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Economics 101, Beef and Cattle
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Posted 5/3/2021 12:09 (#8984989)
Subject: Economics 101, Beef and Cattle

Driftless SW Wisconsin

I'm a retired engineer with some cows and not a trained economist but I have picked up a few things about econ and the business world over the years. For what it's worth:

  • Ever since about the mid 1970s, public (stock issuing) corporations work to maximize profits for the STOCKHOLDERS. They do not operate in the best interests of their employees, suppliers, dealers or even their customers except as necessary to maximize profits for their STOCKHOLDERS. This is a basic concept that explains a lot of corporate behavior.
  • US companies traditionally have looked to increase profits by selling higher volumes of products which usually resulted in keeping product selling prices low to keep volume up.
  • European and especially German companies take a different approach to the US high volume theory. European companies would rather sell 10 products at $10 each to produce $100 in sales where American companies in the past strove to sell 100 products at $1 each to produce $100 in sales. An extreme example but hopefully shows the idea.
  • American companies in many industries are finding it is a lot easier to produce fewer products and sell each at a higher price than to work hard to produce a lot of lower cost product.
  • In a real, free, capitalist economy the thing that is supposed to keep prices in check and stop them from going through the roof is COMPETITION. If you charge too much you theoretically invite new competitors into your market.
I read on this board that fed cattle prices are going to up on such and such a date if I can just hang on until then, etc, etc.
The fact is that the 4 major packers can source all the raw material (fats) that they need at current prices. They can also bring in low cost imports without having to label them as such.
Beef demand is strong, especially after Covid, so they can raise box beef prices. While with just 4 main suppliers, all operating under the same tacit "maximize stockholder return" rules, there really is little to no competitive pressure to limit prices, at least until the restaurant or grocery store customer backs off due to prices.
There is absolutely no "fairness factor" which is going to make packers share their profits with anyone, suppliers, employees, distributors, etc.
As cattlemen, anywhere in the chain from cow/calf to feeder we are all just suppliers. The big 4 will keep the status quo of relatively low fat prices relative to box beef prices as long as they can get supply of raw material from either the US or overseas. Nothing will change until it has to. Box beef prices will continue to climb without bringing fats with it.
An additional benefit of the current situation to big 4 shareholders is that rising box beef prices will tend to make their fake beef investments more attractive as the prices of real beef rise to get closer to artificial beef.
The only way to change this spiral of high box beef to low real cattle prices is for the US federal government to step in and invoke anti monopoly laws which were intended to protect the public from consolidation which results in a lack of competition.
Hoping for a change is not going to do it. A concentrated group effort to get the US government to take a variety of steps to bring competition back into the US beef and cattle industry, for the good of all, is the only thing that will cause a change to the death spiral we are now on.
My humble opinion.

Edited by Jim 5/3/2021 13:31
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