With cattle futures reaching new multi-year highs this week, The North American Meat Institute today submitted testimony to the Senate Judiciary Committee underscoring the supply and demand fundamentals of beef and livestock markets and opposing further government intervention that will result in unintended consequences.
“Industry experts, market participants and economists testifying before three different congressional committees in the past two months have found that beef and cattle markets have behaved predictably given supply and demand pressures,” said Julie Anna Potts, President and CEO of the North American Meat Institute. “These witnesses join the Meat Institute in maintaining the beef and cattle markets are dynamic, with recent challenges being due to labor shortages and the COVID pandemic rather than market structure.”
The Meat Institute submitted written testimony to the Senate Judiciary Committee’s hearing called, “Beefing up Competition: Examining America’s Food Supply Chain.” Senate testimony may be found here.
In addition to debunking claims about market concentration, the testimony includes important new analysis which shows that the beef market is rebounding:
“Beef demand remains high: the total volume of beef sales in 2021 from January through mid-June remained more than 4 percent higher than the pre-pandemic levels over the same period in 2019. This increase in beef demand in 2020 happened while the packing sector’s ability to process cattle was experiencing operational constraints, and has continued into this year while labor availability has similarly affected the packing industry’s ability to operate at full capacity. Meanwhile, the supply of fed cattle remained large. In short, COVID-19 created a significant “kink in the chain” that took time to straighten.
“Early in the pandemic the National Cattlemen’s Beef Association (NCBA) commissioned the Oklahoma Cooperative Extension Service and several distinguished agricultural economists to examine the impact COVID-19 was having and was expected to have on the beef cattle industry. That paper warned ‘the timeline for market recovery from COVID-19 is unknown, and cow-calf losses could expand into 2021 when the summer and fall 2020 calf crops would be marketed.’
“The market is rebounding. This week Feeder Cattle futures reached contract highs for the August through March 2022 contracts. On Monday, July 26, the Feeder Cattle contract closed at its highest since March 2016. Live Cattle futures prices so far in July have averaged higher than the same month in 2017, 2018, and 2019, all pre-pandemic. This reflects a smaller supply of cattle, which according to USDA’s mid-year cattle inventory report released last week, is down 1 percent from last year. Also, it reflects the recovery in cattle processing capacity.”
In the testimony, the Meat Institute also offers a primer on market fundamentals at all stages of production:
“From ranch to the slaughter plant rail, live cattle typically change ownership two to three times. Cow-calf producers market their cattle to feeders, or to backgrounders who in turn move those cattle to feeders, who then market to packers. The price for cattle at any of those three most common points of transactions is a function of how many cattle are in each respective market segment. In other words, the price is determined by supply of cattle to sell from one segment and the demand for buying cattle by the next segment. That explains why each segment can experience different margins and why there is a futures contract for two types of cattle: feeder cattle and fed cattle. When any of those segments are out of balance, prices move, and the moves can be dramatic, as witnessed by the COVID-spurred retail beef demand, which represents the final segment of the entire pasture to plate value chain, and the COVID-imposed imbalance within various segments of the cattle sector.”
In response to calls for more “transparency,” The Meat Institute’s testimony provides more information about mandatory price reporting and other requirements for packers to be transparent with industry data:
“There is robust price discovery in the cattle and beef markets. Congress established and USDA administers the Livestock Mandatory Reporting Act (LMR) program to facilitate open, transparent price discovery and provide all market participants, both large and small, with comparable levels of market information for slaughter cattle and beef, as well as other species.
“Under LMR, packers must report to AMS daily the prices they pay to procure cattle, as well as other information, including slaughter data for cattle harvested during a specified time period and with net prices, actual weights, dressing percentages, percent of beef grading Choice, and price ranges, and then AMS publishes the anonymized data.
“AMS publishes 24 daily and 20 weekly cattle reports each week. Weekly reports start Monday afternoon and end the next Monday morning. These reports cover time periods, regions, and activities and the data include actual cattle prices.
“Further, packers report all original sale beef transactions in both volume and price through the Daily Boxed Beef Report. This data is reported twice daily, at 11:00 a.m. and at 3:00 p.m. Central Time. The morning report covers market activity since 1:30 p.m. of the prior business day until 9:30 a.m. of the current business day. The afternoon report is cumulative, including all market activity in the morning plus all additional transactions between 9:30 a.m. and 1:30 p.m., and is on the USDA DataMart website. The boxed beef report covers both individual beef item sales and beef cutout values and current volumes, both of which are derived from the individual beef item sales data.
“Stepping back for a moment, it is unimaginable in virtually any other industry participants in a free market would be required to report such data on an on-going, daily basis, and that the data would then be published by the government for competitors and other market participants to view, analyze, and use as a basis for strategic decisions. And yet, despite all of the onerous, mandated reporting requirements already in place, some people claim there is no market transparency and there needs to be more price discovery. Where does it end?”
For additional information about beef markets see the Meat Institute’s Facts about Common Meat Market Myths and the Meat Institute’s comments submitted earlier this week in response to U.S. Secretary of Agriculture Tom Vilsack’s request for comments on efforts to improve supply chains for the production of agricultural commodities and food products. The Meat Institute has several resources about beef markets here. And for more on the pandemic and its effect on the meat and poultry industry, go here.
About North American Meat Institute
The North American Meat Institute is a leading voice for the meat and poultry industry. The Meat Institute’s members process the vast majority of U.S. beef, pork, lamb, and poultry, as well as manufactures the equipment and ingredients needed to produce safe, high quality meat and poultry products.