Feedlots Explain Captive Sale
Boycott Position To Customers

(Editor’s note: The following letter came to us from a reader, who received it in turn from a feedlot where he is a customer. It explains the position of those feedlots who have chosen to participate in the current captive cattle boycott.)

DEAR CATTLE FEEDER:
WOULD YOU HELP?

I am sure that in recent weeks you have heard a lot about the "Great Nebraska Formula/Grid Out." Kansas and Colorado have also joined the movement, and Texas is discussing it. There is a lot of misinformation about what is trying to be done, and what the cattle feeder can do to help. Keep reading, I will attempt to explain the problem as we see it and what we need to do to help solve the problem.

WHAT IS THE PROBLEM? Three to four years ago, feeders became concerned about what we called Captive Supply. We felt that this gave the packer an unfair advantage when purchasing cattle for slaughter, but at that time we were uncertain how to define captive supply and many of us really did not think it was that big of a deal. Back then captive supply was reported at about 15-30 percent of the weekly sales volume and we assumed that with 70 percent of the market non-captive, we, the feeder, still had the bargaining power needed to get top dollar for our cattle. Today we can see that things have changed drastically, to the point where the packing industry now controls more than 50 percent of the cattle under some form of captive supply.

Just what is CAPTIVE SUPPLY? Captive supply covers all cattle committed to a packer more than seven days prior to slaughter and/or cattle on which the price is not set prior to leaving the feed yard, which covers:

1. Formula or grid sales where the base price is not negotiated on a weekly basis.

2. Forward contracted cattle.

3. Packer fed and/or financed cattle.

4. Cattle sold for delivery over seven days from time of sale.

5. Cattle sold to the packer at the "high of the week" or some variation thereof.

6. Any cattle on which price is not negotiated prior to shipment.

Cattle shipped to the packer by any of the above methods provide packers with non-negotiated, and in most cases non-reported, live inventories. This gives the packer an inventory tool that he uses to perfection when negotiating a price on the remaining cattle. Because most, if not all, of the above-mentioned marketing alternatives rely on the cash market to set their base price or starting point, we believe that it would obviously be to the feeder's advantage to negotiate all cattle on a weekly basis, forcing the packer to bid on all of their needs rather than on just 30-50 percent of them. This does not mean that cattle cannot be sold on a grid or formula, but does require the establishing of a cash basis before the cattle are turned in to the packer and requires that the cattle are to be slaughtered within seven days of the negotiated base price.

One of the practices that is hardest to understand is selling cattle on the high of the week. The Nebraska cattlemen believe that as many as 15 percent of their weekly sales are priced this way and we believe the figures would be similar in Kansas and Texas. This involves the feed yard allowing the packer to pick up cattle at the beginning of the week to be priced on Friday by the packer based on his or the industry's average price for that week. Let's follow this through — I ship my cattle to the packer Monday, Tuesday, and Wednesday so he can keep his slaughter going while he negotiates a live price on the few remaining cattle selling on the open market. On Friday, when the packer averages the price on the cattle that he bought in the live market, he prices my cattle and puts the check in the mail. I receive the check on Monday and get credit for it in my bank Wednesday or Thursday. I don't know if float means anything to you, but I guarantee it works to the packer’s advantage, not to mention the fact that my cattle have helped the packer negotiate tougher on the few cattle left in the open market. My question is, do you, the feeder, know that your feed yard manager is selling your cattle this way, or do you think he is just doing a great job of getting the top of the market each week? Some yards get $.25 to $.50 above the weekly top. This makes good coffee shop bragging rights, but if it helps drive the market dollars lower are you sure it’s worth it?

WHAT CAN BE DONE? If you, the feeder, are tired of taking dollars less than what the packer can pay for your cattle and you, like we, believe that captive supplies work to our disadvantage, then put the manager of the yard, or yards, where you feed on the spot. Find out how they are marketing their cattle, all of their cattle, and if you don't agree then let your voice be heard by feeding where the manager is still doing all he can to force the price up by causing the packers to compete weekly for cattle. If you will help by voting with your feeder cattle placements and we can get out into the country and discourage these practices, we believe we can change things. Let's make the packer get back out and work for his inventory each and every week of the year. Our future in the cattle business depends on us!

The Committee For Kansans Against Captive Supply