NFO-216 (AV10719): US Farm Report:New Face of the Processing Industry

us farm report a public information program brought to you in the interest of agriculture rural business and the well-being of our nation by members of the national farmers organization in this area and others interested in having American agriculture received cost of production plus a reasonable profit the American farmers and ranchers are building a brighter future for agriculture through the national farmers organization the organization that awoke America and represents the leadership of Agriculture u.s. farm report features NFO and the new face of the processing industry with Gene Potter NFO meat commodity director and Dick Fout assistant to the director of the meat commodity department during the questioning is Phil Allen farm news commentator ordinarily livestock market reports are mentioned on noon our programs on radio and television and they play to a specific audience and in newspapers that are carried on one of the inside pages and they're read I suppose by people who plan to market during that week but livestock prices have been making front page news all during the past winter and on into the spring month and for a very interesting reason the price has remained higher than most of the experts were predicting it would considering the fact that there is a larger supply just by way of verification of this I'd like to cite an item which appeared in one of the big circulation middle Western newspapers the Des Moines Register a science story by dawn mom the farm editor and he called attention to this phenomenon this way he said the cattle market hit a six and a half year high now this was dated about mid-march now prime steers in the 1200 to 1350 pound class sold for thirty two dollars and seventy five cents to thirty three fifty a hundred weight and the price paid the highest for steers in Chicago since 1962 and as mr. Potter and mr. Fout are going to mention in just a moment since this hit the news there's even been higher pricing on the Chicago market and others also on cattle but we're also going to talk about but before we get to this point let me underline this fact about the high prices an Iowa State University agricultural economist Gene Cottrell who is oftentimes quote noted that the slaughter of cattle at federally inspected packing plants for the first ten weeks of 1969 was up 8% over that same period a year earlier in other words we're getting a bigger supply in cattle now he also mentions the supply in in hogs hog slaughter and federally inspected plants was up 10% and sheep up 5% so there you have it 8 percent more on cattle 10% more on hogs and 5 percent more on sheep and yet the prices are so high that it's causing comment this comment by a Cottrell Iowa State University economist basically it's hard to believe that we can use as much beef pork and poultry as we are currently consuming and still have the prices we have for cattle and hogs and then he made this little comment which amused me the cattle market has been helped by good marketing patterns by the producers Gene Potter they hit $35 just this past week that's higher than this 30 to 50 what affected the NFO have on that well Phil I'm sure that we would like to sit here and take credit for every bit of it and I think that we could substantiate this but it is difficult for anyone to say in an economic condition what exactly the circumstances would be if NFO wasn't involved but those who have watched livestock marketing those who are aware of what's going on in the marketing of livestock know that NFO is the big factor in the prices that we have today and it's a very simple matter really producers in the past have always had the attitude well there's nothing that can be done about it but there are a lot of intelligent forward-thinking producers who are now a part of the National organization that feel there is something that can be done about prices and they are doing something about prices so we can talk about all of the economic factors involved but it's basically a very simple matter that producers themselves use the production that they have and use that production and work towards a price with which they can live and continue in business which is something we haven't had in the past I would like to demonstrate this for a moment as to actually what has happened with the price of hogs now you've we've talked about the price of cattle momentarily here and I have with me a graph which shows two things number one on the top here this graph is in relation to the price that we have had for hogs country markets interior Iowa and of course which is indicative of the General price level all over the lower graph you will see the supply and this is for a period beginning of January of 1961 and up to the present both on supply and price I would like to draw your attention to several things here number one you see right here in fo and an arrow drawn to this point which is the second week in February of 1965 when NFO first became active in a large volume of marketing of hogs in this particular area you will see that the price levels up to that time varied along a line which was approximately $16 per hundredweight and then after NFO's involvement it has varied along a line which is approximately $20 per hundredweight $4 above what it was prior to the time that NFO became involved again if you will look at the supply and we always consider we've always been told in agriculture before that price is directly related to supply and that when the supply goes up the price has to go down and when the pr- the supply goes down well the price goes up well we can see here that the supply remained consistent through this total period although there was variations it varied along a line which is in the neighborhood of 400,000 per week now and if actually if we studied this in detail you would find that since NFO has become involved we have had on the average a little higher level of production than we had prior to that time which should have tended to make the price lower not higher yet we see a price which has been extremely higher than it was prior to the time that NFO became involved we feel that NFO certainly has had a terrific effect in this and in fact you will notice the low peaks in supply for the little valleys excuse me in price are as high as the peaks were prior to the time that NFO was involved so I think we have here Phil a real factual statement of what the effects have been and what has happened since these figures NFO figures there are these official people these figures are figures from the consumer marketing service the Department of Agriculture Washington DC that compile these figures these are a USDA market and volume figure reports well that tells quite a remarkable story in other words they jumped the General level of prices since the NFO involvement I'd like to turn to Dick Fout who came along he's special assistant to the director of the me commodity department in other words he's Gene Potter's right-hand man worked in the meat commodity Department for six years been in farming and livestock all his life Dick Fout's from Greenfield Ohio Dick why don't you tell us a little more in detail about the progress that the NFO is making under these contracts well I have a map here with a shaded area showing the areas that we do have contracts which are members are working under today these contracts were started basically in the 68th August of 68 and with this you've seen a General upward price pressure on livestock now to bear these figure or this map out and the figures and the illustration that jeans just given you here here is a reprint from the Western livestock journal as of December 12 1968 which stated that the substantiates the strength of the livestock market this fall is due solely to the efforts of the National farmers organization so bearing this in mind you will see that this shaded area is over your heavier or livestock producing area and primarily your hog producing area of the United States and with this we feel and we know that we've had a tremendous effect on the price with our contracts and our pricing formula contracts which in a lot of cases is day ahead pricing and tends to take the tremendous low pressure out of your pricing I know that farmers Generally are familiar with the facts that are indicated on the shaded area that map Dick but do you mean that the shaded area on the map of the United States is an area where livestock is moving under contract with NFO farmers this entire area here is the area that we do have contracts that our members are moving livestock under contract out of now the title of this program US farm reports on this particular issue is the new face of the processor I've had conversations with Gene Potter about this and he's describing I think a fact that many livestock men are aware of the packing industry is changing isn't it Gene yes Phil in the last five to six years that I have been involved in the meat department with NFO we've seen a terrific change in added in personnel and in fact in ownership in the livestock processing industry and this is causing the industry to take a different look at the business it's causing the industry to think about and do things that they never did before and it's actually giving them the capabilities to do some of these things and these are important to producers so I would like to spend some time in elaborating on this we've seen a the major pro- of the major processing companies be bought out acquired by large conglomerates or holding companies which many of us have active producers here very little about or know or know very little about with a terrific financial background people who have not been involved in the processing industry before but do have a good business sense as to what needs to be done now this isn't something that's just happened in the past the retailer as we've talked in this organization for a long while have been the ones who have had a great deal to do with extremely low livestock prices and there's been a way that this Bennett has been accomplished and it's important in this overall picture if you will think for a moment about a large retailer that retails a major percentage of all the red meat in the country buying from a packer and for all practical purposes these people dictate a price to the packer now in the past when the retailer decided that it was time for the market to be somewhat lower he would pass this price on to the retailer or on to the packer and then when the packer went out the next day to buy his livestock he would lower the market to the producer and thus the lower markets that we've all lived under for the last 20 years then NFO came along and started to organizing producers to cause some resistance to block this passing of a lower price on to producers so that the cracker then could no longer indiscriminately pass a lower price on for hogs or cattle and whatever the situation might be the packer found himself in a bind the pressure from the end of the retailer and now a pressure from the producer which has caused the packing industry over the last few years to be extreme and extremely low profit industry and which has made him vulnerable for acquisitions so this is something over the total picture that NFO certainly has had an effect in now as these people who are now coming into the processing industry they don't intend to continue operating this industry at the low profit level that it is they know that there have to be some changes made and the two major areas where these changes need to be made are in the stable source of supply and a stable outlet at stabilized price levels and this is exactly what NFO has been talking about for the last ten years and this is why there's been a terrific change in the industry and why the industry is thinking the same way that the national farmers organization is for a large percentage of them now I'd like to spend a little bit of time in discussing this stable source of supply the packer has three major areas from which this stable source of supply can be procured number one he can get it from organized producers number two he can get it through individual contracts with individual producers which fall into the category that we normally consider or talk about as vertical integration and in fact by the owning and controlling of that production himself now these are the three areas that the packing industry can go to get and secure a stable source of supply now I would like to discuss these in a little more detail one at a time and to begin with organized producers of which we know that NFO is the largest group of organized producers and certainly the most now if a packer can get a stable supply through the NFO he is going to deal with the NFO because this is the easiest it's the most beneficial to him and of course the most beneficial to producers because through this type of a mechanism the producer himself has something to say about the price he's selling for and the conditions under which he's selling the second area as we mentioned before for this stable source of supply can be secured is through individual contracts with producers and if the processing industry cannot secure from organized producers they're going to look at one of the other two and to see what actually this would do as far as we as family type individual producers are concerned we all are familiar with the history of the earlier industry and what happened when we started to contracting as individuals with large companies or with companies as an individual to produce for them we know that as an individual were not in a position to bargain with equal strength with the large packer or with anyone else who is issuing such a type of contract and because of this when we bargain as an individual we don't have sufficient strength to negotiate a an agreement with equitable terms and because of this then over a period of time the producers position continues to deteriorate he really hasn't solved any problem he solved a problem for the packer but he hasn't solved one for himself and he will continue in relatively the same position that he has been in in the past and the third area that we mentioned was the fact that the processing industry would own the production themselves now I'm sure that many of the major processors in this country are not necessarily interested in owning their own production because it is expensive there's management problems but they do have the ability now to do it then the companies that are acquiring the processing industry has a financial background and financial ability to actually own and control a terrifically large percentage of everything that they kill and this is an alternative they didn't have before the other people who were in the processing industry for the most part didn't have this financial backing so it does give the new people an alternative which they didn't have before and an extremely dangerous alternative as far as we as individual producers are concerned because once the processing industry takes control of the producing of that production there's certainly not going to be a place for small or not even small but independent type production so in the total picture there is a different face to the industry they are doing things and thinking about things that they haven't before and this is beneficial to producers it's the greatest opportunity that we as organized producers and the National Farmers Organization has ever had but it's an opportunity we must capitalize on now because if as producers we don't the industry will go the other direction to get this stable source of supply and once going that direction of course there's no future left for an independent producer the new face of the processor supposing now we talk well gentlemen mr. Fout Dick Fout and Gene Potter supposing you discuss for this radio and television audience the benefits that farmers might derive from the marketing arrangements with the NFO you've shown now charts showing that it brought about a higher level you're shown a good geographical distribution now what does it mean to the farmer what I think one thing Phil is honest wait our people- hogs going through a collection point a collection point operator is paid so much per hundredweight for the use of his facilities which he has no reason to underweigh the livestock we do know that there is a lot of livestock that is underweighed I might give you a an example of one of the larger packers that I talked to recently one of these buyers was telling of hogs out of their own buying stations from their to their plant that only a 40,000 pound only lost 385 pounds well this is less than 1% shrink on them and it is something that is unheard of if you do have honest weights on both ends I think I'd like to add a little something to this what you say is certainly true and there's one thing that amazed me when I first became involved in livestock marketing too at this level other than just hauling my hogs to the local market and this was when you started talking about buyers or start or started talking to buyers of major companies one of the first things they ask you about what are the weighing conditions how are you weighing the production it's not the price that they're paying is how their weighed and for anyone who becomes involved in this the total country buying structure we have is based upon unfair practices and primarily short weights the financial return to a country hug buyer is low enough that he could not make a living if the only thing that he got was the commission he's paid he has to have something else and it has forced many people in this field in a large percentage of all the livestock that's bought in the country is actually paid for on weights that are less than what the actual weight is well I know we did a program on the subject of NFO collection points how is it done when the farmer brings his livestock into an NFO collection well Phil when a farmer brings his livestock in to an in fo collection point of course there is a weigh master there that is experienced but the producer has the right to weigh his own production if he would like the packer pays on the same weight that the farmer is paid on there's no reweighing of production if a member brings a hundred and twenty-five hogs in and they weigh so much that stamp scale ticket is the same scale ticket that the packer pays on the man who runs this operation is paid by the member so much per hundredweight for the use of his facilities so the member himself sells the livestock direct to the packer there's no man in between that has to make a living and of course in the lie industry this is we've had a lot of people along the way that that handled the livestock in the past before it finally ended up to the packer and through our organization the producer sells directly to the packer the most efficient way that you can sell I noticed there is a note here that talks about an insured check now there have been instances in the news haven't there gentlemen about packers I know there have been a lot of new packers come into the business and some not very well financed supposing a packer goes broke does the NFO farmer have is check insured yes bill our organization has available to our people a insurance policy which does ensure checks their livestock checks from the packers where their livestock does go now this is the first in the industry it gives the farmer more protection financially in the movement of these livestock than he's ever had in the past don't worry about until they lose a check or the neighbors loss to check and of course we had a big one here in Iowa about three years ago and there was just another independent dealer in Eastern Iowa a couple of months ago that be faulted in the payment for livestock and he was a small independent with only three or four yards any that mounted to something in excess of a quarter of a million dollars that producers lost because of this and all members participating in our marketing program where livestock is soul - insured plants are covered for a hundred percent of that check and we feel this is a service and is something that regardless of what we think about bonds that there is no other place that you can sell with a major marketing group to have the same protection that our members have when the NFO first had this program of insured checks it was discussed I noticed in the press a number of feature articles were written about it it's something like group insurance isn't it that the NFO or made available it's a policy that we maintain as an organization and I remember who market under this program and participate in the program as such that we have are automatically covered when they're selling to an insured plant Nick we've we've talked about a lot of the things that as far as our program is concerned and I think one thing that many people don't consider or think about is the fact that there are experienced personnel at the collection points at plants where our people deliver livestock would you like to discuss that for a moment yes we do have it and our collection points our own NFO representative which are experienced people and the livestock field they are aware of the problems of the industry and the farmer too and therefore they give the give the farmer the representation that he needs in the movement of his lifestyle and still giving the packing industry the fair weights and other fair practices that go with a contractual arrangement we also have a similar situation in the cattle plants where we move grain yield cattle we have a representative there that does represent our members gives them honest waits as far as any other pertaining to the movement of their cattle into the plants of booking them in and this type thing our people are there to represent them and they are experienced people in the field of life so we check the weights of course but the grades and to see that the packer himself does handle the cattle as they should be to the benefit of the producer and the producer ever has any questions or would like to see his cattle of course he always has someone there who is working for him his employee that can help him with this I've heard a good deal said that there's an upward price pressure because of these NFO marketing arrangements the fact that NFO farmers are marketing where farmers have decided what direction the volume of livestock will go that this causes an upward price pressure will you gentlemen explain that well well I'll try but we don't have another three hours so I'll have to be a little bit brief in regard to this but it's again as I said when we open there's basically a very simple the basics behind it's very simple it's a matter of a large number of producers with cattle hogs lambs and all other types of grain and livestock to sell that are working together to as a group and applying their pleasure to raise prices as opposed to in the past the only pressure that was applied was by the industry to lower prices and some of the ways that this can be done and I think a very simple thing that anyone familiar with our program would see that the buyers in the country those who oppose our efforts want to do one thing they want to try to make in fo look bad and there's one way to do it keep raising the market and try to keep their market higher than ours well our market is based on an escalating principle so that as the General market level goes up ours escalates also so when a buyer out here we have an inflection point at one place and five down miles down the road company has a buying station and we have a price there he tries to beat it when he tries to beat it the General market level goes up because other people are doing the same thing as the General market level goes up our price raises also and as a result you have an upward pressure on the market there's many other things like day ahead pricing which from an economic standpoint are involved in this and that some later data we would like to discuss further than that standpoint well it's just part of the common sense of doing a producing for a price and so on we have maybe a few seconds to talk about the General attitude of the industry have you noticed as NFO has succeeded in blocking bigger and bigger production together that the industry has an attitude about this well yes you know there used to be old cliches about things that could never be done about packers would never talk and if they talked they'd never signed a contract well we all know that they have talked they've signed contracts our position to renegotiate for new contracts is much improved so there's an overall terrific improvement at this point Phil and that for today is something to think about us farm report has presented NFO and the new face of the processing industry with Gene Potter NFO meat commodity director and Dick Fout assistant to the director of the meat commodity department doing the questioning was Phil Allen farm news commentator members of the national farmers organization invite you to tune in again next week at the same time for more facts on Agriculture and Rural America which is the gear wheel of our economy that produces the majority of our nation's new wealth the farm income pattern sets the nation's true prosperity level and the national farmers organization represents new thinking in a new Generation of agricultural producers a brighter day for American agriculture