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Negotiated cash report, packer struggles

Free Market Reflections with Steve Dittmer

Negotiated cash report, packer struggles

The National Cattlemen’s Beef Association (NCBA) reported on the first quarter of monitoring the share of U.S. cattle bought through negotiated cash vs. other procurement methods.

Not too surprisingly, there was good news and bad news, for those favouring more negotiated cash sales.

The regions that customarily sell more finished cattle through negotiated cash sales continued those trends. The regions that normally sell fewer cattle through cash sales sold a significantly higher percentage cash but not enough to hit the 75 per cent of targets. Furthermore, NCBA is close but still hasn’t finalized packer co-operation in providing the other side of cash sales negotiations.

Jerry Bohn, NCBA’s president, said their subgroup concluded that the Nebraska-Colorado and the Iowa-Minnesota regions exceeded their thresholds for all of the 13 weeks in the first quarter. The Texas-Oklahoma-New Mexico and Kansas regions fell short of their 75 per cent thresholds in five of 13 weeks. There were extenuating circumstances, however, a major winter storm shut down Texas for a time and a major plant was shut down for lengthy mandatory maintenance. Residual pandemic problems also contributed.

Regardless of outside factors, the subgroup concluded that a major trigger was tripped in the first quarter. If another major trigger is tripped in any remaining quarter this year, NCBA is to commit to some regulatory or legislative attempt to increase negotiated cash trade. While feeders offered more cattle for negotiated cash trade, sometimes at a loss compared to other channels, packers did not always participate.

In the Texas-Oklahoma-New Mexico region, negotiated trade exceeded both 2019 and 2020 every week but one of 13 weeks. Compared to 2020, the range was plus 2,000 to plus 8,000/week, with the peak negotiated trade of 15,000 in early March. The only time cash trade dipped below 2020’s numbers was the third week of March, equalling 2019’s level.

Bohn said feeders were to be congratulated for their efforts in significantly increasing the number of cattle offered for negotiated trade but they can only offer the cattle. Someone has to provide fair value on the other side of the trade before a transaction happens.

But significant improvements were made by the voluntary efforts. The industry as a whole seems to be taking seriously the major implications of government involvement in fed cattle marketing. This is a tough time to be attempting something this difficult, with the packing industry short of capacity compared to supply — and demand — on top of COVID difficulties.

At the same time, boxed beef prices rose far beyond expectations this spring on stronger demand from a recovering hotel/restaurant/institution sector, continued retail demand and packers’ struggles to maintain peak harvest numbers. Pandemic provisions have trimmed some efficiency from processing lines. Keeping enough workers on the lines is more difficult, especially with schools running on intermittent schedules affecting family responsibilities. Fewer workers and long hours for those who have been working, including heavy Saturday volume to make up for under-capacity issues, are also taking a toll. Even with terrific packer margins to be had, the big plants can’t push much harder.

COVID concerns still enter into the labour picture even with vaccination programs.

Politically, the Biden administration is gearing up for another big spending bill, supposedly aimed at American infrastructure but actually including government social programs the progressive left wants such as pre-kindergarten, free college, family leave, elderly care plus government housing and manufacturing. They classify those things as “human infrastructure.”

With only a six-seat majority in the 435-seat House and a split Senate, the Democrats’ plans are bold. Senate rules require bills to get 60 votes to pass. However, once a fiscal year, Congress can pass budget bills under “reconciliation,” strictly dealing with fiscal issues such as revenues, spending or the debt limit. Reconciliation bills only require a 51-vote margin to pass the Senate — an end-around the 60-vote requirement. With the fiscal year ending September 30, the Democrats are planning to attempt two reconciliation bills in one calendar year, to spend more trillions in one year.

The Democrats want to do things for both coasts and the cities — things like mass transit and Amtrak, tax relief for those paying high state taxes and give billions to states that have high unemployment because they shut down their economies. The people in small towns and food producers in rural America don’t count as much.

About the author

Contributor

Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]

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