Determining the true value of cattle
SIOUX CENTER-Cattle producers from throughout Northwest Iowa gathered in Sioux Center in late January to hear speakers tell them they must band together to promote their industry, that they may have more control over the markets than they think they do and that the world demand for U.S. meat lies directly in their hands.
Ed Greiman, of Garner, president of the Iowa Cattlemen’s Association, told producers they can have a direct hand in reworking the cattle market.
“I’m not here to tell you we have a problem with the cash market,” Greiman said, “but what we’re really (finding) is that people think we do.
“Because of that, our fear is that federal regulations will come along and tell us what to do. It’s far better for the market to fix itself than for regulations to do that for us.”
Greiman said cattle producers are wondering if their markets will end up like the hog markets, where “5 percent of our trade is going to dictate the rest of our markets.”
He said there appears to be less negotiation on the live basis.
“What’s interesting in Iowa is that we’re trading more live cattle every month,” he said. “Sometimes the packers are a little more interested in stepping out every once in awhile on the live side than on the dressed cattle.”
Greiman said producers need to understand why other producers use a formula for cattle trading.
Some incentives for using it, he said, include pens being marketed when they need to be marketed, lenders being more comfortable knowing how cattle will be priced ahead of time, and higher and more predictable volumes of cattle, along with lower costs.
Greiman spoke of “public good,” using the example of a group of cow-calf producers who don’t have enough of their own land to graze their animals, but have access to common land for grazing.
“There is no real market solution because it’s free,” Greiman said, “and so it will be overgrazed to the point that it doesn’t work anymore and you can’t afford to use the grass.
“The real solution is to make everyone aware of what’s going on and let the market figure it out. Let everyone decide how they want to market their cattle, and by doing that, we can fix our own problems.”
Greiman said it comes down to negotiated price being the best they can get, and that it truly represents the value of the cattle.
“When only 4,000 head of cattle are traded in Texas, does that truly represent the real value of cattle?” he asked. “And then it has to come down to what margin of error you’re comfortable with.
“How much do we leave on the table? There’s not a great way to figure out if we’ve done a good job negotiating.”
Greiman said the question is if formula volumes weaken cash prices.
“This is the big one,” he said. “Some would argue in times of high demand and short supply like we’re in now, it doesn’t matter how few the packers are negotiating on.
“We’re going to have true price discovery because they’re all fighting over the same extra cattle they need.”
Trade volatility is a true problem, he said.
“We have more guys in Iowa that trade quarterly or monthly instead of weekly, and sometimes we can get caught in that.”
He said cattlemen’s associations brought together representatives of the 25 largest U.S. feed yards and asked them how comfortable they were with formula pricing.
He said they didn’t like it, but that they thought it was still the best way for them to price their cattle.
He said producers must think about how much pricing error is acceptable and for what proportion of time; what formulas are worth as far as dollars per head; and what reported cash prices are worth locally, regionally and nationally.
Free markets are not free, he said. Rather they require and consume resources for their use, maintenance and development.
Producers want information that comes from markets, but they also want the option to not use them.
Market function and survival should be the result of an industry-level decision instead of something that just happens, and producers need to remember the public good aspect of price discovery.
Greiman said other agricultural issues – GMOs, castration – are looming as well.
“We’re going to have to revisit these issues,” Greiman said, “and everything we do throughout the production life cycle and ask if what we do affects the well-being of an animal and the quality of the product we’re producing.”
He said bloggers and others interested in agriculture are writing about it on the internet, whether they are well-informed about it or not.
“Everything we do is being questioned right now,” Greiman said. “If we don’t make sure we’re telling our story, the 1 percent that’s telling the crazy story is going to get the attention.”
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