Friday, November 18, 2016

Leaving Commodity Markets Behind

 A few weeks ago I wrote about the hypocrisy of current cattle markets and world hunger. Actually it is the hypocrisy of the commodities market and world hunger. Governments and organizations dealing with poverty, along with the media,  are constantly spreading the fear of not being able to produce enough food to feed the world. If all of these governments and organizations (which collectively collect and disperse hundreds of billions of dollars annually to fight the problem) are so dedicated then why were American dairy producers forced to dump forty three millions gallons of milk in the fist ten months of 2016 from "over production?"  Why is it that American produce farmers are forced to take "excess" produce to landfills while supermarkets have the identical produce on their shelves, from other countries? Last (but not least) why are American ranchers receiving less money for their calf crop than they did in 1979 (reportedly from "over production") while we are importing beef from other countries?

These are all fallacies caused by prices being set at the CME without any basis given to the cost of production, and the myth "we'" are in a global economy. If commodity prices would have kept track with inflation, $1.25 calves in 1979 should be $4.16 according to the CPI inflation calculator.  So is there a way to get out from under the CME so ranchers can start receiving a price which reflects the inflation over the last thirty seven years? Yes, in fact some ranchers already are.

Some use organizations like the Grass Fed Network or Homegrown Cow, while others do their own marketing locally, selling directly to the consumer. Others manage to sell their cattle locally at above market prices, with delivery to a local slaughterhouse. Some, such as White Oak Pastures, have gone the extra mile and actually built their own processing plant. However many cattle producers are too far removed from from dense enough populations to market directly to the consumer.

In order to enable all producers to circumvent the CME price fix, the NCBA needs to be abolished, or at the very least, restructured. For those thinking the NCBA is helping cattle producers, and that the beef checkoff program really adds $11 a head to the value of your cattle, why are you receiving less money now than in 1979? In fact, when you allow for inflation, the prices of two weeks ago producers were paid $2.95 a pound less than pre-checkoff prices.

The new organization would require both cattle and feed producers to file their cost of production. Farmers providing feed would be paid on the average cost of production plus a percentage of profits. The formula for cattle producers would need to be a bit more complex. There would be a base price of the average price of production, plus percentage for profit, with the option to retain part, or all of their calves all the way to wholesale, if not retail, and be paid on hide and offal as well.

The new association would need to lobby congress to assure that the packers cannot import beef unless there is an actual shortage of US produced beef.  Furthermore,  the tariff on imported beef would put the packers price on imported beef at a level to be even with beef produced in the USA.

This is just a bare bones proposal which beef producers need to discuss before we go the way of sheep producers...just think of when the last time you saw lamb in a store which wasn't a product of New Zealand.