing plants and so disruptions to their operations are very real to people from this part of Oklahoma, Texas and Kansas.”

Cattle operations are being hit hard in areas less affected by drought as well. Changes in the energy sector economy have shut down many ethanol plants, taking away distillers’ grains as an option for feed byproducts. Transportation and logistics issues have reduced trade and availability of many other byproduct feeds.

Oklahoma State University Animal Scientist Paul Beck said it is vital producers everywhere develop market plans and alternatives, including targets for a date or a market price, that will be adequate to meet operational goals

“This will make the decision process for selling livestock easier and ensure a rapid response when the benchmark is reached,” Beck said. “As with all goals, be sure they are achievable and reasonable. Producers can’t hold onto animals that need to be moved forever.”

For example, large steers weighing 800 to 900 pounds will need to be marketed before they get much bigger. Smaller steers can be grown at higher rates and kept for a longer timeframe. Genetically superior heifers that have not been implanted may make a brood cow for someone in the future, giving a beef producer another option.

Be sure that range and pasture conditions are not damaged by overgrazing. To guard against this, a sacrifice pasture or drylot should be used to decrease negative impacts on future productivity of other pastures.

Large cattle gaining about 1 pound per day have fairly low protein and energy requirements, roughly 7% crude protein and 52% total digestible nutrients, Beck said. Nutrient needs of other growing cattle depend on the body weight and targeted rate of gain.

A 700-pound growing steer gaining 1.5 pounds per day, for example, needs a diet with 56% total digestible nutrients and 8.5% crude protein. Those gaining 2 pounds per day need diets with 10% crude protein and 60% total digestible nutrients.

Feeding mixed diets based on hays, straws or crop residues can be a viable option. Feeding long-stem hay with a supplement is a common practice but livestock intake of low-quality crop residues separate from concentrate feed can be variable and waste will be an issue.

Straws and other crop residues are often around 4% to 5% crude protein and 45% total digestible nutrients, so more concentrate will be required. However, concentrate feed options that producers typically depend on may be unavailable because of pandemic-related supply chain disruptions.

Beck also warned that feeding wheat needs to be managed closely as acidosis and other digestive upsets can occur with poor mixing or feeding management. Prolonged feeding of grain sorghum can cause issues with urinary calculi because of high phosphorus and potassium in these diets.

Stotts works in agricultural communications services at Oklahoma State University. The opinions of the author are not necessarily those of beefmagazine.com or Farm Progress.

Will restricting AMAs really save the cash market?

Burt Rutherford Marketing beef cattle

Alternative marketing agreements (AMAs) have replaced the cash market for fed cattle because they cut costs for feeders and packers, increase efficiencies and improve the overall quality of beef. This does come at a cost to the depth of cash market price discovery. But what are the dollars and cents and how much does it affect the industry’s bottom lines? Naturally, the impacts are different for feeders, for packers, for cow-calf and stocker operators; they also vary by region of the country and size of operation.

Stephen Koontz, agricultural economics professor at Colorado State University, puts the bottom-line answers up front in a recent white paper that could be used as a foundation for industry policy decisions. Koontz’ white paper comes on the heels of his pre-publication document we reported on last week.

To come up with real world figures, Koontz drew on the USDA-GIPSA RTI Livestock and Meat Marketing study (LMMS), mandatory price reporting (MPR) data, and interviews with packers and cattlemen both for the RTI study and recent interviews to continually follow trends and costs. The LMMS study involved four teams, 30 researchers, 3 years, six volumes of information and peer review. The knowledge gained from all that research can be used to synthesize dollar costs of the impact of the 30/14 idea and the 50/14 proposed bill now being discussed in the country.

In rough numbers, 70% of cattle nationally are formula marketed, 10% forward contracted (plus 30 days out), 20% negotiated cash and 2% negotiated grid. But these figures vary greatly across the five USDA AMS Livestock MPR regions. The very fact that the use of the cash market and AMAs varies greatly by region of the country certainly explains differences of opinions about what works best for different operations.

Koontz’ research shows that mandating either 30% or 50% cash transactions provides almost no benefit and considerable cost to the beef industry through lost efficiencies and product quality. That is because AMAs confer considerable benefits and almost no costs. AMAs have solid economic foundations as the white paper points out. And those economics hold for cattle, hogs and lambs, all through the meat production chain.

Costs vs. benefits

And the way the chain works out, the costs of mandating a floor to the cash market are ultimately borne by the cow-calf producer and the consumer, the first and last folks in the chain.

How much? Koontz estimates a cost of $2.5 billion in the first year under the 50/14 proposal and a cumulative cost of $16 billion over a decade, most of which would be borne by the cow-calf segment. The 30/14 proposal cost would be roughly half those numbers.

While there would be impacts on the upper Midwestern feeders and packers, Southern Plains feeders and packers and the producers who sell calves into that region would feel major harm. The “distribution of impact could be called egregious,” Koontz said.

The main “cost” of AMA use to the beef production chain is the potential for packers to exercise market power. The benefits of AMA use to the beef industry is operating efficiency for both feedyards and packing plants and higher quality beef for consumers. The question is how the market power vs. efficiency factor boils down in ultimate net dollars.

The second cost to the beef industry is potential detrimental effects on price discovery. Koontz points out that the LMMS study did not address that issue, but he draws on his recent and ongoing research for those conclusions. The key consideration is that the quality of price discovery does not change fundamental supply and demand and does not change costs and benefits as indicated in the LMMS, he said.

MPR information includes loads of data on transactions, including breed type, grades, weights of everything, carcass destination, purchase method and sources. Statistical analysis involved pricing factors like boxed beef, futures, regional cash prices and showlist numbers. Showlist numbers were imputed from the cash slaughter over the succeeding 14 days. The percentage of AMA cattle harvested of total plant purchases or capacity provides a measure of market power, the paper noted.

To us, some of these results log facts and others seem to put flesh on hunches that have been without data backup. The paper notes that economic fundamentals and animal quality explain transaction prices the most.

Higher boxed beef, futures and prior week cash prices contribute to higher transaction prices. Quality premiums are higher. Larger numbers of cattle in a transition garners a premium. Showlist size affects the price. The momentum of prices tends to carry forward, whether higher or lower.

Many market factors

The analyses confirm that many factors affect cattle prices, not just AMA volume. For the time period examined, October 2003 – March 2005, the average price was $138 per cwt carcass weight. Further, the analysis showed that when AMA volumes were higher relative to plant capacity, fed cattle prices were lower but the difference is minimal. 

A 1% increase in AMA cattle was associated with a 4-cent-per-cwt decrease in transaction price or 10% more AMA volume showed a 40-cent decrease in price.  If all AMAs were eliminated—the average utilization was 17% during that time period—prices could rise 68 cents per cwt, or $6.12 for a 900-pound. carcass. These are weighted averages for all plants.

The researchers asked both feeders and packers what impact AMA restrictions would have on their business. The answers ranged from shutting down to no impact, depending on the actual definitions involved. 

But for some, the impact on risk-bearing and capacity utilization would be substantial. Known marketing arrangements allowed feeders to secure both outside investors and better lending terms. Without AMAs, feeders would feed fewer cattle and have to borrow more money against the cattle. Capacity utilization would drop. Maintaining rates of return, more debt and/or more risk and higher borrowing costs would all put downward pressure on feeder cattle bids.

Packers indicated they would have to adjust and added costs would negatively impact fed cattle bids. A key concern was lower quality due to degradation of sourcing to a commodity market. Both feeders and packers were concerned about meeting the needs for branded programs. Unless new strategies were devised, cattlemen would miss out on these premiums.

Lower capacity in the feeding sector due to less capital available, lower quality, higher costs from lower efficiency and higher overhead would lead to a smaller beef industry, some feeders predicted. AMAs can lead to labor efficiency of 1,500 head per person instead of the industry average of 1,000 head. Some feedlots report a 20-percentage point increase in capacity utilization with AMAs, spreading overhead costs over more head.

Cost savings ranged from 17% to 22%, figuring 30 cents per day yardage (not including feed) and 150 days on feed. Total feedlot cost of $45 per head meant cost savings of $7.65 to $9.90 per head. Much of that is labor cost savings, reported in the $1.25 to $10 per head range. Quality premium loss estimates are bigger, ranging from $15 to $17 per head.

Packers would see higher costs, but their primary concerns centered around quality and the loss of customers for higher quality products.

Plant financials

Next, the researchers examined packing plant financials. Not surprisingly, average total cost (ATC) is a function of volume, along with other factors. Larger plants had a lower ATC and the more volume, the lower the ATC, with a fairly steep downward curve, with the range $143 per head down to $122. 

Plants at the lower end of the curve were 5-8% more efficient than the middle and 12-15% more efficient than high-end ATC plants. Concentration in the packing industry has happened because the larger plants operate at a lower cost per head. But they require large volumes to operate efficiently and securing regular supplies is crucial.

During this time period, average slaughter costs were $139 per head and AMAs were saving packers $1.22 per head. More importantly, plants with higher AMA volumes had higher total plant slaughter and processing volumes. Without AMA volumes, total volumes would drop by 8% and costs would increase 2.6%. The variability without AMAs would add another 1.2% in costs. Total slaughter and processing costs are 4.7% lower using AMAs, or $6.50 per head. At the time of this data collection, packers were losing $2.40 per head.

Trickle-down economy

The researchers constructed a graphic model using the data they had assembled that would account for all the various inputs, outputs and results that are a part of the beef production chain. The model illustrates that the industry revenue from the consumer—the only source of money for the industry—is really the start of the equation. 

That revenue works its way down through retailers and HRI to packers and purveyors and then to cattle production sectors. Everyone taking some profit along the way is referred to as marketing costs. Everyone in the chain responds to incentives. Consumers buy more or less beef according to price, cow-calf producers produce more or less depending on calf prices and everyone in between does likewise.

There is another factor affecting consumer purchases besides price. Demand for beef has definitely gotten stronger over recent decades, supporting consumers’ inclination to buy beef at higher prices. If AMAs have contributed to beef quality and consistency, limiting them would be expected to affect demand.

Indeed it would. Koontz points out that interviews, surveys, analysis of packer P & L statements and market modeling all indicate limiting AMAs would adversely affect demand.

Without the quality incentive, consumers react to higher prices by buying less beef and shifting to other cheaper proteins. A policy reducing AMA use, which would result in lower-quality beef, would cost consumers nearly $370 million in the short run and $2.5 billion in the long run.

In that scenario, changes in costs, revenue and especially lower pounds from fewer cattle mean retailers and the wholesale complex, including packers, see a cost total of $200 million the first year and $3 billion in the long run. 

Feeders and cow-calf and stocker operators would take the biggest hit, with feeders seeing costs of $558 million and $3.9 billion in the long run. The policy would cost stocker and cow-calf segments $1 billion in the short run and $5 billion in the long run.

All told, the beef industry would see total costs of $1.9 billion in the short run and $12 billion in the long run (2004 dollars).

It turns out, packer market power from AMAs amounted to much less impact than importance of efficiency savings to the production chain, the report showed.

“Limiting AMAs loses produces a lot of efficiency downstream and gains producers little,” it said.

That bottom line may not be what everyone expected, Koontz said.

“But it is consistent with large amounts of agricultural economics marketing research, the culmination of which was the 2007 LMMS.”

Regions are not the same

The LMMS looked at all the data from a national perspective. But Koontz has used information from current market conditions to shake out regional differences in effects of an AMA restriction policy.

Nationally, fed cattle are marketed 70% through AMAs, 10% forward contracts and 20% cash. But in the Southern Plains, particularly Texas-Oklahoma-New Mexico, the split is 90% AMAs, 5% forward contracts and 5% cash. In the upper Midwest, the splits are more variable, with 10-30% formula, 10-30% forward contracts and 40-60% cash.

Restricting AMAs and forcibly requiring cash would mean a seismic change for the Southern Plains, having to go from 5% cash to 30% or 50%.

A market fact that politicians almost certainly didn’t consider is the significant variation in use of the cash market week to week or month to month, regardless of region. The mandates require a minimum every day. The Nebraska and Iowa region would be the least affected, Texas-Oklahoma-New Mexico and Colorado the most affected, Kansas falls somewhere in the middle.

Bottom lines

The white paper concludes that limiting the use of AMAs to 50% would cost the packers at least an estimated $10 per head and at least $25 per head for feeders. For the total beef production chain, the cost would range from $35-65 per head.

Total additional costs at the industry level would be about $2.5 billion per year. But because costs being passed down each year would shrink cattle numbers, the 10-year cost would be roughly $16 billion. The costs would be borne primarily by cow-calf operators and the brunt would be borne in the Southern Plains, the white paper concludes.

Steve Dittmer is a longtime beef industry commentator and executive vice president of the Agribusiness Freedom Foundation. The opinions of the author are not necessarily those of beefmagazine.com or Farm Progress.