Here’s a winter analogy: It was so innocuous at its beginning: just a snowflake sitting on the top of the mountain surrounded by other snowflakes. But soon it was transformed into a snowball possessing both mass and weight and it began to make an impression.
Then, with its mass and weight increasing, the innocuous snowflake, now a snowball, broke free from inertia and began to move.
Momentum soon took over, and combined with gravity, acceleration, and all the while the snowball was interlocking with more snowflakes, growing exponentially in proportion. It careened down the mountain leaving nothing but tree carcasses in its wake.
And that, my friends, describes the broken U.S. cattle market…Okay, let’s explain:
This analogy tells us that a catastrophic outcome has a beginning…a beginning for which the outcome could not likely be foretold. Put another way, the huge problems of today all started small somewhere, and then additional forces interacted to produce what is, in this instance, a catastrophic outcome.
So, to solve today’s huge problem, which is today’s broken cattle market, we must trace it back to its beginning.
Today’s huge problem looks like this: The revenues a competitive marketplace once allocated to U.S. cattle producers have been hijacked and redirected back to the beef packers and retailers, causing a disconnect between cattle prices and beef prices. This is why consumers have been paying super-inflated beef prices while cattle prices have remained seriously depressed. Even with today’s increasing cattle prices, the spread between cattle prices and beef prices remains historically wide.
So now we know the disastrous outcome, but where did this snowflake, turned snowball, turned a destructive force originate?
Not long ago the four largest beef packers ate nearly all the smaller packers, and with their dominate market share, were positioned to control who had timely access to the market and who did not – they created market access risk for cattle producers. So here the snowflake was rather innocuous as no one knew what the outcome might be.
But at about that time, consumers began eating more beef, and did so for well over a decade. So, packers needed more cattle and were loath to deny timely market access to too many cattle producers. So, the snowflake just sat here for a while in its new landscape.
