The GIPSA Bubble


by Randy Stevenson, President

When the market moves, there is usually more than one single factor involved. This is especially true the more long-term we look at the market. But it is also common that one factor or another may have a stronger influence at any given time on the status of the market.

It seems strange that over the past few months a rise of price in the cattle market has coincided with concern over the new rules proposed by GIPSA. It is a fact that cattle numbers are down to historic lows. This has been brought into being because of a historically lengthy fourteen year liquidation phase. Such a long liquidation phase is an indicator of a broken market. There is no reason not to believe that such a short supply would have an effect on the market. But it is also easy to believe the short supply is not the sole factor at work.

Human nature makes us check our speedometer when we see a cop car by the side of the road. We instinctively make sure our speed is just under the limit. Usually that involves slowing down just a bit when we think we are being watched.

I also think that the meatpackers and others in the supply chain have been guilty of collusion in the market. Much of that collusion, I think, has been tacit, and therefore difficult to see and prove. But as the supply diminishes, the possibility to collude quietly diminishes with it. The meatpackers, knowing they are being watched, and with new regulations on the table, they are driving more carefully now.

Therefore, I think part of the cause for our good prices for cattle right now might be partially due to something we could legitimately call “the GIPSA Bubble”. Because of the obvious watchfulness on the part of regulators, the ones regulated are
more cautious and let the ordinary market forces work properly instead of struggling together against them.

At the same time, we see another anomaly. While the retail price of beef is going up a little, the rise does not even closely match the rise in the value of fat cattle. What that tells us is that something either has been or is amiss in the market signals going from feedlot to consumer. Retailers are apparently willing to give up some of their share of the share of the retail dollar, keeping the eyes of the regulators looking elsewhere.

The bottom line is that just because the price of cattle is good right now, it doesn’t mean that the broken market has been fixed. It only means that some of the players have slowed down a bit because the cops are watching. We should not see the increase in prices as and indicator of a cured market. One thing we should ask is whether feedlots are getting more and competitive bids and inquiries than before. It could easily be the case that meatpackers are not necessarily being more competitive, but rather that they still possess the same market power that they always have. They just haven’t been abusing it as they have before.RS