It’s really not such an oddity that cattle prices stage a late-summer rally, but this year’s market is surely one for the books. Cattle prices have not just rallied; they jumped 10 percent higher during one of the hottest times of the year and on the heels of a rally in the grain markets.

Ironically, cash fed-cattle prices reached the $1-per-pound level just as officials from the Agriculture Department and the Department of Justice were headed to Fort Collins, Colo., to gather feedback on their proposal to implement new rules to the Grain Inspection, Packers and Stockyards Act. Those proposed rules, as you likely know by now, have stirred a significant controversy within the livestock industries.

On one hand, there are folks who are convinced the consolidation in the packing industry has created a system where ordinary producers can’t get a fair price for their cattle or hogs. On the other hand are the folks who believe further government intervention into their business is unwelcome, and that these new rules would severely damage or eliminate any opportunity to add value to their livestock through marketing contracts or arrangements for health and/or quality.

USDA extended the comment period on their proposed GIPSA rules, and the new date for an announcement is set for Nov. 22, which means the arguments over the new rules will continue for the next several weeks. Even then, however, the GIPSA controversy may continue into the foreseeable future. That’s because there will be challenges to Secretary Vilsack’s decision — from whichever camp believes it is on the losing side. In short, this won’t be over until the lawyers say it’s over.

But regardless of which side you are on, and regardless of how long it takes the lawyers to close their briefcases, some fundamental facts about the cattle industry will remain. Chief among those is the fact that the beef industry has an over-capacity in both the feeding and packing industries. Both feeders and packers are constantly chasing a shrinking supply of cattle, and it is highly unlikely that any government regulation or program will change that anytime soon.

Consider that in 1980 the U.S. cattle herd totaled 111 million head. By 2009, the number of cattle had dwindled to 94 million, a decline of 15 percent in just 30 years. Over the same period of time, however, beef production increased from 21 billion pounds to 26 billion pounds, an increase of 21 percent. In short, beef producers — like other segments of agriculture — are becoming more efficient.

Unfortunately, efficiency is not a guarantee of profitability. Indeed, the beef industry has learned that while efficiency is important, so is quality and product safety. Today, feedyards want more than just cattle to feed. They want healthy cattle that can perform efficiently and produce high-quality carcasses. That’s because that’s what their customer — the packer — wants.

Supporters of the proposed GIPSA rule changes believe packers hold too much leverage over the market. They believe that if we could stop packers from contracting cattle and offering marketing agreements, packers would suddenly be forced to bid more aggressively. And somehow the packing business would look more attractive, and other packers would open shop and provide new buyers for fed cattle.
Change the rules if you must, but no amount of government manipulation can change our industry’s core facts: 1.) Continuing efficiency in beef production means there will be fewer cows and fewer feedyards; 2.) Fewer cattle means there will be fewer packers.

A declining need for slaughter and packing capacity will continue to squeeze an industry that historically operates on slim margins. There is no business model that could encourage new players to invest in this shrinking market with shrinking margins.

No, the number of packers in our industry is not about to grow. Let’s just hope it doesn’t shrink further.

It’s a fallacy to believe that Ag Secretary Vilsack and the lawyers at the Department of Justice can implement new rules that will reverse industry trends that have been in place for decades. Indeed, producers are likely to pay dearly for any attempts to limit a packer’s ability to assure an inventory of cattle that can provide the type of products that a packer can sell. Put those restrictions on packers and they have two options — bid lower on cattle or close the doors and wash the floors.

The parade of cowboys from both sides to Fort Collins is wasted effort and wasted resources. Rather than fighting amongst ourselves over rules that can’t stop the evolution of a mature industry, we should channel this energy toward marketing and promoting the benefits of our product to consumers. Now that is a strategy that has a chance of raising the bids from packers.

Commentary by Greg Henderson, Drovers editor