Competition in cows :P

I No doubt about it, the beef cattle industry
is in big trouble again. Several
friends and acquaintances in the feedlot
business are being forced into bankruptcy
and many others are teetering on the
brink. The small cow/calf producer has
been disappearing for years, seemingly
without notice or concern.
Today, many large
and formerly successful
large ranching operations
have exhausted
much of their equity,
are in danger of losing
the sacred trust (ranch)
passed on to them from
preceding generations.
Everyone in the cattle
business seems to be
feeling pain. But, this may just be the
needed motivation for producers at all
levels to ban together and seize this fleeting
opportunity to fix things.
We were supposed to have weeded out
excess production and inefficiency during
the bloody purge of the mid-eighties.
This being done, the industry would be
restored to balance and fairness for all
players. But, excessive and inefficient production
is clearly not the cause of this crisis
situation. The cliché; “the cure for low
prices is low prices” has been debunked.
A dysfunctional and totally broken marketing
system is
coming into focus as
the real culprit.
R a n c h i n g
and cattle feeding
has always been
tough. But today,
even those who have
traditionally been
above the fray are
feeling the pinch. In
the past, many cattle
feeders seemed to have believed that if
they became friends with the packers and
sided with them in lawsuits, they would
be able to get preferable prices for their
cattle. It didn’t work! Even the major
feeders, including those who had cozy
relationships and special deals with pack-
IT’S THE BROKEN MARKET SYSTEM
by Fred Stokes, Executive Director
ORGANIZATION FOR COMPETITIVE MARKETS POST OFFICE BOX 6486 LINCOLN, NEBRASKA 68506 ø www.competitivemarkets.com
OCM News FEBRUARY 2010
INSIDE...
What’s
the basic elements of
a solution
by Randy Stevenson 2
dig baby dig
by Richard Oswald 3
IT ’S THE PITTS ; CATTLE
FEEDE RS ANONYMOUS
by Lee Pitts 4
POEM - There’s No Lights
On In The Barn
by Lewis Baumgartner 5
ers, are now hurting and seem ready to
work (albeit clandestinely) with others to
reform the marketplace. However, they
remain concerned that if their involvement
in the ongoing market reform effort
becomes known, they will be subject to
reprisals by the packer.
This fear of packer reprisals brought
to memory an incident years back in a
local school here in Mississippi. A teenage
boy was lying helplessly on his back
with the school bully setting on his chest
pounding him in the face. The surrounding
kids yelled, “fight back Buddy”, who
replied “no that will just make him worser”.
Adults should have come to realize
that when you have to deal with a bully,
not resisting doesn’t work. Ultimately,
you’re going to either have to be totally
submissive or fight.
Please see STOKES on page 6 Cattle producers at
all levels need to rally
around their common
interests and agreements,
put aside their
differences and act to
fix this broken market
system.
What should the market look like?
In general terms that is not difficult to
describe. The market should possess
three key elements in order to function
properly. They are a balance of market
power, good procedural rules to maintain
the balance of power, and impartial
enforcement of the rules.
The balance of power, in turn consists
of elements that help describe and
determine that feature. First, there
should be no situation of asymmetric
information. That is not to say that one
side of the transaction may not be negligent
and overlook available sources
of information to his own detriment.
But rather it means that, for example,
a packer may not operate with information
about how many cattle he has
bought for next week’s kill while the
seller cannot know such information.
That information should be available
because the transactions to buy those
cattle have taken place in the open, and
not by contracts that are unavailable to
other market participants. That suggests
another feature that prevents an
imbalance of power, and that is market
transparency. When each individual
transaction between buyers and sellers
is open to the public, every market participant
can evaluate the same market
information. Nothing is hidden. Finally
the absence of compulsion for either
buyers or sellers is necessary. Buyers
and sellers may have their own internal
compulsions to buy or sell cattle, such
as pressing financial necessity, or a need
to supply a restaurant contract. That is
not what absence of compulsion means.
Absence of compulsion means that the
buyer is not giving the seller only 30
minutes to decide to sell today, or he
doesn’t get another opportunity to sell
for another week.
The second major element of a
competitive market is the presence of
a regulatory scheme to guarantee the
previously stated balance of power.
Such regulation is limited to the market
transactions and the market itself and
not to any other feature such as safety
and health. The desirability and extent
of health and safety regulations is a debate
that belongs outside the discussion
of the marketplace. Rules for a marketplace
are just as necessary as rules for
a football game. The outcome is never
determined or influenced by the rules.
Rules that preserve honesty would be
an example of something absolutely
necessary in the marketplace. The rules
simply make sure that the balance is
maintained in terms of market power.
The final major element is the impartial
enforcement of the rules. With-
Please see STEVENSON on page 7
The Basic Elements of a Solution
by Randy Stevenson
President
BOARD MEMBERS:
Randy Stevenson, President
Wheatland, WY 307-331-1980
double_s_livestock@lycos.com
Mike Callicrate, Vice President
St. Francis, KS 785-332-8218
mike@nobull.net
Brother David Andrews, Secretary
Washington, DC
Dan Hodges, Treasurer
Julian, NE
Steve Cady
Eskridge, KS
Cap Dierks
Ewing, NE
Jim Foster
Montgomery City, MO
Keith Mudd, Past President
Monroe City, MO
Paul Muegge
Tonkawa, OK
Eric Nelson
Moville, IA
Richard Oswald
Langdon, Missouri
Fred Stokes, Past President
Porterville, MS
STAFF:
Fred Stokes, Executive Director
Porterville, MS • 601-527-2459
tfredstokes@hughes.net
Pat Craycraft, Office Manager
Lincoln, NE • 402-817-4443
ocm@competitivemarkets.com
PROJECT ASSISTANTS
Jody Holland, Starkville, MS
Eric Lister, Brentwood, TN
OCM BOARD
MEMBERS & STAFF
OCM - February 2010 2
3 OCM - February 2010
DIG BABY DIG by Richard Oswald
ting close to being the best in the world.
They’re building them by the thousands
and selling most to their own people. But
analysts say that will change as more Chinese
products find their way into our markets.
Some big US retailers like Costco
may even have plans to sell them. (5)
That goes right along with our current
trade policies that I call “Buy Baby Buy”
According to the folks at the January
27th Clean Energy Works Forum in
Washington DC, (1) the US gets 60% of
its oil from foreign sources. If Baby gets
lucky and digs up a gusher, all that oil
will be sold on the open market. America
might never see a single gallon of it unless
we outbid Europe and Asia. So supply is
important to stabilizing world prices in the
short run, but not helpful to our long term
outlook as third world nations with expanding
industrial bases have more money
to spend.
Either way, it’s pay Baby pay.
Both Senators John Kerry of Massachusetts
and Lindsey Graham of South
Carolina took time to visit with forum
participants in the Russell Senate Office
Building. Graham went out on a conservative
limb by calling for carbon regulation,
saying that only through cap and
trade would America find the resolve to
be truly energy independent. That’s a fact
some forward looking investors like Warren
Buffet have recognized for quite some
time. Not only do Buffet’s newly acquired
railroads offer shipping profits, they also
offer right of way with some of the best
opportunities for renewable energy--like
solar and wind. (3)
But there were others who saw this
coming too, like the company based in
India that bought a down-on-it’s-luck
transformer factory in the Show-Me-State
where Nick Nickelson works. Nick Attended
the Clean Energy Forum as president
of IUE-CWA Local 86114 in Washington,
Missouri.
Nick said the place where he works was
on hard times because of the recession.
Business was bad even though the quality
of the products Nick and his co-workers
put out was second to none. Now with
fresh investment in wind and solar power
starting to pick up, the market for high
quality transformers like those made at
Nicks factory (4) are finding markets while
safeguarding American jobs.
There were plenty of stories like Nicks,
and other stories too. Like the one from
Hawaii State Representative Cynthia
Thielen, who came to remind delegates
that 90% of the Aloha state’s energy needs
are provided by imported oil. Cynthia
said that on the Islands, the military is the
strongest proponent of renewable energy.
Some folks want to make this energy
thing seem like a partisan issue, but as Representative
Thielen and Senator Graham
(both are Republicans) said, this is not a
Republican issue, it is not a Democratic issue,
it is an issue of national security.
While Graham believes that continued
drilling for more fossil fuel supplies is an
important part of our energy security, he
still supports carbon regulation. It’s kind of
a one-two punch for energy independence.
That’s what Cap and Trade does; it
regulates carbon by establishing a market
for it. In order to comply with EPA regulations,
coal fired power generators don’t
need to modernize right away, but slowly
over time as older equipment must be replaced.
In the meantime they just partner
with a farm or industry that removes carbon
from the air.
Winston, a Farmer’s Union friend
of mine says “You hafta call it something
else. Because all the farmers’ll say ‘we don’t
want cap and trade’”.
Winston has a point. Thielen and
Please see OSWALD on page 6
O One of the things I remember best
about my Dad was his shovel, because
Dad’s shovel was eternally shiny and rust
free. The last thing he always did when he
finished digging on the farm was clean and
oil his spade to perfection.
From irrigation ditches to postholes,
Dad could dig about anything. But even he
knew that when you’re too deep in the hole,
the first order of business is Stop Digging.
When oil was $12 a barrel we thought
we’d never see the end of it. America just
kept right on excavating. Then oil went to
$70 a barrel and the hole got deeper. At
$150 a barrel we put the shovel down and
started to think. That’s when America decided
that never again will we ever allow
ourselves to be suckered into imported petroleum
dependence. That didn’t last long.
When oil fell in a crack at $70 a barrel,
we went right back digging. Dad would
not approve.
If “Drill Baby Drill” is our best solution,
then Baby’s drill had better be shiny
and oiled, because right now the United
States of America imports 60% of the oil
we use. In fact we’ve never imported more.
Add to that the fact our Asian friends, the
ones who loan us money and keep Wal-
Mart stocked, are leading the pack in alternative
energy development.
The dirt is really starting to fly.
While Chevrolet was negotiating a
loan so they could make their delinquent
payments, China was putting up factories
to build electric cars,(2) solar cells, wind
generators…just about everything anyone
needs to be energy independent.
Like Daily Yonder Editor Bill Bishop
says about China; “It helps when you can
just decide something and tell everybody to
get busy!!!”
Some say China’s electric cars are getOCM
- February 2010 4
My name is Lee Pitts and I was
once a cattle feeder. Yes, I was addicted
to cattle feeding. I have seen
firsthand the impact this can have on
families and their net worth so I am
proud to say that I have been clean
now for 20 years.
Since there is no Betty Ford Clinic
for helping cattle feeding addicts I
had to cure my own addiction by developing
a 12 step program like those
used in Alcoholics Anonymous, Sexual
Compulsive Anonymous, Gamblers
Anonymous and over 200 other
such programs. (It may not have been
just the 12 step program that enabled
me to quit cold turkey; a 58 cent fat
market and a balky banker also contributed.)
I offer my 12 step program
in hopes that it may help others become
cattle-feeding-sober.
Step 1: Stand up in a gathering
of fellow cattlemen, in a bar or at a
convention, and admit you are an addict
and your behavior is unmanageable.
Admit that when you see a pen
of green feeders enter an auction ring
and hear the auctioneer’s chant you
are powerless in the face of your addiction
and your hand automatically
goes up.
Step 2: Because no one has yet
developed a patch, drug, or chewing
gum to rein in your cattle feeding addiction
chew on alfalfa stems. You’ve
already paid for them and you might
as well put the hay to a better use than
feeding it to cattle.
Step 3: If you absolutely must go
to an auction take a person of higher
authority with you, such as your wife,
banker or Cattle Feeders Anonymous
(CFA) sponsor to stop you when you
try to bid on a cheap set of preggy
Corriente feeding heifers.
Step 4: Remove the enablers; those
people or things that are enabling you
to feed cattle. These would include
your banker, order buyer and futures
trader. Sell your cattle truck and airplane.
Cancel your membership in the
Texas Cattle Feeders.
Step 5: Sell your calves at auction
and don’t even consider retaining
ownership. Let someone else have all
the fun.
Step 6: Rediscover the other days
in the week besides Thursdays when
the price of fat cattle is usually established.
Quit living solely for that 30
minute period when prices are set by
the Big Three and admit that there is
a higher power in this universe than
Tyson, JBS and Cargill.
Step 7: Remove the temptation to
be a farmer as well as a rancher. It is
a short slippery step from growing
your own hay or grain to building a
set of corrals and having 3,500 head
on feed.
Step 8: Cleanse your mind of the
obsession. Quit reading articles authored
by university professors or economists
that advise that you are leaving
$50 per head on the table by selling
your calves instead of feeding them.
Ask yourself, where are the teacher’s
and economist’s feedlots?
Step 9: Break old habits. Don’t check
the DTN machine first thing when you
get up in the morning and every ten
minutes thereafter until the markets
close. Don’t let the price of corn ruin
your day and rediscover a new life without
margin calls, feed bills, mad cows,
dairy buyouts and e coli outbreaks.
Step 10: Remove defects in your
character. Become a CFA sponsor and
don’t enable anyone to become an addict
by financing them. Help wives and
children who have been hurt by your
fellow cattle feeding addicts by forming
a CFA-anon group in your area.
Step 11: Pay your taxes. Stop buying
trainloads of grain in December just to
avoid paying taxes. Burn the money instead
and save yourself a lot of grief.
Step 12: Replace the risk-taking
behavior and euphoria you feel when
feeding cattle with other activities. You
may find you get the same rush from
less risky activities such as hang gliding,
sword juggling, car racing or bull
riding. LP
It’s The Pitts: Cattle Feeders Anonymous
By Lee Pitts
5 OCM - February 2010
There’s No Lights On In The Barn
Lewis Baumgartner
Not so many years ago,
If you were to take a drive,
Across America’s farmland
And thru the countryside;
If by chance your ride should happen,
As the day was nearly done,
Most every farmstead on the road,
Would have the barn lights on.
The farmer and a kid or two,
Or maybe even more.
Each one busy with a task,
Doin’ up the evenin’ chores.
Milk the cow, feed the chickens
And gather up the eggs.
Throw some hay down from the loft
And water the sow and pigs.
Sometimes my mind will wander back,
And I’ll recall those days, now gone,
Of peaceful winter evenings,
And the lights on in the barn.
The smell of all the cattle,
Mixed with the grain and hay.
To me it was a pleasing smell,
Though, to you, it may not sound that way.
And while filling up the water tank,
I’d watch the cats at play.
A nearly perfect ending,
To another busy day.
Then gazing toward the house,
I could see the kitchen light.
Momma’s fixin’supper,
To feed us all tonight.
And the warm glow from that window,
Made this country boy work hard,
To get in to that apple pie
And that chicken fried in lard.
But the trend today is larger,
And fewer family farms.
Not so many places left now,
With the lights on in the barn.
They tell us that it’s progress,
And nothin’ stays the same.
We must look toward the future,
And not the past from where we came.
And I know, that is true,
But tell me, what’s the harm?
If I feel a twinge of sadness,
Cause There’s No Lights On In The Barn.
Everything is gettin’ big,
And no one seems alarmed,
That the chickens and the hogs now,
Are mostly raised on Factory Farms.
We’ve taken out the fences,
And..the barn.... it’s been torn down.
It takes a lot of room,
To turn 16 rows around.
My favorite memories take me back,
To the way we used to farm.
To a peaceful winter evening,
With the lights on in the barn.
OCM - February 2010 6
STOKES (continued from page 1)
I don’t believe we’re going to see any
legislative relief from these rigged markets
anytime soon. The regulatory agencies
seem to be the only reasonable hope
in the near term. I know that there is lots
of cynicism and skepticism concerning
DOJ and USDA moving against these
big firms and their anticompetitive practices.
Some dismiss the upcoming joint
DOJ/USDA workshops as just the usual
bureaucratic smoke-blowing.
But I believe these folks are sincere
and that something good will come
from this new cooperation between DOJ
and USDA and the five workshops. I
view the formal inquiry DOJ launched
against Monsanto and Dean Foods and
the $900,000 fine against Smithfield for
jumping the gun on its merger with Seaboard
as pretty good evidence that they
are serious.
Trial and appellate court judges seem
to have a habit of legislating from the
bench and encroaching on the established
regulatory authority of GIPSA. In at
least three cases they reversed jury verdicts
that were sound and consistent with
the facts and plain language of the P&S
Act. But I am optimistic that the ongoing
rulemaking process for the Packers and
Stockyards Act of 1921 will reestablish
the original intent of this act which is so
vital for the protection of cattle producers.
I see this as a moment in time in which
the stars are in proper alignment for
bringing competition and fairness back
to the marketplace. If there was ever an
opportunity for market reform, this is it.
Cattle producers at all levels need to rally
around their common interests and agreements,
put aside their differences and act
to fix this broken market system. The
survival of our industry and our national
food security depends on it.FS
OSWALD (continued from page 3)
Graham haven’t won over fellow conservatives
who think “cap and trade”
caps profits, too. But farms could be the
biggest beneficiaries of carbon trading
when they sell the greenhouse gas credits
from their fields, ethanol refining,
biomass pellets, methane capture, or
farm based wind and solar energy.
In these troubled times with the domestic
budget facing cutbacks, farmers
can no longer be sure that low prices will
get the same helpful subsidy consideration
from USDA. That means new energy
products and markets might make
a difference between earning a profit, or
going in the hole.
Retired military officers Marine
Brigadier General Steve Cheney and
Army Major General Paul Eaton both
agree that climate and energy are important
to national security. General Cheney
said that sometimes our focus on current
problems like energy costs, keeps
us from focusing on problems down
the road. Things like our climate-- and
energy independence. General Eaton,
whose three children serve their country
in the military, agreed, saying “What
happens to them depends on climate
change (and US energy policy)”.
A lot of farmers haven’t made the
connection that without an energy bill
and carbon trading, there’s no real fundamental
support for the renewable energy
products we rely on to make our
farming profitable today. They, right
along with General Eaton’s offspring,
are at the mercy of big oil and lobbyists.
Ethanol was struggling against competition
from petroleum and the gasoline
additive MTBE, until MTBE in
ground water convinced EPA to require
it’s removal. That left ETBE (ethanol)
as the only oxygenate available for
blending. Big oil argued to have the
entire oxygenate rule rescinded because
they didn’t want to buy our product. It
was the only fuel additive they couldn’t
manufacture themselves. (6) EPA stuck
by their guns, and blended gasoline remains
a requirement, which is the main
reason most US ethanol refiners are still
in business.
Even if they don’t want to, the petroleum
companies have to provide us with
a market. Let’s face it, not many farmers
own a filling station.
Anytime a farmer says there’s nothing
wrong with CO2 in the atmosphere,
he’s also saying we don’t need biofuels.
It’s simple as that. The longer we oppose
carbon trading, the deeper we burrow
into big oil’s control.
Sometimes digging isn’t all bad. It
gets the crops watered and holds the
livestock in. It even keeps foxhole bound
soldiers out of harms way.
But for farmers, digging for the
wrong reason just makes the hole deeper.
RO
(1) http://www.cleanenergyworks.us/
(2) http://www.businesswire.com/portal/site/home/
permalink/?ndmViewId=news_view&newsId=201
00126006473&newsLang=en
(3) h t t p : / / w w w. g u r u f o c u s . c o m / n e w s .
php?id=83089
(4) http://www.pauwels.com/launch.cfm
(5) http://gas2.org/2009/03/31/chinese-electriccars-
coming-to-costco-wal-mart/
(6) http://www.cato.org/pub_display.php?pub_
id=4609
The opinions of the author are his own and are not intended to
imply the organizations position on this or any other issue. OCM
has membership with diverse viewpoints on all issues. OCM is
committed to one and only one principal; competition.
7 OCM - February 2010
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STEVENSON (continued from page 2)
out enforcement, rules are meaningless. As
previously stated transparency provides a head
start in rule enforcement. When the eyes of the
whole market are on each and every transaction,
it makes it easier to enforce the competitive marketplace
requirements.
We don’t have to re-invent the wheel in order
to find an example that has many of these
features. The stock exchanges provide many
examples of how to conduct a competitive market.
There is seldom a debate about whether a
stock price is the “natural” price. Adam Smith’s
“natural” price will occur anytime these features
exist in the marketplace.
Of course there would be many tweaks to
make such an exchange work for cattle. That
remains to be addressed. The fact is that a competitive
market is absolutely necessary for both
consumers and producers. Whatever is needed
to attain it should be done.RS
Organization for Competitive Markets
Tel: (402) 817-4443 • Fax: (360) 237-8784
P.O. Box 6486
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February 2010
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