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Breeders respond to Angus e-List 47

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In response to the Kansas Livestock Association (KLA) plea for cattle producers to oppose the ban on packers owning cattle, there are a couple gross misrepresentations.

1. KLA says the Packer ban "seeks to prohibit alliances initiated by beef producers" and would reverse this progress.
This statement is false. The packer ban on feeding does not prohibit contracts for future delivery of livestock, but does prohibit packers from owning cattle outright, through a subsidiary, or through arrangements that give them operational control over livestock prior to 14 days before slaughter.

2. The article also referenced KSU economist Mintert who was quoted as saying "We’re not aware of any published empirical research indicating that packer ownership of cattle has a negative impact on prices."
Again, this is incorrect as there have been several studies including Purdue and GIPSA (Packers and Stockyards) showing that such types of captive supplies are used strategically by large packers and have a negative impact on fed cattle prices. Including one in 1992 that Mintert himself participated in which found a "negative statistical relationship between fed cattle prices and captive supplies."

3. KLA also referenced eight economists earlier this year saying "there is no economic evidence to support buying restrictions on packers."
It’s interesting the KLA would cite the meat packers' economists and not cite a widely publicized report which included anti-trust attorneys who criticized these eight economists for their gross misrepresentations.

It’s also interesting to note that the terrible consequences that the eight economists projected have not occurred in either Nebraska or Iowa, which are states that already have similar packer ban laws in place.

What is interesting is that KLA would present such a biased opinion.
Who benefits from such faulty representation? Certainly, not the cattle producer.

Why didn’t KLA tell their audience that in 1988 and 1994 Bob Peterson, the CEO of IBP, told the KLA that "There is a quiet trend toward packer feeding and it is much bigger than you think." "…packer fed cattle can be killed early or late to fill a particular time frame… and grants the packer far greater flexibility to move in and out of markets." "These forward contracts coupled with packers feeding could represent a significant percentage of fed cattle at certain times of the year. Do you think this has any impact on the price of the cash market? You bet."

Maybe there is a sound reason why five past presidents of the Texas Cattle Feeders Ass’n disagree with KLA, and instead signed a joint letter supporting the Johnson amendment to ban packer feeding.

Certainly the packer ban is not the silver bullet in returning some rationality back to our market, but it is a good start in creating some positive change to restore competition and a value-based market. Maybe if we are successful in returning some of these competitive values back into our markets, then maybe instead of seeing packer margins increase nearly three fold since 1992, while US fed cattle prices dropped as reported by Livestock Market Research Center — maybe instead we would see US cattle prices move back into synchrony with retail prices.

Doanes Agr. Report last fall published that based on the previous three years average livestock to retail spread of $1.50, the year 2001 spread of $1.90 should have supported fed cattle prices in the $80/cwt range instead of the low $70/cwt. Maybe if we addressed some of these anti-competitive practices, those of us in the cattle sector would also see an improvement in our margins.

I suggest that those of you who believe in an open competitive market, and who believe in the values and institutions on which this country was founded, support the Johnson amendment.

Those of you who support a more socialized market structure that limits managerial decisions, that limits participation, that limits opportunity, and limits your choices, should support KLA’s position.

Leo McDonnell
Columbus, Montana

After reviewing the 47th Angus e-List I find Mike Collinge's opinions inaccurate and dated. An amendment passed and added to the Senate Farm Bill 2/14/02 defines control and market access for producers. The KLA is a packer controlled organization that did not support or respond to its producers; consequently Kansas cow-calf producers formed the Kansas Cattleman's Association to have their opinions and concerns accurately represented.

If packers really own a paltry 3.5% of the kill, why do they care so much? Reportedly big packers dropped one million dollars (unsuccessfully) on Senate Lobbyists to kill the Johnson Grassley Amendment, an incredible sum of money for just 3.5% of cattle slaughtered in the United States. The majority of cattlemen across the U. S. overwhelmingly support some type of big packer ownership ban. Big packer buyer power and market predation make it clear that legislation is the producers only hope and that this fight is about independent producers versus corporations and a return to fair competition in the marketplace.

Below I have listed what the packer ban will and will not do.

I. What the packer feeding prohibition will do.
A. Increase competition and bidding for livestock because the packers will have to bid for supplies that they don't own
B. Decrease market distortion because dumping these supplies on the market makes prices more volatile in ways not caused by supply and demand.
C. Increase access for producers because shackle space will be freed up from packer owned livestock. Access is the big issue these days, almost bigger than price.
D. Eliminated preferential treatment by packers of their own livestock versus non-owned livestock so producers don't have to wait in line.
E. Increase the breadth and depth of the open market because the currently thin spot market, from which all price discoveries are derived. More volume makes a market more resilient and resistant to the affects of a single firm's decision to shut down a plant, stay out of the market, etc.
F. Increase the opportunity for small and mid-sized producers to access the market. Packers do not want to contract with or place packer-owned hogs with small and mid-sized producers. Excel's head buyer said this publicly in 1997. Morrel/Smithfield's buyer said it last year.

II. What the packer feeding ban will not do.
A. It will not affect forward contracts or marketing agreements. All arguments that this will occur are merely rhetorical and not backed up by legal analysis, though the packers have the money to generate that analysis if it existed.
B. It will not affect joint ventures. Again, all arguments that it will do so have not been backed up by legal analysis.
C. It will not affect international competitiveness. There is no publication or text showing that a packer must own its livestock supplies to be competitive with other countries. Our international competitors do not have livestock production sectors dominated by packer ownership. Exchange rates, tariffs, and subsidies are the key issues as to comparative value and demand at the international level, not whether the packer can own the livestock.
D. It will not affect branded products or quality-based programs. Quality specifications for branded or unbranded products are in wide use across the industry, whether the packers own the livestock, whether they contract the livestock, or whether they procure from the open market. There is no proof that the only way to improve quality is packer owned livestock.
E. It will not affect farmer's ability to finance. This is a packer ownership ban, not a contract ban. If packers can't own livestock, it won't affect farmers' ability to finance. Farmers have not complained about this alleged problem, packers have asserted it for the farmers. Farmers can finance from contracts that are not packer ownership or control arrangements. Farmers can finance if the market is free, fair and open.

III. Past history of packer feeding prohibitions.
A. We know that the dire consequences predicted by meat packers will not occur. Packer feeding bans are in effect in Iowa, Nebraska, Minnesota and South Dakota. Contracts are still allowed. Producers have not found financing problems related to these laws. Packing capacity is high in these states. Meat from these states is sold internationally.

IV. Why is a United States Department of Agriculture (USDA) study a bad idea?
A. USDA never comes through on these studies - USDA does not even do what Congress tells them to do. USDA has:
1. Failed to take any action on a petition for rulemaking with regard to packer ownership and captive supply. This petition for rulemaking was submitted in October 1996, initially published in the federal register for comment in January 1997, hearings were held on Sept 21, 2001, and USDA has done nothing since.
2. Failed to complete regulations on a swine marketing contract library as mandated by the Livestock Mandatory Reporting Act of 1999. Section 941 of that Act required the Secretary to publish final rules within 180 days of the date of enactment. Congress provided $200,000 for this project.
3. Failed to hire attorneys to lead investigations on competition cases despite the fact that Congress appropriated increased money for this purpose.
4. Failed to report as to whether they have implemented the General Accounting Office (GAO) recommendations contained in a report dated September 21, 2000. PL 106-472 mandated that this report by USDA-Grain Inspectors, Packers and Stockyards Administrators (GIPSA) be given to Congress by November 9, 2001. USDA has not provided this report.
B. USDA has conducted many studies, they have found problems but have been indecisive as to conclusions and action, due to packer pressure, this is where policy and legislation must come in:
1. It’s a whitewash, and a delaying technique — this issue has been around for 10 years.
2. USDA often hires economists who have received industry money but fail to disclose those financial ties to the public or Congress.
3. USDA has done a lot of studies in the past. They have found a strong correlation between increased captive supplies and price. They have not made a conclusion. This is a gray area where policy and Congress must step in.
C. The "control" issue is a "red herring." The "Big Lie Technique" - "Sky is falling technique" "Deliberate and intentional confusion":
1. Control is clear in that it does not prohibit contracts or joint ventures (where the joint venture as packer does not own or control livestock) and only addresses managerial or operational control.
2. Cooperatives are exempted
3. Packers at less than 2% annual slaughter are exempted, thus exempting most new joint ventures which are generally small.
4. Contracts are a right to receive livestock raised by a producer, it is not the transfer of managerial or operational control.
5. Senators Johnson and Grassley made this clear in a colloquy on the Senate record on December 18, 2001.
6. Law professors Roger McEowen (Kansas State), Neil Harl (Iowa State) and Peter Carstensen (U. of Wisconsin) did a legal brief in agreement with the Johnson-Grassley colloquy.
7. Similar state laws (Iowa and Nebraska) (also Minnesota and South Dakota corporate farming laws) prohibiting packer ownership:
i. have not prohibited contracts,
ii. Exist in some of the biggest packer capacity states in the country,
iii. Those states have as healthy an independent farm sector (given its state of unhealthy) as any other state; and
iv. No dire consequences have happened there.
v. There has been no legal analysis in support of the proposition that "control" means contracts.

Jay Miller
Life Member, American Angus Association

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