The other day I was building fence. Those of ya that have done that know it gives ya a lot of time to think. I was really pondering how this new GIPSA rule could reshape the American cattle biz.
I built my feedlot in 2005 with the idea I was going to buy heavy feeders and sell them as fat cattle. After I gave this more thought, I decided I could not compete with the big feedlots. I changed what I was going to do. I have carved out a real good niche buying calves off the cow. I wean them, vaccinate them. Dehorn and castrate if necessary. I then resell them in pot load bunches. I have my own type of value added program going on here.
What GIPSA will do is take away most all of my profit margin. It will make it so slim it will not be worth my time to do the work that I do. There is wording in this rule that refers to “competitive injury” and I don’t really believe there is such a thing. If a cow/calf operator refuses to wean, vaccinate, and castrate his calf crop, then that is his choice. We must all live with the consequences of our actions. I can buy these cattle at a lower price than other cattle. I take them home and do the work no one else was willing to do. So in my opinion “competitive injury” will only reward laziness and take the reward away from the people that are willing to do the work.
So I wonder if GIPSA will have farther reaching consequences. Follow me on this. If guys like me decide this ruling isn’t worth messin' with, it will have a backlash that will affect the businesses we get our supplies, feed, fuel, trucking, pharmaceuticals, and so on from. No one is better at spreading the wealth around than a capitalist like me. Now follow that dollar that I pay each of them. It will cycle through our local economy a few times before it leaves. Each time it changes hands it generates tax revenue for the state. With budget constrained times like these, you would think that would be a big deal to our lawmakers.
Now if you are a young operator just starting out like I was a few years ago, this new rule could make it next to impossible for you to get operating capital from your banker. He will not side with you because he will only see that there is not much opportunity for you to add value to the calves you purchase. And he may also be afraid that the cattle you buy may only go down or stale in value, which looks like a high risk loan to him.
Another look at it, from a packers view, may suggest that they will try to buy the cattle sooner, and feed them themselves. They may go to some existing feedlots with a proposition that the feed yard just work for them feeding the cattle that the packer’s order buyer picks up at an auction barn. Might be an appealing offer to some. There is no market risk involved. Just receive the cattle, keep them alive, feed 'em and when it is time, load them out. They will probably get a steady paycheck for their efforts. If you no longer have feed yards fighting to fill bunk space, it will deflate the calf market. Not to mention if a packer can fill his week with cattle he has in a leased feed yard, there will not be a cash bid.
I think by now you get the idea of how this rule could really hurt our business, and other businesses as well. I was discussing this idea with a friend last night and he pointed out that pharmaceuticals will go down in price as well as corn. As the commodities of cattle and corn decrease in value, land price will eventually follow, hurting tax revenue generated off property taxes. And we all know our schools operate off those tax dollars, as well as county governments. My friend then took it one step farther and pointed out that if they can get the land devalued it may make it easier for the government to buy it up, or take it, like they are trying to do in the western states right now.
This GIPSA rule has the potential to have farther reaching consequences than was probably foreseen. I will be drafting a letter that I will take to all the places I do business with and ask them to sign it. In the letter it will state how if GIPSA hurts my operation it will in turn hurt their business as well. I will also write a letter to GIPSA myself outlining how it will crush my American dream. I don’t like other people micromanaging my business and I doubt any of you do as well. Take time to think this one through and make your voice heard.