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...

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.

“If you’re not outraged, you’re not paying attention.”

As you may already know, GIPSA has been keeping me up at night. One aspect I think deserves special attention is the particular affect the proposed GIPSA regulations could have on young producers.

Even though the proposed rule doesn’t directly ban the use of alternative marketing agreements (AMAs), the unintended consequences of the rule will restrict or eliminate them. This takes away cattlemen’s ability to manage risk, finance production and compete with one another to negotiate premiums. This is especially devastating for young people looking to enter the cattle industry as producers for the first time. Financing is particularly hard to obtain in that position, and may be impossible without the financial guarantees AMAs provide.

Additionally, if the definition of competitive injury is changed, the door would be opened to frivolous lawsuits from trial attorneys. Packers will manage this law-suit risk by simply offering a one-price-fits-all bid for cattle. This type of pricing does not recognize variation between animals can result in value differences of up to $300.00 per head. One way many young producers I know have been able to break into the cattle business is by focusing on producing high-quality cattle that garner premiums. Under the proposed rule, producers would no longer be compensated for added quality.

Looking at the future of our industry as a whole, I have concerns that we lose our incentive to progress and provide better cattle if everyone is paid the same.
So, what can you do? First, write a letter commenting on the proposed rule. A form letter is available here. Additionally, the Department of Justice is having a hearing on competition in the livestock industry on August 27. I’ll be there and think you should be to. We need people to show up by the masses to demonstrate that producers oppose the proposed regulations. If you’re looking for a little added incentive Ft. Collins is famous for its Rio Margaritas. I may even buy your first round if that’s what it takes to get you in town for the hearing.

For more information on the GIPSA proposal click here.

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.

While I’m a passionate Shorthorn breeder and proud cattleman, my “day job” is reporting agricultural news on a statewide radio network.  In the near-decade I’ve spent in the newsroom, one of the most consistent topics of reporting is global trade and agricultural products.  From the push for Permanent Normal Trade Relations with China to passing “Fast Track” Trade Promotion Authority for President’s Clinton and Bush to the dispute over science-based trade of U.S. Beef following the discover of BSE in this country in 2003, there continues to be no shortage of stories related to global farm trade.  And yet, I observe that global trade remains one of the most misunderstood and underappreciated pieces of the farm income puzzle in our country. 

To say that we are in a global marketplace is understatement bordering on folly.  Regardless of your policy leanings on this issue, it is indisputable that a significant portion of U.S. agricultural revenues, particularly in the livestock and meat trade, are generated outside our borders.  This week NCBA, commenting on Wednesday’s announcement that Canada will pursue a World Trade Organization (WTO) dispute process against U.S. mandatory country-of-origin labeling (COOL), reinforced the importance of international trade to beef producers.

Canada and Mexico are our top two trading partners, together accounting for 59% of total U.S. beef, beef variety meat and processed beef product export revenues last year, according to the NCBA statement.  Considering it likely that Mexico will join Canada in proceeding with a formal WTO dispute settlement process soon, NCBA stated “the U.S. imports and adds value to Mexican and Canadian livestock through our feedlots, processing and infrastructure; and we export this value-added finished product back to Mexican and Canadian consumers. Any disruptions to either of these markets will have a significant economic impact on our industry. Unfortunately, it’s becoming clear that COOL has damaged these critically important trading relationships, and is not putting any additional money into the pockets of cattlemen.” More...