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Broken Markets, Broke Cattlemen, Bad Statistics, Worse Economics

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Billings, Mont. "Vested interests in animal slaughter have mounted a campaign against reinvigoration of laws designed to protect the market for producers' market-weight animals, and for retail use by consumers, too. The facts are no barrier for what is said from time to time"Cattle markets ARE broken, and so are (Nevil) Speer's economic and statistical analyses. Contrary assertion may be made out of emotional attraction to packers, but they cannot be based on economics""

This information according to a new white paper by C. Robert Taylor, Ph.D., the Alfa Eminent Scholar and Professor of Agricultural Economics at Auburn University, and David A, Domina, an Omaha, Neb., trial lawyer with significant antitrust and agriculture-related experience.

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"These data show, over the past six years, that the return on equity for beef retailers has been 21 percent; beef packers, 17 percent, and for cattle producers the return on equity has been minus .5 percent, which clearly indicates that we have neglected to address the economic necessity of providing independent U.S. cattle producers with an opportunity to be profitable in this industry," said R-CALF USA CEO Bill Bullard. "We have been squeezing the profits away from independent producers, who once were supporting rural communities. Those communities have now lost that cattle-industry revenue generator, and as a result, we see economic recession in Rural America and we must reverse that trend."

Importantly, the paper states: ""Clem Ward, a livestock economist at Oklahoma State University, concluded in a DOJ (Justice Dept.) submission that the small negative impact of captive supplies is 3% or less of the gross sale price of slaughter cattle. The 3% goes to the packer but should go to the producer. Three percent of a $1,000 animal is $30. Iowa State University's John Lawrence's estimated returns to feeding a No. 1 steer calf to choice grade averaged $24/head over the past 30 years (in current dollars). Over the 1981-1994 period--essentially before captive supply--inflation adjusted returns averaged $42/head. A "small' captive supply impact of 3% means a downward loss of more than 71% of total profit!"

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Speer's data, when corrected, actually reveal that reduced negotiation in the cash market, resulting from increased captive supplies, depresses cash price by an average of 5.2 percent price effect, which means going from a modest profit to a loss of $8 per head a whopping sum, according to Taylor.

"USDA data even show a negative return on equity of 2 percent for all cattle farms, averaged over the past 13 years, and even the "very large' cattle farms which had an average 8,800 acres and likely included some feedlots, had a return on equity of only 5 percent for the same period," Bullard explained. "In a truly competitive industry, we would expect long-term returns on equity for cattle production to approximately equal other sectors, or 15 percent to 20 percent."

Additionally, when it comes to Alternative Marketing Agreements (AMAs), more refined statistical analyses, accounting for separate effects of different types of AMAs reveal that packer-owned cattle do not likely affect cash price as much as AMAs tied to the cash price, according to Taylor.

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""Requiring packers to "bid' the base price in AMAs would eliminate the distorted economic incentive, but would not eliminate monopsony power or the leverage the packer gains in the residual cash market with packer owned or pre-committed cattle. Monopsony power would continue to depress bid prices in the AMAs as well as offers in the cash market, but the price of AMAs would no longer be tied to a thin market"," the paper states.

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R-CALF USA, Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America, represents thousands of U.S. cattle producers on domestic and international trade and marketing issues. R-CALF USA, a national, non-profit organization, is dedicated (more...)

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