Beef Buzz News
Purdue's Jayson Lusk Breaks Down Three Major Issues Before the House Ag Sub-CommitteeThu, 29 Jul 2021 11:29:56 CDT
On Wednesday a pair of hearings were held on Capitol Hill in both the House of Representatives and the Senate related to the beef supply chain.
Some of the discussion had was relevant to the Holcomb fire, the JBS Ransomware attack, and what needs to be done in response to problems caused by the pandemic.
Jayson Lusk, Purdue University agricultural economics professor and department head, testified before the House Agriculture Sub-Committee and offered a piece of advice to lawmakers.
“My recommendation is do not overly focus on only what is happening today, but make policies for the future,” Lusk said.
He went on to discuss three different issues, the first being beef packing capacity.
The processing capacity of 2020, even if the pandemic had not occurred, was likely to be tight, Lusk said. Today, we appear to be in a different phase of the cattle cycle, one where inventory is falling while beef prices are rising and there is a drought occurring in the West, he added.
These factors will likely bring cattle numbers closer in line with current capacity, Lusk said.
Moreover, there are a number of private initiatives to increase automation and add more capacity, which would help support future cattle prices when coupled with fewer cattle, he said.
Lusk said adding additional government investments in capacity, for the purpose of improving cattle prices, may be fixing yesterday’s problem.
“The cost of adding packing capacity are not limited to concrete and iron,” Lusk said. “I encourage you to consider other barriers that limit new entrance.”
These factors include labor ability and cost of complying with regulations related to labor, food safety, zoning, transportation and more, Lusk said.
The second issue discussed was price discovery, specifically proposals to require a share of cattle be sold on a negotiated or cash basis as opposed to formula or grid in an effort to improve prices transparency.
Even if all cattle were traded on a negotiated basis, Lusk said, the price level would not necessarily improve.
Livestock Mandatory Reporting, LMR, is one tool that has improved price transparency, he said. Market maker programs that incentivize voluntary participation and cash markets is another tool to be considered, he added.
The final conversation point was market access.
“Discussions of cattle prices and packing capacity can give the incorrect impression that beef and cattle markets are a zero-sum game,” Lusk said.
Consider the policies that increase the size of the pie for all players, Lusk said.
Examples include improving trade relations that allow products to flow to consumers, and investments in research and innovation to improve demand and productivity, he added.
Chair of the sub-committee, Jim Costa, asked Lusk about drought being one of the factors impacting the current cattle supply situation.
For those folks experiencing drought right now, it is extraordinarily difficult position, Costa said. It is one of the factors that leads to these cycles that could produce repercussions three to four years from now, he added.
“It is a very difficult time,” Costa said, “and I think it suggests the need to protect against weather-related risks and price-related risks.”
Costa said there are a number of tools available to help somewhat protect against these adverse situations, and it spurs further thought for other current issues and building resiliency in the face of changing conditions.
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