In the wake of COVID-19’s devastation to the cattle industry, some are calling for greater market oversight, but a well-known agricultural economist says to be careful what you wish for.
Derrell Peel, Oklahoma State University agricultural economist, said in a letter to Extension Agents called Cow/Calf Corner that COVID-19 had resulted in price changes and market behavior that are unprecedented, difficult to understand and confusing.
The anger and frustration of some cattle producers has turned to accusations and proposals for change that will have long-term implications and unintended consequences for the cattle and beef industry, Peel said.
COMPLEX MARKETS
The US cattle and beef industries probably are the most complex on the planet, he said. It has many levels of productions and an enormously complicated marketing chain.
Cattle producers often feel others do not understand the cattle business, with its many challenges and unique considerations of raising cattle in a vast array of climates and production environments, Peel said. And they constantly fend off never-ending calls to change how cattle are produced.
THE CALL, THE REALITY
Currently, some producers are calling for one-size-fits-all restrictions on business practices or changes in industry structure, he said. These are based on a lack of, or an incomplete understanding of, how packing and processing businesses and markets work to process and market thousands of different beef products in a multitude of wholesale and retail beef markets.
However, the effects of COVID-19 on beef markets would not be different if the industry consisted of more, smaller, less efficient packing plants that were forced to purchase cattle in immediate cash markets, Peel said.
The current structure and business practices of the industry evolved in response to economic forces that drive the beef industry to be as competitive as possible, he said. The cost efficiencies of large-scale feeding and meatpacking operations is undeniable.
But some current proposals will add cost and risk to the industry and will further increase the differences between cattle and wholesale beef prices, Peel said. A less-efficient, higher-cost beef industry will result in higher beef prices for consumers and make beef a less-competitive protein industry.
Simultaneously, cattle producers will face lower cattle prices and, as the industry downsizes, more will be forced out of the industry, he said.
Cattle producers will decide what sort of policy prescriptions they want to pursue that will affect how the beef industry functions.
Some of the proposals being promoted will have unintended consequences that are negative for the entire industry, Peel said. This industry consists of many diverse sectors and perspectives but in the end the entire industry will thrive or not as a single industry.
Be careful what you ask for.
CATTLE, BEEF RECAP
A few cattle traded in Colorado at $100 per cwt on a live basis, in the middle of last week’s range of $95 to $105. Dressed-basis trade took place last week at $148 to $160 per cwt, down $2 to $8.
The USDA choice cutout Tuesday was up $18.98 per cwt at $330.82, while select was up $22.10 at $320.88. The choice/select spread narrowed to $9.94 from $13.06 with 74 loads of fabricated product sold into the spot market.
There were six steer contracts tendered at zero for delivery against the Apr futures contract. There also were 13 steer contracts retendered at 1. Six steer contracts were demanded at zero, and 13 were demanded at 1.
The CME Feeder Cattle index for the seven days ended Monday was $118.69 per cwt, down $1.03. This compares with Tuesday’s Apr contract settlement of $119.62, down $0.77 and the May contract settlement of $118.50, up $0.35.