Webinar: Troubles in the Cattle Markets: A Farm Organization’s Response
Department of Agricultural Economics
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09/25/2020
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With Jay Rempe, senior economist, Nebraska Farm Bureau.
Over the past year, events have rocked the cattle industry and drove to the surface long-standing questions concerning the cattle markets and market structure. These concerns resulted in numerous policy proposals being offered in Washington D.C. In response, the Nebraska Farm Bureau created a Task Force of cattle producers to study current cattle markets and offer policy suggestions and recommendations. Rempe will discuss the recent market events, responses by producers, and the Task Force work and recommendations, and what it learned along the way about Nebraska’s cattle industry relative to the rest of the country.
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- [00:00:00.000]Larry Van Tassell: toll free number is 1-800-464-0258. In addition, a wealth of resources related to stress and wellness can be found at Rural. Rural wellness.un l.edu
- [00:00:17.039]Larry Van Tassell: During today's presentation, please use the chat box or Q AMP. A located on the bottom of your screen to ask questions we will answer address those at the end of the presentation as time allows.
- [00:00:31.680]Larry Van Tassell: Events over the last year have driven to the surface long standing questions concerning the capital markets and market structure.
- [00:00:40.680]Larry Van Tassell: Which have resulted in numerous proposals being offered in Washington, DC.
- [00:00:46.410]Larry Van Tassell: In response than Nebraska Farm Bureau created a task force of cattle producers to study current markets and offer policy suggestions and recommendations.
- [00:00:59.370]Larry Van Tassell: presenting today about these recent market events responses by producers, the task forces work and what has been learned about Nebraska's cattle industry.
- [00:01:11.640]Larry Van Tassell: Is Jay rumpy senior economist with Nebraska Farm Bureau, a graduate of the Department of Agricultural Economics at the University of Nebraska, Lincoln.
- [00:01:23.100]Larry Van Tassell: rumpy majored in agribusiness as an undergraduate and earned a master's degree of science and I cultural economics in 1993
- [00:01:34.950]Larry Van Tassell: As the senior economist at The Nebraska Farm Bureau. He is responsible for agricultural economic outlook policy analysis research and education programs. Welcome. Jay, and thanks for joining us today.
- [00:01:51.360]Jay Rempe: Thanks, Larry, it's a it's an honor to be part of this webinar series and looking at the schedule the series, and some of them not sat in on a really good series, and I appreciate the opportunity to present this afternoon.
- [00:02:04.560]Jay Rempe: As Larry mentioned, I'm with Nebraska Farm Bureau. I've been here for a number of years. But most of my career has been spent in the lobbying arena working on
- [00:02:12.960]Jay Rempe: Issues at the state Capitol in Washington DC and I'd like to think that I follow finally saw the light and add
- [00:02:20.280]Jay Rempe: Emerged from the dark side of the lobbying world. And now, and I'm trying to shine the light of the economist on some of the things that are happening in the world and in agriculture.
- [00:02:30.540]Jay Rempe: And so today, I'll talk a little bit more about this, but I want to talk a little bit about what's been happening in the capital markets over the last year, year and a couple months in talk a little bit about farm organizations response.
- [00:02:42.480]Jay Rempe: And maybe share some insight and some inroads into how different organizations tackle these kinds of issues when they arise.
- [00:02:50.880]Jay Rempe: I always like to start with this quote from Lyndon Johnson. He was always he always had some really good quotes, but oftentimes as an economist, when you're talking about
- [00:03:01.680]Jay Rempe: Economics. A lot of people don't think it's too exciting and he likened to giving a speech on economics about the. It's a lot like pissing down your leg. It seems hot to you, but it never does.
- [00:03:11.910]Jay Rempe: Anyone else and I hope with this audience today that it's being sponsored by the economics department that the maybe maybe that we have a little more excitement. Today, the normal the normal audience.
- [00:03:23.310]Jay Rempe: What I want to try to do is I want to tackle for things. First, I want to talk about the the shocks that occurred to the cow markets over the last year.
- [00:03:31.650]Jay Rempe: The number of responses that that that generated, both for members and our producers in Nebraska, but also from a political side of things from elected officials and other organizations.
- [00:03:43.320]Jay Rempe: Talk a little bit about how we responded to that by creating a task force and then discuss a little bit. Some of the issues and recommendations and why I thought this might be of interest, oftentimes in the business world.
- [00:03:57.690]Jay Rempe: When they respond to some shocks and things that happened, they're looking at their shareholders and their markets and how do they protect them and how do they move forward in the academic circles, you're obviously looking in doing research and analyzing the data at
- [00:04:14.610]Jay Rempe: putting forth what you find in recommendations that regard in the non profit farm organization world. It's a little different. Of course, we have our shareholders that are members.
- [00:04:26.760]Jay Rempe: And we're trying to respond to their needs, but we're working in the political world too. So we're trying to look at what what the reality is we're trying to set the stage for what might
- [00:04:35.550]Jay Rempe: What could happen in the future. So it's a little different world that we operate in. And I thought it might be some interest to know kind of how we we operate in that world.
- [00:04:45.090]Jay Rempe: So real quick, just for those that don't know about Nebraska Farm Bureau. We are the state's largest one farm organization, we celebrated 100 years a couple years ago. We're all across the state.
- [00:04:57.990]Jay Rempe: Or general farm organization in the sense that we represent all commodities and livestock and one of the can see that at the bottom of my slide.
- [00:05:07.170]Jay Rempe: Our goal. Our mission is to be the trusted voice for farming range families. And so we are job.
- [00:05:13.290]Jay Rempe: Made part of our job anyway, is to represent their interests, both in Lincoln in Washington, DC, a key point, though, I want to make, though, is the positions that we take on issues are all determined by our members.
- [00:05:26.100]Jay Rempe: We have a very elaborate process that we use to try to figure out how we arrived at those positions but they're all determined by our members and so myself. And I was lobbying or other Members.
- [00:05:37.800]Jay Rempe: Of our leadership team. We have no we provide information to the process, but ultimately it's them that make those decisions and
- [00:05:45.630]Jay Rempe: You can see I've listed some of the issues that we work on. Just to give you a sense taxes water broadband issues on the state side and obviously farm programs and trade and some others on the national side.
- [00:06:00.240]Jay Rempe: Was a couple pictures. I forgot to put up. So let's take a step back. Probably many of you that are on this are familiar with what's occurred in the capital markets over the last year, but let just to recap, a little bit.
- [00:06:12.240]Jay Rempe: First last August 2 of August night to be exact. We had the Tyson plant fire that data facility in Hong Kong, Kansas.
- [00:06:21.540]Jay Rempe: At the time it was estimated that amount of about five to 6% of the processing capacity.
- [00:06:26.700]Jay Rempe: It nationwide and of course I created a shock to the system. Immediately we saw cut out price beef cut out prices increase resolved fed cow prices.
- [00:06:37.110]Jay Rempe: Decline and according to the USDA agriculture marketing service time in terms of the spread between those two. We broke a 28 year record and it reached just a bit over $67 100 way.
- [00:06:52.200]Jay Rempe: So we got through that things kind of settle down towards the end of the year, and we'll get back into a normal pattern. Then of course we had to coven
- [00:07:00.360]Jay Rempe: Pandemic kit earlier this year in March and whereas the Tyson plant flowers more of a supply issue a kick in the supply. We had a couple things happening. I think in the coven
- [00:07:12.750]Jay Rempe: One was a we had a demand issue immediately in March when we, when we had to shut down and the stay at home orders.
- [00:07:21.300]Jay Rempe: There was a dramatic shift from demand in the hotel restaurant and institutional sector to the grocery sector. So we saw run on groceries or retail grocery stores, but we'll talk a bit about that in just a second.
- [00:07:36.300]Jay Rempe: Then later of course we had the process and shut down and concerns with employee health and safety and coded outbreaks and meat processing plants.
- [00:07:46.590]Jay Rempe: So that was more supply oriented. And of course, as a result of that we saw beef cut out prices just rocket in price. And we saw fit. Cattle prices dropped dramatically.
- [00:07:58.200]Jay Rempe: And in short order time we set a new record price spread and again according the USDA touch $279 per hundred one. So we saw some dramatic.
- [00:08:09.510]Jay Rempe: shocks and changes in these cattle markets almost overnight in some respect and and what was happening. So then you complicate that with some other extenuating factors.
- [00:08:21.300]Jay Rempe: On the supply side coming into 2020 we had a lot of animals out there. We had a large cattle inventory. And so the processing plants needed to be operating
- [00:08:32.100]Jay Rempe: at or near or overcapacity, I know in some instances, we had some plants operating at least it showed over capacity and so
- [00:08:40.800]Jay Rempe: As long as that was able to keep going. We were fine. We expected be production be up this year and we thought that we'd see some increased exports and some consumption, too.
- [00:08:52.740]Jay Rempe: So we had that out there that we had to work through that the big inventory of animals that on the demand side.
- [00:08:58.890]Jay Rempe: There was a couple complicating factors. There are two in the fire instance of the fire. It was in the leading up to the Labor Day demand last big grill out season cookout season or opportunity in the season. Most people think
- [00:09:10.980]Jay Rempe: We saw things ramping up to meet that demand, of course. Then we had this fire head and then obviously with the CO. But again, the shift from the HR sector to the grocery sector.
- [00:09:23.010]Jay Rempe: I didn't realize this at the time, but there are dramatically different product mixes that go to those two sectors and to me and
- [00:09:30.360]Jay Rempe: And there are different supply chains that meet those. And so it's just not that you can flip a switch, and switch from one to the other in terms of meeting those different demands and so that took a little while to figure that out.
- [00:09:42.510]Jay Rempe: And then, in the meantime, of course, different types of instances we had sort of the consumer panic buying and that in turn to the retailer's trying to restock and so that that caused some issues as well, then I think the last thing not to be
- [00:09:58.530]Jay Rempe: Set aside are overworked is the uncertainty on this created just the markets don't like uncertainty and
- [00:10:06.420]Jay Rempe: That is created a lot of uncertainty and we had no idea. Particularly coven we're still living through those challenges and the length of nature of all these challenges I think also contributed this
- [00:10:18.210]Jay Rempe: So if you, if you look at economic theory and look at what happened and try to equate the theory to it.
- [00:10:27.990]Jay Rempe: In there, it makes some sense the reaction that we saw in the markets. There are some there are underlying economic theory, which would say yeah that makes sense of what happened.
- [00:10:38.160]Jay Rempe: So all the way in the two shocks we it was dealing with less processing capacity. So when you have less processing capacity you have less beef supply
- [00:10:49.140]Jay Rempe: In on our demand and supply curves. On the right, we see the supply curve shift upwards into the left and so that results in higher cut out prices.
- [00:10:58.890]Jay Rempe: At same time or demand for cattle because of that last processing capacity demand for cattle shifts downward into the lab and that results in lower prices.
- [00:11:08.640]Jay Rempe: And you can see on the left that that will increase the packer margins, which was was something that we were seeing and there's a lot of concerns and in
- [00:11:18.210]Jay Rempe: In the process, or in the producers because of those larger margins. But as you economic theory would suggest that the things in the changes that we saw in the markets that make some sense that way.
- [00:11:31.020]Jay Rempe: So just show you that what the economic period there any would suggest was true. Here we see this is the daily box be cut out price over time. And we've got three years on here.
- [00:11:46.170]Jay Rempe: You can see here, but you can see my cursor on the screen. This, this is when we saw the run up and in.
- [00:11:52.680]Jay Rempe: August fire to jump up and we've cut out prices theory would suggest, here's an in March when we have the first wave of the domain shift. And then of course the big, big spike in in
- [00:12:04.530]Jay Rempe: Later may in early June, because of the process and problem. So, and then here's the the fat cow prices for Nebraska. This is on a live basis. This is a negotiated price.
- [00:12:16.500]Jay Rempe: You can see the same thing here. In August of last year, the orange line is 2019 we saw drop off who fed cattle prices and then here back here again this year in the gray lines 2020
- [00:12:27.450]Jay Rempe: The drop off with the cow prices in March and then here's the April, May, June, kind of time period as well so
- [00:12:35.280]Jay Rempe: We did see those and. And so that led to, again, the record cut out to to live spread and a lot of people were looking at that and wondering, okay,
- [00:12:47.520]Jay Rempe: Even though the economics would suggest that that should occur and that should happen. Should it have happened to that extent, and if so, was there some other
- [00:12:57.210]Jay Rempe: It not been there, are there some other things to happen you're going on. And the other thing that caught people's attention during the time
- [00:13:06.600]Jay Rempe: They're, they're primarily for ways that get recorded to the USDA ans on the way cattle and purchased by the Packers there's negotiated case sales. There's formula contracts negotiating grits, and then keep futures contracts.
- [00:13:24.060]Jay Rempe: Like so. The other thing that we saw happen in light of these two shocks was we saw a dramatic drop
- [00:13:31.440]Jay Rempe: In the amount of motion negotiated cash purchases. Here's the Tyson fire right here you can see the drop off there.
- [00:13:38.520]Jay Rempe: In dramatic drop off here in April and then early May because of those shocks to the system and and I just wanted to point that out and
- [00:13:48.450]Jay Rempe: I'll talk a little bit more about that in a bit, some of the concerns around that. But so the two big things that that came out that caused a lot of concern or the spike in the price bread, and then the straps and go shooting transactions.
- [00:14:03.480]Jay Rempe: So how did producers respond to all this and and
- [00:14:08.430]Jay Rempe: I'm not gonna sit here and assert that all producers were thinking this, but there were
- [00:14:13.500]Jay Rempe: There was a lot of the feedback that we got from our members and you saw publicly. I think kind of were around these three ideas.
- [00:14:21.390]Jay Rempe: But one is that the market is broken that it wasn't doing what it should have been doing that we resulted in fury negotiated transactions.
- [00:14:32.730]Jay Rempe: We saw beef prices skyrocket, but they were getting messed for their cattle.
- [00:14:38.610]Jay Rempe: And so they didn't. That didn't make sense to them that when you see the value of the beef go up, we should have seen that I had the cattle go up.
- [00:14:46.230]Jay Rempe: And so there were, there was a lot of concern around that, that the market wasn't functioning as it should. And then the other concern.
- [00:14:53.280]Jay Rempe: Is the packers are exerting power that there are us because we're it's a concentrated industry that they're taken advantage of that and that's reflected in the record price breads. That's reflective in the gross margins and
- [00:15:10.530]Jay Rempe: And then the the that they were using some of their former cattle contracts to to manipulate them go shoot cash markets, a little bit. And so we all see that a
- [00:15:21.960]Jay Rempe: packer market power. And then lastly, a little bit about unfair foreign competition with important beef coming in.
- [00:15:29.040]Jay Rempe: And how that was contributing to the problem. So these are kind of all areas that we were hearing a lot about. I will say,
- [00:15:36.720]Jay Rempe: A lot of these issues are nothing new. They've always been kind of underlying the surface a little bit. It just took
- [00:15:43.830]Jay Rempe: A couple of shocks the system to get them to really bubble up by part of my research on this issue, I found a USDA study, excuse me from
- [00:15:52.740]Jay Rempe: Like, I think it was like 1915 or 16, some are not. Period. That was looking at the same issues about the pack or market power and the like so.
- [00:16:01.200]Jay Rempe: These issues have been around for numerous years
- [00:16:04.860]Jay Rempe: And then, of course, on the political side, we had the political responses that I include in this elected officials and other organizations, but we had a lot of things being thrown out there to try to address the problem.
- [00:16:16.170]Jay Rempe: Probably the most popular one or the one that's that's got a lot of attention. Are these ideas of negotiated thresholds and the cash markets that you require
- [00:16:23.880]Jay Rempe: That the government require plants certain percentage of their purchases to be through the cash market so chuck grassley from Iowa introduced the 50% 14 day
- [00:16:34.080]Jay Rempe: Which meant that each packing plant had 50% of their purchases or of course, I think it was a week had to be through
- [00:16:42.330]Jay Rempe: Through cash purchases in those that'd be delivered within a 14 day window. The other alternative that was a 30% 14 day
- [00:16:50.970]Jay Rempe: There are a lot of call to enforce the antitrust laws that are in place to call for investigations Farm Bureau is doing that.
- [00:16:58.350]Jay Rempe: Reforming the livestock market Reporting Act some scenarios there reinstate the mandatory cool and country of origin labeling break up the Packers.
- [00:17:07.770]Jay Rempe: Even calls to help Cal imports at certain points in time. So a lot of ideas that were thrown out there and a lot of things that were kind of in the public discussion about what do we do to respond to what happened because of these shocks to the market.
- [00:17:22.860]Jay Rempe: So the farm group, we are sitting there thinking, Okay, what do we do we want to be responsive to our members concerns, obviously.
- [00:17:32.160]Jay Rempe: Some of the ideas and things that were being thrown at us ways to address this. We're not consistent with our current positions and what we call the policies on issues. Some of them were some of them weren't so
- [00:17:44.700]Jay Rempe: We try to set those positions once a year. And so there was a thought that we need to relook at those positions and how do we go about doing that.
- [00:17:53.220]Jay Rempe: We want to make sure that whatever we did, we took the long term viability, the industry into account. We wanted to make these due diligence and identify the proper issues and target the solutions, if you will.
- [00:18:06.540]Jay Rempe: To try to make sure that we're
- [00:18:09.180]Jay Rempe: Targeting the right issues and solutions. And then of course we didn't want it. We want to minimize our unintended consequences that we didn't want to get two or three, four years down the road.
- [00:18:18.630]Jay Rempe: And think, wow, we shot ourselves in the foot there. So, so we were wrestling with what we do and the board decided to create a task force to look at those things and
- [00:18:30.480]Jay Rempe: So organizations can use a variety of ways to respond to these. I know some organizations had meetings with
- [00:18:36.870]Jay Rempe: A lot of members in discussion we chose to go to the task force route and I want to be clear that this task force was created. The board decided to do this last December.
- [00:18:47.550]Jay Rempe: After the Tyson fire and but before coven and because there was enough concerns and questions being raised at that time and Kobe just added to the urgency.
- [00:18:58.410]Jay Rempe: Of the issue. So our task force at 12 members that was folks from across the state. We had a different perspectives from the production side, if you will.
- [00:19:07.770]Jay Rempe: Of the industry cap cast members are there are some folks with auction markets on it feedlot feeders doctors
- [00:19:15.630]Jay Rempe: We had one person that works on value added marketing. So we tried to bring a variety of perspectives we charge them with
- [00:19:23.430]Jay Rempe: Four tasks. One was to kind of examine the industry and the trends that are ongoing.
- [00:19:28.800]Jay Rempe: And then look at our positions as a state organization, but also our national organizations positions to review those and in light of the ongoing trends and then make recommendations on on where we should be on these issues. And then also
- [00:19:45.360]Jay Rempe: Talk a little bit or if they had a ideas or suggestions about things that we can do as an organization to help. And for example, one of the things that came out of the recommendations was that there's a lot of opportunities and value added already
- [00:19:59.700]Jay Rempe: Maybe we should put that up on our website, all the different programs or information and programs.
- [00:20:05.910]Jay Rempe: We had a lot of presentations from a lot of different people egg economists feedlot managers different organizations, a restaurant owner
- [00:20:13.980]Jay Rempe: A consultant. And so we tried to bring in a lot of different perspectives and views. I did a lot of research in the background and along with another staff person and provide them some research and data and information as they wanted it on some of these issues.
- [00:20:28.110]Jay Rempe: A couple things I before I talked a little bit about some of the issues that they tackled.
- [00:20:33.420]Jay Rempe: Things that we learned through this process and these are kind of maybe from my own perspective, some things that that that kind of jumped out at me that
- [00:20:40.650]Jay Rempe: But the cattle and the beef markets are just amazing in are quite complex and Darryl peel from Oklahoma State spoke to our group instead of it could be most complex set of markets that in the world.
- [00:20:55.440]Jay Rempe: And he's EXAMPLE OF YOU TURN OUT A bowl into the sand hills and two and a half years later that ends up as a steak on a plate in New York City. And in that time period moves through the second segments of CAP cast Docker feeder processor
- [00:21:11.730]Jay Rempe: fabricator wholesale retailer, you name it, how many different people have a role the marketers in that
- [00:21:18.630]Jay Rempe: Getting turning an animal into a product that's on a plate in New York City. So when you think about it in that light. It is pretty amazing that how this all works together.
- [00:21:29.130]Jay Rempe: The other thing is that the North when I'll call the north south divide that we have an industry.
- [00:21:34.620]Jay Rempe: Is this was, I kind of knew it was there but not to the extent I guess when I started looking into this, but if you drew a line at The Nebraska, Kansas border.
- [00:21:44.100]Jay Rempe: The way the cattle industries operate north of that line versus south of that line is dramatically different cultures, the structures of the industries. The practices and how they market their animals.
- [00:21:55.560]Jay Rempe: Dramatically different and we see that I think it playing out and manifested itself in some of the political arena and then the consumers rule.
- [00:22:06.630]Jay Rempe: It's all the way, if you want new money into the system. It's got to come from the purchases and the people buying the products and
- [00:22:14.250]Jay Rempe: They're demanding traceability and transparency and international trade is a major part of that.
- [00:22:20.520]Jay Rempe: So here's a listing of the issues that the group tackle. I'm not going to go through all these today. I'm just going to pick out a couple of them and talk a little bit about them.
- [00:22:29.940]Jay Rempe: But it just gives you a flavor. They narrowed it down to these six issues and try to focus on those obviously there's more that they could have tried to attack over this is what they looked at
- [00:22:41.670]Jay Rempe: First, what I'm talking about a little bit the fat cow markers, because I spent a lot of time on this issue and I think it was one of the more ones that they wanted to try to resolve or figure out some ideas on
- [00:22:52.590]Jay Rempe: And there's a couple issues of play that were concerned this this chart comes from a study that was done by Ted showed her case date and some others for the USDA Ms. And it shows the percent of
- [00:23:04.410]Jay Rempe: Negotiated sales versus other kinds of marketing options. Over time, since 2005 but the red line or negotiated sales and the purple line and formula sales.
- [00:23:17.280]Jay Rempe: And you can see that we've gone from negotiate and sales between 50 to 60% of the market 15 years ago to now it's between 20 and 30% in formula has just done the exact opposite.
- [00:23:33.330]Jay Rempe: That it has caused a lot of concern in in the industry and the producer sector.
- [00:23:39.000]Jay Rempe: Because they view the price or the negotiated market as the ultimate and price discovery and price transparency that that's where you can get the most value.
- [00:23:48.930]Jay Rempe: In terms of knowing what's what's happening in the market, so that that issues a big concern.
- [00:23:54.480]Jay Rempe: And you can, but it's not quite as simple as just looking at the National like I just showed you this comes from second quarter of this year. This is from the as
- [00:24:04.680]Jay Rempe: You can see here's the national numbers negotiated was about 23% for about 60% but you look here how the difference between Texas and Oklahoma New Mexico and Kansas.
- [00:24:17.910]Jay Rempe: Texas at about 8% and in 83 as opposed to Nebraska 40 50% and I was saying why. So that's one of the areas where you see a dramatic difference between the north and planes in the southern plains. The other is
- [00:24:36.360]Jay Rempe: There are negotiated sales or are
- [00:24:40.440]Jay Rempe: Reported in two different time delivery second segments, one is zero to 14 day and the next 15 to 30 day. And interestingly,
- [00:24:48.960]Jay Rempe: Most of the sales are in the zero to 14 day 85% of those sales but of the 15% that are not in that category. They're in the 15 to 30 day
- [00:25:00.150]Jay Rempe: Nebraska and Iowa, a couple were two thirds of those. And so there's another little nuance and difference between how things happen between regions, which I'm not sure why that's the case. But some of the concerns that over the Fed cow markets.
- [00:25:15.840]Jay Rempe: The trend or less gas sales. I think get less results in less price transparency discovery.
- [00:25:21.300]Jay Rempe: The formulas are often based their base price or the cash price of some sort. And so as this as this case sales dwindle
- [00:25:29.190]Jay Rempe: We're basing those formulas on thinner markets and the concern is the another concern is potential for manipulation.
- [00:25:36.030]Jay Rempe: For example, when the negotiated price dropped so low. After the covert there was some thought that
- [00:25:42.120]Jay Rempe: Obviously I've taken in sales or purchases off the formula contracts that that pushes down the price for the cash trade, which then reflects back into the formula. So that's where the manipulation comes through their concerns.
- [00:25:56.250]Jay Rempe: So I'm going to talk a little bit about the recommendations. Before I do that though, I want to say these are not opposition's
- [00:26:03.030]Jay Rempe: Those positions will be excited at our meetings coming up in November through January. These are just the recommendations that the task force was thrown out there for
- [00:26:10.680]Jay Rempe: For our members and others to consider. So we're, we're not taking we have not taken these positions. But the first one talks about exploring all means to increase cash sales.
- [00:26:22.170]Jay Rempe: They, they talked a lot about the the mandatory approach that that the grassroots approach and others.
- [00:26:29.220]Jay Rempe: They were split on that they they couldn't come to a consensus on that. And so ultimately there was some preference for private market solutions like
- [00:26:38.670]Jay Rempe: That maybe you somehow using blockchain technology or video or electronic markets market makers are some other ways of trying to increase the number of case sales.
- [00:26:52.920]Jay Rempe: To help in that price discovery area.
- [00:26:55.950]Jay Rempe: On the mandatory thresholds those over supporting it like thought that the market.
- [00:27:00.810]Jay Rempe: Was broken that we needed to have the government stepped in and try to correct things there.
- [00:27:05.910]Jay Rempe: Others were concerned had kind of the opposite. They were they made a little nervous about the having government stepped into the markets and what might happen there.
- [00:27:14.190]Jay Rempe: The other was that we need to have some broad industry discussions and bringing all the different perspectives, talk about the trends and how we can improve
- [00:27:23.640]Jay Rempe: On that and then this idea came from one of the feedback managers, they talked to about somehow trying to link cattle and box beef prices through either the formulas or someone
- [00:27:36.060]Jay Rempe: The other issue I want to talk a little bit about as pack or market power. Of course, that's, that's an issue there. This shows the the weekly wholesale farm Christ spread on a real basis, this came out of a working paper by Jason Lusk and some others that that was just
- [00:27:53.640]Jay Rempe: Released two or three weeks ago but it kind of shows that that the the price. Spread the real price spread over time stayed fairly constant
- [00:28:02.700]Jay Rempe: Until we get here about 2015 it bumps up a little bit and it but it's mostly constant, but you can see what it's done the last two or three years.
- [00:28:11.190]Jay Rempe: And of course the record jump just it's almost hard to conceive that kind of a jump here lately and so
- [00:28:21.240]Jay Rempe: To a lot of producers that's indicative of some greater market power or some manipulation going on. This guy looks at the same thing.
- [00:28:30.810]Jay Rempe: Actually get this idea from from Elliot Dennis. We were communicating on some things and looking at the total farm to retail price bread.
- [00:28:39.570]Jay Rempe: This is not a nominal basis and but you can see the the farm. The green line is the farm to retail spread the red is the wholesale to retail and then the glue again is the farm to wholesale
- [00:28:52.170]Jay Rempe: You can see it's been overall trending upwards, over time, most of that trend has been in the wholesale to retail, but there's a little bit of an upward slope here in from on that indicates that that spread is growing a little bit and performed a wholesale so
- [00:29:09.870]Jay Rempe: So it it's just indicative of some concerns there again so
- [00:29:16.590]Jay Rempe: Obviously, the biggest concerns are we have for companies that are controlling plus 80% of the processing.
- [00:29:23.250]Jay Rempe: That gives them the opportunity to exert some market power manipulate include
- [00:29:28.920]Jay Rempe: A lot of thought that the current laws aren't being forced adequately there needs to be more effort in that way.
- [00:29:35.640]Jay Rempe: And overall concern is that the producers are getting less of the retail dollars and and the other concern that kind of
- [00:29:42.990]Jay Rempe: Come up a little bit, was the foreign ownership of the processing sector, there's a little bit of concern about that too.
- [00:29:50.310]Jay Rempe: So I did a little bit of research in this area that's kind of interesting. What you find out
- [00:29:56.580]Jay Rempe: I want to do some more and dig into a little deeper, but obviously the economies of scales are really driving the size and scale of these processing facilities.
- [00:30:05.310]Jay Rempe: I think the largest ones, what I read, or they can process an animal for somewhere between 250 to $300 per animal, but then you get to the smaller ones and you're looking at 700 $800 per animal so
- [00:30:17.070]Jay Rempe: There, there's quite a bit of kind of needs to scale there Darryl peel again at Oklahoma State.
- [00:30:22.860]Jay Rempe: Webinar series that North Dakota put on said that the there's research that shows that they do have packers do have market power.
- [00:30:30.690]Jay Rempe: And they'll occasionally exerted that he didn't quote exactly the research, but they mentioned that on that was shared with our group and then
- [00:30:39.270]Jay Rempe: The paper. I just mentioned by juice Alaskan some others, they, they looked at a model of packer net margins created one and and they found
- [00:30:48.960]Jay Rempe: That the ratio between the cutout price in. I'm sorry, between the live price the animal pride cattle price and the cut out price was was
- [00:31:00.720]Jay Rempe: That ratio was similar to what you get out of dressing percentage. And so maybe they thought that was kind of suggesting a competitive markets and then there's
- [00:31:08.460]Jay Rempe: Level spirits is done some work in this area and show that there's on an annual basis over time. There's no relationship between packer and cow calf or feedback returns. So we shared that all with the group. Again, these are just the recommendations, these, these are dark positions but
- [00:31:25.440]Jay Rempe: A couple things that came out of a USDA MS reports that that the USDA needed some more enforcement tours and they wanted to have a big contract library so that the group like those ideas.
- [00:31:36.780]Jay Rempe: They wanted the USDA and the Department of Justice to aggressively enforce the existing laws and certainly discourage further concentration and then
- [00:31:46.500]Jay Rempe: Undertake vigilant monitoring to sure that the competition does exist in purchase effect cattle and then the other is that idea came out was that the USDA should track for ownership of the process in the processing industry.
- [00:32:01.680]Jay Rempe: It was said that they do on land agricultural land will track that. And so they should do that on
- [00:32:09.210]Jay Rempe: Not only processing, but other segments of the of the beef cattle industry. So I'm going to quit with that and
- [00:32:19.380]Jay Rempe: This well I got one more slide. After this, but when when he's talking about the future of the cattle industry who knows I mean everybody points different directions.
- [00:32:28.680]Jay Rempe: I picked this because it says economics that didn't say economics department. So I know very well. You guys always pointed in the same direction. So,
- [00:32:36.810]Jay Rempe: But I thought this was good. I guess the last thing I want to leave you with.
- [00:32:41.040]Jay Rempe: In the course of the work that the task force. Did we, there are some trends that are out there that I think are going to continue
- [00:32:48.060]Jay Rempe: Obviously continued concentration is going to go more non agriculture ownership. So you just think of the transition that's going on mixed enterprises at a larger scale.
- [00:32:58.800]Jay Rempe: Consumer transferring to talk about that the competition from other protein sources that from a beef standpoint, pork and poultry. But when you look at the non meat.
- [00:33:09.840]Jay Rempe: alternatives that are there, and then Walmart now is kind of integrating backward a little bit into the sector.
- [00:33:18.060]Jay Rempe: That that's going to continue and obviously the new technologies that are all out there. So I think these are some of the driving trends that will determine the future the cattle industry not always stayed in Nebraska, but in the country as well so
- [00:33:35.130]Jay Rempe: Apologize where it took a lot longer than I planned on though I'd be happy to answer any questions and
- [00:33:42.180]Jay Rempe: Just have a discussion.
- [00:33:44.220]Larry Van Tassell: The timing was perfect. Jay, thanks so much for sharing the results of your task force with us and very interesting. We do have a couple of questions. So far, the first one.
- [00:33:54.180]Larry Van Tassell: Could you please further explain the potential for manipulation by processors, you said that when negotiated price drops solo after coven some thought purchases push down for cash trade, which reflects back in the formula, could you please go over that again.
- [00:34:15.420]Jay Rempe: Yeah, I'll let me go back to that that one slide. So the concern was a lot of the formula cattle are based on the cash price and sometimes it's the weekly average. Sometimes it's the top of the market for week
- [00:34:34.530]Jay Rempe: Sometimes it's the five very weighted average. And so the concern that was expressed was when when we get here were negotiated sales of dropping so low. What, what's happening is the process or
- [00:34:50.250]Jay Rempe: packer who has contracts with with feedlots under a formal arrangement are taking meeting those obligations, taking those cattle.
- [00:34:59.550]Jay Rempe: And they are not out then in the negotiated market purchasing cat and so that drives down the price of the cattle.
- [00:35:08.760]Jay Rempe: Not only in the cast segment of the negotiating cash market, but then that turn in flex to it reflects in the formula prices. The base price is that the formulas are using. And so the
- [00:35:26.010]Jay Rempe: concern is that if packers, for whatever reason, feel like they want to try to drive the prices down. They can turn away from their packer or their formula contracts.
- [00:35:40.380]Jay Rempe: And turn around and just take or they can take the cattle into the formula context, don't go and negotiate it and then we'll end up in a
- [00:35:48.060]Jay Rempe: In a better deal for them so that that's the concern I in my study and my look on their side. I haven't seen anybody look at that issue and see whether that's true or not, or whether that is happening or anything nefarious is going on. But that's the concern that was expressed
- [00:36:07.590]Larry Van Tassell: Great. Next question. Do you think the cattle market has been impacted at all by the burgeoning of meatless meat cells.
- [00:36:20.430]Jay Rempe: My sense is thus far it hasn't to degrade extent.
- [00:36:26.610]Jay Rempe: When you look at those alternatives that are there right now there's such a small segment of that overall consumption and I, my sense is that a lot of folks that are trying. Those are folks that probably shy away from eating meats and beef. Anyway, so thus far, I haven't seen it.
- [00:36:48.990]And and
- [00:36:51.600]Jay Rempe: I, I, I, they'll, they'll capture. I think a certain segment of the market, but I don't see it becoming a huge issue for the cattle and beef industry in the near future, anyway.
- [00:37:04.470]Larry Van Tassell: All right. Thank you.
- [00:37:06.510]Larry Van Tassell: Next question. How did, how did the discussion go regarding ankle.
- [00:37:13.980]Jay Rempe: Great question, that obviously there's a lot of interest in that. And there's a lot of folks that are supportive that measure when I was in place and that would like to see it put back in place.
- [00:37:27.060]Jay Rempe: The ultimately the, the recommendation that came out of the task force was if something is going to be
- [00:37:34.530]Jay Rempe: The if something is going to be labeled as product of the united states that it should. It should be completely derived from animals that are born raised and processed in the United States.
- [00:37:48.150]Jay Rempe: And so that was their way of trying to protect that label and if somebody wanted to try to find a market for a product that was us derived
- [00:38:00.390]Jay Rempe: They could they there wouldn't be so confidence that label meant that they were hesitant lot of concerned about our trade relations in the importance of exports in the beef markets.
- [00:38:12.750]Jay Rempe: And so they didn't want it to, I think, go down in cool route again because of that they they were fearful. What that mean for our export markets and future cherry.
- [00:38:26.520]Larry Van Tassell: Great.
- [00:38:28.380]Larry Van Tassell: Another question. What do you think are the three biggest concerns for cattle ranchers in Nebraska currently
- [00:38:38.370]Jay Rempe: Well, I think underlying all of this right now is profitability.
- [00:38:43.980]Jay Rempe: I think
- [00:38:45.600]Jay Rempe: We saw some some
- [00:38:48.780]Jay Rempe: Well, evolving awkward boiling of income and profitability since 14 and 15 when we were coming off the drop, we were
- [00:38:58.110]Jay Rempe: We're building we have short supplies and we're building recovered and prices were good. And so I think the underlying concern of of everything right now is
- [00:39:08.280]Jay Rempe: Is the profitability and the sustainability of their operations, I think. Secondly, is that I would probably tap into the concern about the markets in the sense that
- [00:39:21.330]Jay Rempe: Are the markets actually valuing their product like it should be. It is their price discovery and transparency, like there should be. And then lastly, I think that there is
- [00:39:37.080]Jay Rempe: The whole notion of the alternative proteins and where that's headed and where we're going. And what's. What's the future hold in that regard, in terms of consumer demand in like
- [00:39:49.890]Larry Van Tassell: All right. Going back to your presentation. How will this affect their rental contracts between owners and operators of farms with cattle barns.
- [00:40:02.790]Jay Rempe: You know, that's a great question. I would think. But let me ask you a couple ways. First, I noticed one of the trends and I think we're going to see done egg.
- [00:40:12.540]Jay Rempe: greeters share of the branches in the life be non AG owner. So you're going to see more and more folks managing those operations branch managers and like and
- [00:40:23.850]Jay Rempe: And that came from a gentleman that's in Montana, the consultant that visited with the group, and he said he's seeing it all over it kind of stuck in my mind so
- [00:40:35.310]Jay Rempe: For those that don't go the farm manager out, then we'll have a rental issues and I would suspect that
- [00:40:42.630]Jay Rempe: Actually, it kind of interesting. We've seen pastor ground the patient rinse actually increase in value over the last few years.
- [00:40:50.010]Jay Rempe: And I think that might be due to the number of animals out there versus the amount of ground.
- [00:40:56.190]Jay Rempe: But I guess, and given the state of the markets. Right now we're going to see a pullback a little bit on fundamental values and see things drift drift sideways or downwards, a little bit would be my sense
- [00:41:10.650]Larry Van Tassell: All right.
- [00:41:12.390]Larry Van Tassell: How would you explain the benefits of Senator Fisher's proposed legislation, which is the cattle market Transparency Act of 2020 and how it will prevent future occurrences of the extreme market swings we experienced this past year.
- [00:41:30.870]Jay Rempe: Great question. I think it is. I understand there are four parts to our legislation.
- [00:41:38.940]Jay Rempe: Just remember here but one dealt with the confidentiality requirements.
- [00:41:44.400]Jay Rempe: The reporting livestock reporting issue and in another, the creation of a library of beef library that would our contracts and formulas would be would be deposited in and people could look at that.
- [00:41:58.170]Jay Rempe: There's one other part that but I know those couple parts and things. I think those are good.
- [00:42:06.480]Jay Rempe: Good steps in the right direction in terms of
- [00:42:09.360]Jay Rempe: Trying to get, particularly in the confidentiality side, trying to get more transactions that are reported and so we can continue to that price discovery and transparency.
- [00:42:19.530]Jay Rempe: And then the big contract library, of course, more information you have out there, the better off you are. The probably one of the critical pieces is she's looking at the associated thresholds that I described
- [00:42:30.540]Jay Rempe: And applying them on a regional basis and she's not setting in law. She's allowing USDA to do it through regulation, I think provides more flexibility.
- [00:42:41.280]Jay Rempe: That that's a kind of a tricky issue. I think the overall goal is to provide some transparency and discovery in the market, which is good.
- [00:42:49.710]Jay Rempe: But I don't see that help in terms of the what we saw in the markets due to the shocks of code and Tyson fire those could still occur and those would still happen. It just by being that you have a little more information in discovery out in the market.
- [00:43:08.400]Larry Van Tassell: All right. So Jay, do you think that
- [00:43:12.540]Larry Van Tassell: Mandate harms in Nebraska cash sales and causes less formula pricing.
- [00:43:20.250]Jay Rempe: I based on the history in the experience and in Nebraska, where we've run typically on negotiated transactions between 35 to 40% somewhere in that range.
- [00:43:33.270]Jay Rempe: It would, it would require greater negotiated transactions and so I tend to think of it in this terms. There's an economic reason why
- [00:43:46.710]Jay Rempe: Formula contracts are being used and Dr. Steven carrots from Colorado State talked about this that folks that he's talked to that use formulas. They generally see a value anywhere from $25 to $40 a head. And the reason is it's just a lower transaction costs and lower more efficiencies.
- [00:44:11.430]Jay Rempe: And so I say that because if you're going to require a certain threshold, you're going to force people to move away from that and it's going to put some additional costs into the industry.
- [00:44:22.230]Jay Rempe: And how that is that additional cost. Is it worth the extra price discovery and transparency that you get from
- [00:44:31.620]Jay Rempe: Negotiated transactions. And I think that's something that we all need to weigh in the trade offs on that. And so it definitely would have an impact on Nebraska. It's interesting. I think the 14 day window right have a little bit impact to is, as I mentioned, for whatever reason, Nebraska.
- [00:44:50.280]Jay Rempe: And Iowa together two thirds of that 15 to 30 day window and never change that as well, too. So it definitely have some implications.
- [00:44:59.760]Larry Van Tassell: Well, Jay. That looks like the end of our questions today. So thank you very much. And thank you everyone for joining with us today.
- [00:45:08.040]Larry Van Tassell: reminder that our who recording of the webinar will be posted posted@farm.eu and l.edu where you can also register for other upcoming webinars.
- [00:45:18.930]Larry Van Tassell: As a reminder, check farm.eu and l.edu for a schedule of more webinars in this series, focusing on farm and ranch management issues relevant to Nebraskans
- [00:45:30.150]Larry Van Tassell: The series continues next Thursday at noon with an overview of a collaborative report by the Department of Agricultural Economics and the Bureau of business research at UL on the economic impact of Nebraska agriculture and
- [00:45:47.850]Larry Van Tassell: You'll be receiving a short 32nd survey in your email, and we would really appreciate your feedback on today's webinar webinar and your input on future sessions. Thanks again for joining us and Thanks Jane really appreciate the time and effort in helping us out today.
- [00:46:05.730]Jay Rempe: We enjoyed it. Thank you.
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