The House Agriculture Committee hearing on May 24 wrapped up a series of six “Focus on the Farm Economy” hearings. Hosted by the Subcommittee on Livestock and Foreign Agriculture, a “View from the Barnyard on the Farm Economy” hearing invited input from beef and livestock industry leaders.
In their testimony, ag economists primarily provided an overview of financial factors impacting livestock producers in the midst of a downturn in prices and income. With Republicans holding a majority in the House, the hearings took on a “less-is-better” tone regarding regulations affecting the nation’s cattle producers as they work their way through that downturn.
Dr. David P. Anderson, professor and livestock economist with the Texas A&M University, College Station, Texas, and Dr. Scott Brown, agricultural extension economist at the University of Missouri, Columbia, Missouri, described volatility in the beef cattle industry. Texas A & M’s Agricultural and Food Policy Center (AFPC), in partnership with the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI), analyze potential consequences of policy changes at the farm level.
Tighter times ahead
Anderson shared FAPRI’s January 2016 baseline price projections through 2020, indicating falling prices and an expanding cattle herd will pressure producer financial positions as they use up any cash balances generated in 2014 and 2015.
Even with lower feed costs, producer margins will likely remain lower in the next few years when compared to 2014. Nine of the 11 cattle ranches are projected to end the period in marginal condition, Anderson said.
Brown emphasized the need for risk management in a volatile environment. He said the 1 million head annual growth in beef cows reported by USDA for Jan. 1, 2016, was the largest increase experienced in over two decades.
“One thing is clear when looking at the financial picture of the livestock sector; the highs have been breathtakingly high while the lows have been desperately low.”
While providing better producer returns, Anderson said the multi-decade lows of 2014 cattle supplies impacted the industry’s infrastructure. After initially bidding up cattle prices to fill capacity, cattle feedlot and meat packing companies closed, reduced employees numbers and hours of operation to align with smaller, available cattle numbers. Now, increasing cattle numbers are chasing smaller slaughter capacity, pressuring cattle prices lower.
Trade, animal diseases, low prices and regulations will remain impactful as the beef industry moves forward, Anderson said. Federal farm policies must continue to provide a safety net.
Anderson defended existing federal programs, including the Livestock Indemnity Program (LIP), Livestock Forage Disaster Program (LFP) and the Emergency Assistance for Livestock, Honeybees and Farm Raised Fish Program (ELAP), which have provided financial assistance to producers trying to survive unique, catastrophic weather events like the 2010-2013 Southern Plains drought and winter storm “Goliath.”
Pasture, rangeland and forage insurance products have been available for consideration in risk management for livestock producers. However, in many cases these products use has been limited in part due to limited funding for the products, but also due to some lack of opportunity or practicality.
Anderson said questions about the efficacy of the futures market could have important impacts on the producer safety net.
Mandatory price reporting has gone a long way to maintain publicly reported prices aiding the function of competitive markets. The absence of reported prices can affect settlement of futures contracts and reduce information available to aid participants of futures markets. Interpretation and implementation of prices reporting has become a critical issue in some markets.
Areas of concern related to the operation of live and feeder cattle futures contracts include volatility, the speed of transactions, the role of high-frequency trading and outright cheating.
“There is some needed research on these issues,” Anderson said. “In addition, some deferred futures contracts suffer from a lack of liquidity limiting their use.”
Issues related to exports, many out of the control of cattle producers, continue to pose challenges. They include economic slowdowns in major markets, policy changes, drought in export competitor countries and a strong U.S. dollar, Anderson said.
With the beef industry exporting about 10 percent of domestic production, opening new markets and re-opening old markets are critically important.
Brunner testifies for NCBA
Tracy Brunner, Cow Camp Feedyard Inc., Ramona, Kansas, and president of the National Cattlemen’s Beef Association (NCBA), provided a producer view on economics and regulations. A fourth-generation rancher and cattle feeder, he operates a cattle genetics, seedstock, grazing and finishing cattle operation with three brothers and three sons.
American cattle producers continue to make strides toward sustainability and efficiency.
“We can produce the same amount of beef that we produced in 1977 with 30 percent fewer cattle, 18 percent less feed, 12 percent less water and 33 percent less land. However, we need to continue our efforts to be more efficient as we strive to do our part in providing 70 percent more food to meet the expected population of 9 billion people in 2050,” Brunner said.
Brunner said each segment of the cattle industry must view the complete beef-supply chain all the way to the consumer to remain successful.
“As a complete beef-supply chain, we have learned that without ultimate consumer focus, we can soon blindly produce our way into irrelevancy,” he said.
Brunner said the price downturn from 2015 record highs was caused by multiple factors: an increase in overall protein supplies, a strong U.S. dollar curtailing exports and a growing cattle herd that pressured markets lower.
A break in the drought in many cattle-producing areas provided abundant and cheaper feed, an incentive to increase herd sizes. Herd rebuilding and expansion are taking place at a pace where U.S. cattle numbers will soon be equal to 2012, Brunner said.
“The cattle industry relies on transparency of price discovery to send clear signals up and down the beef chain,” Brunner said. “Changing technologies and a transition to automated trading in commodity futures trading have increased market volatility, making interpretation of those price signals different than what we were accustomed to in the past.”
Brunner said NCBA isn’t looking for direct action from the government on marketing systems and forums. A joint NCBA/Chicago Mercantile Exchange (CME) working group is analyzing potential changes to slow market volatility in an effort to aid producers using futures markets to manage price risks.
He said recent USDA and U.S. Senate actions on the Grain Inspection, Packers & Stockyards Administration (GIPSA) marketing rules, originally proposed in the 2008 Farm Bill, would hamper cattle marketing. Instead, Brunner urged USDA to enforce the Packers and Stockyards Act as it now exists.
Brunner called a proposal by Sen. Charles Grassley, R-Iowa, to ban packer ownership of cattle “a solution in search of a problem which has been tried and defeated many times before.”
“Over the past decade, USDA’s Mandatory Price Reporting has shown only 5 to 6 percent of cattle are packer owned,” Brunner said. “This is not the source for the downward market.”
Brunner outlined other regulations affecting U.S. cattle producers. The Endangered Species Act continues to be burdensome, empowering activist groups to file endless lawsuits without providing meaningful benefits.
"The U.S. Environmental Protection Agency’s Waters of the U.S. (WOTUS) rule is a top concern for cattle producers, despite the temporary court-ordered stay,” Brunner said.
“As a livestock producer, I can tell you that the rule has the potential to impact every aspect of my operation and others like it by regulating every tributary, stream, pond and dry streambed on my land,” Brunner said. “What’s worse is the ambiguity in the rule that makes it difficult to determine just how much of my operation will be affected.
He also cited pending regulations requiring control plans and secondary containment structures for on-farm storage of fuels under the Spill Prevention, Control, and Countermeasure (or “SPCC”); a proposed ozone standard which can impact a rancher’s ability to conduct a prescribed burn; and the Resource, Conservation & Recovery Act, a law designed by Congress to regulate landfills, which now may apply to agricultural operations.
Trade and exports
“Globalization is not feared by the American beef industry, but embraced,” said Brunner, who noted 14 percent of all finished cattle value was exported in 2015, adding $300 to every U.S. calf in America. Due to differing tastes, global customers provide a premium outlet for beef cuts less popular on the U.S. market.
He said passage of the Trans-Pacific Partnership (TPP) agreement will be a win for the U.S. beef industry, but delays or failure of the agreement will make U.S. beef one of the biggest losers in agriculture.
The agreement prevents foreign governments from erecting non-science based barriers and technical barriers to trade. Failure of TPP would keep current tariff structures in place, putting the U.S. in a noncompetitive position for markets such as Japan.
Brunner said the industry is approaching China with caution. Regaining market access to the large and growing Chinese beef market is essential to the future health of the U.S. beef industry, he said. While the U.S. government has been meeting with Chinese officials to discuss ways to open the market wider, China continues to raise roadblocks.
- Progressive Cattleman
- Email Dave Natzke