Derrell Peel: Be Careful What You Ask For

Noble Ranch ( CAB )

The opinions expressed in this commentary are those of Derrell Peel, Oklahoma State University Cooperative Extension livestock marketing specialist.

COVID-19 has caused unparalleled and catastrophic impacts on cattle and beef markets along with every other part of the economy.  Cattle and beef markets are experiencing devastating shocks and challenges resulting in price changes and market behavior that are, not only unprecedented, but also difficult to understand and confusing to many. 

The anger and frustration of some cattle producers has turned to accusations and proposals for change that will have long-term implications and unintended consequences for the cattle and beef industry.

The U.S. cattle and beef industry is probably the most complex set of markets on the planet.  It is extremely difficult to understand with many levels of productions and an enormously complicated marketing chain. 

Cattle producers often feel – rightfully – that others do not understand the cattle business.  They face many challenges and unique considerations of raising cattle in a vast array of climates and production environments; and they constantly fend off a never-ending set of calls to change how cattle are produced for this or that unrealistic demand or expectation of someone somewhere. 

Currently some cattle producers are calling for one-size-fits-all restrictions on business practices or changes in industry structure based on a lack of, or an incomplete understanding of, how packing and processing businesses and markets work to process and market thousands of different beef products in a multitude of wholesale and retail beef markets.

Never before has the industry faced so many challenges that threaten the operation of multiple processing facilities simultaneously along with massive disruptions to the food service supply chain severely limiting nearly half of the total beef market.  The impacts of COVID-19 on beef markets would not be different if the industry consisted of more, smaller, less efficient packing plants who were forced to purchase cattle in immediate cash markets.  It might well be worse.

The current structure and business practices of the industry evolved in response to the economic forces that drive the beef industry, like every industry, to be as competitive as possible.  The cost efficiencies of large-scale cattle feeding and meatpacking operations is undeniable. Some current proposals will add cost and risk to the industry and will further increase the differences between cattle and wholesale beef prices. 

A less efficient, higher cost beef industry will ultimately result in higher beef prices for consumers and make beef a less competitive protein industry.  Simultaneously, cattle producers will face lower cattle prices and, as the industry downsizes, more will be forced out of the industry. 

Cattle producers will decide what sort of policy prescriptions they want to pursue that will affect how the beef industry functions.  I am not suggesting what policies should or should not be promoted.  My job is to make sure that the industry understands the implications and consequences of alternatives that are being considered. 

Some of the proposals being promoted today will have unintended consequences that are negative for the entire industry.  This industry consists of many diverse sectors and perspectives but in the end the entire cattle and beef industry will thrive or not as a single industry.  Be careful what you ask for.

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Comments
Submitted by Steve Burress on Tue, 04/28/2020 - 07:14

Well perhaps we should be careful what we ask for, but we already know what we have 4 major packers who control a large portion of the market while they are recording record profits the cattle man is recording record losses all this was already happening before covid 19. At the same time we have the smallest number of cattleman in history and I would expect that number may get smaller. It's hard to fall out of bed when you are already on the floor. Be careful what you wish for? Do you think we all wished for this?

Submitted by Jim on Tue, 04/28/2020 - 07:23

Seems it's only working for one segment anymore. Talk about an article that promotes getting rid of small producers. It's not what he said but it's what he said....

Submitted by Larry Crutsinger on Tue, 04/28/2020 - 08:10

I read opinion in this article, as the writer stated at the top. I would like to see facts to back up his opinion. Changes being called for may or may not bring about the confusion the writer says may happen. When given the chance without political manipulation the free market does work.

Submitted by Chris Hardee on Tue, 04/28/2020 - 08:24

Found Derrell Peel 's "Be Careful What You Ask For" article to be thought provoking. We are indeed a complex industry with rather few players, and are experiencing the most difficult of times. As a producer it is frustrating; however, we do have some latitude in marketing and for the most part are able to work each day with little fear of our families and employees contracting covid 19. I can't imagine owning a company requiring me to manage a pandemic situation in my work force. It must also be frustrating to have consumers wanting your product and not being able to deliver it. Over the years I've watched a number of beef packing plants close, even had some hard earned money invested in one. Don't recall any of those closing because they were making too much money! Maybe our system is not perfect. For the time being I am grateful for great consumer acceptance and the opportunity to produce a quality, wholesome product. I trust time will correct many of our frustrations. I much prefer we grease the wheel, not try and reinvent it!

Submitted by P lawinger on Tue, 04/28/2020 - 12:50

So then the answer is we all continue to worship at the alter of efficiency, at any cost?
First, the system gains its efficiencies on the backs of migrants, illegals, and minorities who work these jobs the owners themselves refuse. Open your eyes and see: who milks the cows, who is on the line in the slaughter plants, who is picking the vegetables? White folks, by and large, refuse this work. As do the owners. The gov't also promotes concentration w/ its programs.

Second:
Farmers are pumping out 100#'s of milk/cow/day and 200+bu corn/acre and losing $ !
Maybe producers should produce less and make some $ instead. The low cost producer will be standing at the end of the day, and this is not necessarily the one who produces the the most/unit.
Third:
All this gov't support but no set aside required? Do we really need 95 million acres of corn?

Submitted by Allen Floyd on Tue, 04/28/2020 - 13:05

Tariffs, Deregulation and MCOOL