A monthly column on the US beef industry written exclusively for Beef Central by Steve Kay, editor and publisher of US Cattle Buyers Weekly.
ALL markets, whatever goods they trade, must be as open and transparent as possible to function successfully.
They must also be clearly and fairly regulated by a body outside the industry that produces those goods. Only then can market participants fully trust that the market mechanisms are working properly and not, even unwittingly, favoring one group over another.
With this in mind, I read with great interest the Australian Competition and Consumer Commission’s outline of the key issues it will examine for its cattle and beef market study.
As Beef Central’s readers have already learned, the study wants to examine competition between buyers of cattle and processed meat and the implications of saleyard attendees bidding on behalf of multiple buyers.
It also wants to look at market power at certain points along the supply chain and the transparency of carcase pricing, amongst other topics.
I’m not qualified to know how necessary the study is, what it might find and what the ACCC might do in response. I do know (through private discussions) that Senator Barry O’Sullivan, who represents Queensland in the Senate, is convinced that collusion between buyers sometimes appears to occur at stockyards. I mention this only to observe that it is often difficult to prove that what “appears” to occur is actually taking place.
Some US cattle producers have been convinced for years that processors of fed cattle collude to lock up cattle supplies and drive prices down. Yet dozens of studies over the past 30 years have failed to find any evidence that this occurs.
It has not mattered whether the studies were financially supported by the industry or were conducted by USDA or other branches of the federal government.
I have on my bookshelf numerous reports dating back to the mid-1980s. One, by the University of Minnesota, drew on five of the nation’s most eminent agricultural economists. Another, called “Packer Market Concentration and Cattle Prices”, was conducted by the US General Accounting Office, which is the federal government’s chief watchdog.
I have eight studies published in 1996 by USDA’s Packers and Stockyards Program (PSP), which oversees the meat and livestock industry.
PSP’s reports ran to more than 1000 pages. Yet they found no evidence of lack of competitiveness in the markets or any behaviour that favored one group or another.
One reason for this is that PSP for many years has done a good job of monitoring the industry and investigating complaints.
As I mentioned in my Beef Central column back in March 2014, PSP carries out its work through the Packers and Stockyards Act that was enacted in 1921.
I have no idea whether the ACCC might conclude that the Australian industry needs legislation like in the US. I do know, however, that cattle producers the world over have an aversion to regulations.
But at the same time, they demand government oversight if they feel the markets are not working as they should. Australian producers will need to tread carefully in this regard and be careful what they wish for.
US market’s ‘usual mix’ of seasonality and volatility
Meanwhile, the US cattle and beef markets are functioning with their usual mix of seasonality and volatility, although less of the latter than was experienced in 2015. One fringe producer group though is still demanding a congressional investigation into last year’s fed cattle market collapse last fall, despite no evidence at the time or later that anyone “manipulated” the market.
The market’s current preoccupation is over the grilling season, when Americans fire-up their barbecues and buy their favorite steaks.
Some market bulls had hoped the early Easter this year would mean grilling would start earlier and give a boost to retail beef demand. But April has begun as it always does, with only modest retail feature activity. It hasn’t helped that sizeable parts of the country are still experiencing snow and blizzards.
As in past years, more aggressive retail featuring will likely only begin in the last week of the month. One reason for the modest features right now is that boxed beef prices (cuts and grinds) ran-up unexpectedly from mid-February until late March.
This made it difficult for retailers to set aggressive features for April. Boxed beef prices have now declined sharply, which will allow retailers to feature beef more aggressively from the start of May into June.
Cattle feeders hope this will mean an uptick in fed cattle prices, as they had fallen for two weeks in a row.
The industry will also be hoping to see an uptick in beef exports after a slow start to the year.
Ironically, the weakness has been here in North America. Demand in Canada and Mexico for US beef has been soft, with the weak Mexican peso offsetting any decline in US prices.
Beef export volumes are higher to most Asian markets and steady elsewhere. But that’s not been enough to offset the volume declines in North America. Exports to Mexico in January and February fell 18pc in volume and 28pc in value.
Exports to Canada were down 11pc in volume and 25pc in value. Mexico and Canada last year were the No. 1 and No. 4 volume destinations for US beef.
The meagre year-on-year growth in volume is more troubling that the value decline. The US is now producing more beef than last year, so there’s more to sell on the domestic market.
That’s one reason why at time of writing, weekly wholesale beef prices are 13pc below last year. But these lower prices have not yet stimulated the kind of increase in export volumes that packers expected.