Stop ‘captive supplies’ in farm bill

Guest Commentary

By George Chambers

BILLINGS, Mont. — My parents, wife and I are the fifth- and sixth-generation owners of 27 Cattle Co., in Carrollton, Ga. Our young son will hopefully become the seventh. This is not inevitable.

Unless we restore the opportunity for profitability in our cattle industry, our son will likely choose a different career. It is our generation’s responsibility to restore competition to our industry so the next generation will have an opportunity to profit within this, our industry of choice.

Hog and poultry producers already traveled the road cattle producers now travel. After consolidating into mega-plants, leaving producers with few marketing options, hog and poultry packers offered production contracts to some producers, allowing them to stay in business.

Hog producers

Hundreds of thousands of hog producers, who were not invited into a production contract or who refused to trade their independence for one, exited the hog industry. Since 1980, the number of U.S. hog operations shrank from 667,000 to only 67,000.

The number of U.S. cattle operations also shrank, falling by about 625,000.

However, there were more cattle producers when the exodus started, so despite losing 40 percent of our operations, 900,000 exist today. This number can sustain a competitive market, provided the industry takes steps to halt its decline.

What fuels this exodus of cattle operations is the machine that decimated the once independent hog and poultry industries — market control by the highly concentrated meatpacking sector.

Strategy

The packers’ strategy to capture control over the supply chain is simple and effective. Here’s how it works:

• A few packers gain dominant control over meat slaughter (four packers now control 80 percent of cattle slaughter;
• Packers restrict producer access to their slaughter plants by first slaughtering their own cattle, imported cattle and cattle committed to them long before slaughter, before even bidding on producer-owned cattle;
• When producers complain about restricted market access, packers offer guaranteed access in return for commitments to deliver cattle without establishing a price, causing an increase in packer-controlled cattle, known as “captive supplies,” and a decrease in cattle sold in the open market;
• Packers sit back and watch their circular strategy self-perpetuate, with more and more captive-supply cattle displacing producer-owned cattle.

Captive supplies

As captive supplies grow, the open market becomes too thin to function properly, and the value of slaughter-ready cattle falls, leading to a reduction in calf prices and prices for all classes of cattle.

This is good for packers, but signifies the beginning of the end for independent producers. This is why we must pass the prohibition on packer ownership of livestock in the 2007 farm bill. It will minimize the large packers’ ability to restrict producer access to the market and lower cattle prices.

I’ve had first-hand experience in not being able to timely market slaughter-ready cattle, even while packers complained of insufficient cattle supplies.

After 20 years of retaining ownership of my cattle, and in the wake of tight supplies, I shipped two loads of cattle to Iowa for feeding. When the cattle were slaughter ready, I put them on the show list and awaited bidding to begin.

No bids came. After two weeks, no bids came. But my feed bill kept growing.

After four weeks, I bit the bullet and shipped my cattle to an auction yard in Ohio. There, my Choice and Prime quality cattle, which yield graded 2 and 3, were purchased by one of the few remaining independent packers.

It’s time

It is time to limit the packers’ use of market-restricting and price-depressing captive supplies, particularly since JBS-Brazil is trying to further concentrate the packing industry.

Cattle producers and consumers should call Congress and urge passage of the prohibition on packer ownership of livestock in the 2007 farm bill. This will help restore competition and preserve the opportunity for independent cattle producers to remain independent.

(The author is R-CALF USA Region IX director representing Georgia, Alabama, Florida, North Carolina and South Carolina.)