By:  Travis W. Hoffman
NCBA Young Producer’s Council Live Cattle Marketing Committee Chair

Innovation, differentiation, marketing, and a focus on quality beef have allowed progressive producers to manage market risk, provide beef for consumer demands and improve operation profitability.  These are fundamental components to entrepreneurship and building on free market choices, specifically for America’s young ranching families.  However, we must realize the potential impact of the United States Department of Agriculture – Grain Inspection, Packers and Stockyards Administration (USDA-GIPSA) and their recent proposed rule on future marketing of our cattle.  Our voice is needed, as this is not a small vs. big producer issue.  This is a good producer issue and the pro-active person who believes in market differentiation has the most to lose with this proposed rule. 

This topic is always contentious, but was most recently defeated by U.S. Congressmen in discussions regarding the 2008 Farm Bill.  Congress provided a directive to USDA-GIPSA to clarify specific regulations under the Packers and Stockyards Act.  According to the USDA website, the Grain Inspection, Packers and Stockyards Administration facilitates the marketing of livestock, poultry, meat, cereals, oilseeds, and related agricultural products, and promotes fair and competitive trading practices for the overall benefit of consumers and American agriculture.  However, according to Allie Devine, Vice President and General Counsel for the Kansas Livestock Association, USDA has gone above and beyond what was asked and directed by the U.S. Congress mandate of the Farm Bill and has decided to expand the jurisdiction of the agency to encourage future litigation on the basis of unfair and undue preference of livestock.  Consequently, this will most likely change the way we market cattle in the United States.

Allie Devine spoke at a Colorado Livestock Association meeting by leading off with, “I see very little good with this proposed rule for the cattle industry.”  Alternative marketing agreements and the ability to market improved genetics have incentivized decades and lifetimes of progress among American cattlemen.  Consumers deserve beef choices in the retail and foodservice marketplace. More...

I saw Secretariat in the movie theatres this weekend.

It’s a heartbreaking tale about how an adult sister and brother must come up with 6 million dollars in order to save their family’s horse farm after their father passes away. I’ll go ahead and spoil the movie for those who don’t already know the true story. The family is able to raise the money through the miraculous racing season of the Triple Crown winning horse Secretariat.

The problem is most families don’t have Triple Crown winning racehorses to pull them through estate tax issues. In fact, estate taxes are one of the leading causes of the breakup of multi-generation family beef operations.

For this year, and this year only, there is no estate tax. That’s right, 2010 is officially a great year to die. However, at the end of this year, the estate tax rate will revert back to the pre-2001 level of a staggering 55 percent and the exemption amount will fall to one million dollars.

For production agriculture, an asset-heavy industry with irregular cash flow, this would be devastating. The value of land, buildings and machinery puts many family farms about the million-dollar line in assets. However, the only options to raise 55 percent of these assets in cash include the lottery, a great racehorse or – more often than not – selling off assets or even the whole farm.

I’d urge you to reach out to your Senators and House Representatives in D.C. to talk about the importance of addressing the estate tax issue before the end of the year. An ideal situation would be a full repeal or agricultural exemption from the estate tax. However, efforts to increase the exemption level to $5 million and reduce the tax rate to 35% also represent a much better solution than allowing the tax to revert to it’s pre-2001 levels.

You can read the NCBA backgrounder on Estate tax here.

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.

GIPSA scares me.  A lot.  I agree with a comment made at NCBA Policy Forum at Cattle Industry Summer Conference that GIPSA is a shot at the packers that hits producers. Some of the following information is adapted from the NCBA Backgrounder, which offers more details.

BACKGROUND
As part of the 2008 Farm Bill, USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) was directed to issue regulations regarding poultry and swine contracts; arbitration use in contracts; and to establish criteria for the Secretary to consider in determining whether an undue or unreasonable preference or advantage has occurred in violation of the Packers and Stockyards Act.  GIPSA released their proposed rule on June 22, 2010.

WHAT IT DOES
• Under the new definitions included in the proposed rule, “competitive injury” and “likelihood of competitive injury” are re-defined and made so broad that mere accusations, without economic proof, will suffice for USDA or an individual to bring a lawsuit against a buyer.
• The regulation requires buyers purchasing livestock through marketing arrangements to submit a sample copy of each unique type of contract or arrangement to GIPSA within 10 days of it being agreed to.
• New criteria require buyers to justify every single penny difference they offer to one producer over another. Inadequate justification for a price differential would give cattle producers yet another way to bring suit against another party.
• The proposed rule bans packer-to-packer sales of livestock.
• Order buyers will only be able to represent one packer.

WHY I’M SCARED
First, I’m concerned the proposed regulations will cause packers to withdraw marketing agreements. Quality of cattle varies and market premiums and branded programs allow producers to capitalize on extra value. Take these benefits away and our industry no longer has any incentive to improve. There also are some privacy issues with personal information contained in marketing agreements. 

WHAT YOU SHOULD DO
USDA is taking comments from all interested parties. Send them yours. Examples will be on the NCBA website soon. Also, contact your representatives and request that they let the White House and Secretary of Agriculture know the proposed regulations will not work for cattle producers. Finally, show up for the Department of Justice livestock competition workshop in Fort Collins August 27 and make your voice heard.

I am not a political person. I’m just not. My idea of fun doesn’t include sitting around a table, sipping on gin and tonic and debating politics. That’s okay if other people enjoy it; I’m not one of them.

 But these days, it pays to perk your ears up when legislation is being discussed, because there’s a lot on the table that could have some pretty heavy impacts for the beef industry. Greenhouse gas regulation, wolf laws, water rights, crop insurance, et cetera. 

Ignoring what is happening up on Capitol Hill can be disastrous. It can be easy to bury ourselves in work, in the challenges of just making it from day to day. But to hole up and stick our heads in the sand? That’s not the answer.

Unfortunately, I think we’ll be wading into some stiff battles on the political front pretty soon – in the beef industry and agriculture as a whole. The more information we have, the more educated arguments we’ll be able to make. Maybe we won’t be able to change anything. Maybe upcoming legislative decisions will be handed down with a “Do Not Pass Go” ticket stapled to it. Maybe we’ll get saddled with all types of regulations.

Okay, but that doesn’t mean we can’t dig our heels in, get informed and fight for what we believe in. That’s what my dad taught me anyway.

The Humane Society of the United States (HSUS), a self-declared "sophisticated political organization," submitted a petition to Ohio’s Attorney General this week in support of placing an "anti-cruelty" measure on the statewide November ballot. The proposed measure would allow voters to require the newly created Ohio Livestock Care Standards Board to adopt standards that will effectively end livestock production in Ohio by making it economically unfeasible to feed chickens, hogs, or veal calves in the state.

Utilizing a large corps of paid petition circulators, the group will seek to collect more than 600,000 signatures of registered Ohio voters upon approval of the petition forms by the Secretary of State. In doing so, they will attempt to circumvent the will of the Ohio voters in passing the measure to create the Ohio Livestock Care Standards Board last November.