Houston Chronicle via SM // By Nelson Antosh
AMARILLO,Texas -- An Amarillo-based group frustrated with the prices it gets for fattened beef cattle is aiming to lock up the rights to market 1.5 million cattle -- about one-quarter of the fed cattle sold annually in Texas -- by Oct. 1.
The progress so far suggests that after several efforts that came up short, the group may be able to corral enough cattle to match the market clout of the handful of major meatpackers.
The nonprofit marketing cooperative, called Consolidated Beef Producers, had won the right to market 906,000 head by Wednesday, well above the 750,000 it considered a minimum.
Behind this effort is the simmering resentment over the growing power of the companies that slaughter and market beef.
Because of packer consolidation over the years, reaching a price has basically come down to a match of wills between buyers for four packers vs. several hundred sellers, says Paul Hitch of Guymon, Okla., chairman of the new venture.
“The question is, can one co-op that sells a million head negotiate a better deal than a feedlot that sells 50,000 a year? We’re betting it can,” Hitch said.
There are four big packers, IBP, Excel, ConAgra and Farmland, said Hitch, plus a handful of small regional packers that stick to their own areas.
The federal government has determined that the four biggest packers bought 81.4 percent of all steers and heifers sold for slaughter in 1999.
The new co-op is recruiting feedlots, which have to pay a $3,000 membership fee plus $1 per head sold through the co-op.
The Oct. 1 cutoff date was set to prod fence-sitters.
Of the 200 feedlots on the High Plains of Texas, Oklahoma and New Mexico, about 45 have joined. This area has the nation’s greatest concentration of feedlots.
They want to get a better deal on the cattle, which are sold by the pen, each holding from 50 to 250 steers or heifers.
Some yards currently get three or four buyers bidding on a pen, but there are others that get only one bid, said Jim Gill, market director of the Texas Cattle Feeders Association. “We would like to get at least two bids on a pen,” he said.
The lists of pens that are for sale, called show lists, are compiled each week by managers of the feedlots.
Generally, the week’s trading is all done in one day, sometimes within a two-hour period. “Just waiting for the first guy to make a move,” Gill said.
Managers telephone the cattle owners, who have the final say on whether to sell. Sometimes the price is too low and owners decide to try again next week.
Theoretically the co-op could negotiate a better price just because it has so many more animals for sale at a time.
Two earlier attempts to put together a marketing cooperative didn’t gel, said Burt Rutherford of the Texas Cattle Feeders Association, which has served as an incubator. There was interest, but not enough to “make that leap of faith,” Rutherford said.
Those goals were more ambitious than for the current venture. Some people said it needed 2.5 million cattle to work, which is so many that the packers “can’t go around you,” Hitch said. But he doesn’t like the idea of squeezing meatpackers.
“To beat up on the guy that’s paying you -- that’s a poor business model,” Hitch said. His plan is to use their large base to get the best price by matching the cattle to carcass specifications -- which set prices based on the likely quality of the meat -- provide the right cattle at the right time, and get paid for performing these services.
Some potential members have feared that packers will refuse to negotiate. Hitch predicts that won’t be the case. “But they’re not going to roll over, either, and pay you an extra $25 because you’re a nice guy.”
Bruce Bass of Dakota City, Neb., the head cattle buyer for IBP, said he would rather not comment on the marketing co-op. The vice president for procurement at Excel in Wichita, Kan., did not return a call.
Fred Nichols, the head cattle buyer for ConAgra Beef’s Monfort packing business, said he didn’t know the details of how Consolidated would sell animals but hopes it works.
This is the first time cattle producers have come together on such a large scale, said Bill Mies, professor of animal science at Texas A&M University.
To their credit, he said, Consolidated Beef Producers came together during a period when prices were relatively good. “They’re not doing it out of desperation, or a desire to get even, or take a piece of the market away from somebody.”
Chuck Jackson, a broker with Alamo Commodities in San Antonio, sees the co-op as a way to provide added value to consumers and capture some of that value. “It’s not just an attempt to raise price. Eventually that will come back to bite you.”
Garnering 1.5 million head will send a message to the packing industry that cattlemen are serious, said Chuck Levitt, livestock analyst for Alaron Trading Corp. in Chicago.
About 65 percent of all cattle are still sold in the open cash market, said Levitt, and the co-op should, at times, have at least a slight influence on price. The other 35 percent are sold through various contractual agreements.
“But you have to remember that these cattle are alive and gaining weight, and the market is still subject to the laws of supply and demand,” Levitt said.
Too-heavy fed cattle are being cited as a factor in the price decline of recent weeks.
Such temporary gluts can be the result of owners holding back, but in this case the blame is on cheap grain and more animals being fed on a formula basis, which causes them to be stay in the lot longer, and exceptional cattle performance.
Steers and heifers are currently being sold at below break-even cost, according to the analyst.
In theory, the co-op idea is good, and “we are 100 percent backing what they are trying to do,” said Mark Engler, director of risk management for Cactus Feeders, the nation’s largest feedlot operation.
It signed up some cattle, but he wasn’t at liberty to say how many. The number is not large compared to Cactus’ one-time capacity of 460,000 head.
“It’s going to be a tough row to hoe” because feeders are such a diverse and independent group, which means that some people are going to get angry when their pens don’t bring as much as they hoped, Engler said.
The first hurdle will be hiring the right person to run Consolidated Beef Producers on a day-to-day basis, he predicts. “They will need a guru, a boss. He will have to be multitalented, a hell of a politician, and well-respected.”
The formation of Consolidated Beef is just one way cattle raisers are trying to grab a bigger piece of the consumer beef pie.
Faced with the same pricing problem a few years ago, another group called U.S. Premium Beef bought into the packing operations of Farmland Industries to form Farmland National Beef Packing Co.
Aiming to capture the value added benefits, members get a premium for quality plus a patronage dividend at year’s end.
Members have first rights to delivery at its slaughter plants in Dodge City and Liberal, Kan., which means they don’t have to worry about packer buyers showing up, said Chief Executive Steve Hunt.
The cattlemen who formed U.S. Premium Beef, which began operation in December of 1997, paid a one-time fee of $55 per animal. All its sales are based on various quality measurements of the carcasses, basically selling meat instead of cattle.
The result is they added $15 per head on improved quality plus $18 per head from ownership in the packing business, Hunt said.
The company has 1,300 members who currently send about 700,000 cattle a year through Farmland National plants but aren’t pushing an expansion, Hunt said. “We need to get our arms around what we’ve got.”
