(R-CALFUSAVice President/Region II Director Randy Stevenson authored the following rebuttal to a recent op-ed by NCBA President John Queen, titled “Government Meddling Threatens Cattle Industry’s Future.” Stevenson also co-chairs R-CALFUSA’s Marketing Committee and represents the group on the agriculture advisory board for the Commodity Futures Trading Commission.)
Mr. Queen has expressed chagrin over some proposed market reforms that may be included in the 2007 Farm Bill. The proposals he opposes would free the market from its limited access, thus encouraging young people to participate, invigorating rural development, and helping small business agriculture – without government expenditure.
His complaint about government meddling rings a little hollow, somewhat like the speeder stopped by the highway patrol. The proposed reforms have kindred restrictions that exist in other markets, and have existed for a very long time. Like traffic laws that make travel safe and efficient, those restrictions are in place because they make the free market work properly.
Mr. Queen raises an objection to the prohibition of packer ownership of cattle, but the prohibition of packer ownership of cattle is like the prohibition of insider trading. Mr. Queen says, “In over 58 million cattle transactions studied between 2002 and 2005, only 5 percent involved any type of direct packer ownership.” In the interest of accuracy, it should be noted that the study covered 590,000 transactions on 58 million cattle. But it doesn't matter what the packer ownership volume is, it’s an issue of market timing. Employees of companies traded on Wall Street own even less than 5 percent of the stock traded, yet insider trading is against the law. When packers own their own cattle, they can use the timing of their slaughter to affect the market. Their timing increases the market access risk endured by cash market sellers. By contrast, no one on Wall Street suffers market access risk.
The independent study Mr. Queen mentions – the Livestock and Meat Marketing Study (LMMS) – acknowledges market access risk and indicates that producers accept a discount on their cattle in order to guarantee market access. The Captive Supply Reform Act (CSRA) addresses the market access problem as well. While the focus of the CSRA is on making sure contracts are tied to a firm price when they are made, it would, in concert with the cattle ownership prohibition for packers, modify current captive supply practices so that market access risk would not exist in the slaughter cattle market.
Mr. Queen also suggests that cattlemen who have made large investments and commitments will be penalized. In contrast, the LMMS indicates that small producers do not widely participate in alternative marketing agreements such as captive supply contracts. They are, therefore, in the group with the greatest likelihood of suffering from the lack of market access. Small production is where young people who are new entrants into the market begin. It is no wonder their numbers are few.
It is important to note that the LMMS clarifies whom Mr. Queen is defending. The study differentiates between “small” cattle producers and “large” cattle producers by stating, “Large beef producers are defined as the 25 largest feedlots and 25 largest cow/calf operations in the United States, and small beef producers are the remainder.” So Mr. Queen's defense of the status quo helps only the 25 largest producers in the U.S. and the rest are left with a market access problem.
Contrary to the suggestion of Mr. Queen that these reforms would move the market in the direction of inordinate government control, they would, in fact, make the livestock markets work more like the old-fashioned capitalism of Wall Street. It’s not socialism. It’s not government meddling. It’s just the enforcement of time-proven free access to a market that is honest and competitive. And without free access, honesty and competition, capitalism is just an illusion.