Lee Pitts 2/24/03
Front Page Story Livestock Market Digest
For the last few years I’ve had these nagging feelings of OPTIMISM regarding the possibility that cattlemen would NOT become a herd of contract cowboys working as serfs on their own land for the benefit of the big three packers. Admittedly, there was a brief bout of depression following the merger of our checkoff dollars with the NCBA, but then it dawned on me: That merger and the increasing arrogance of NCBA afterwards was what made cowboys mad enough to change the direction our industry was headed. Without it we may never have had R-CALF or Pickett versus IBP.
I’ve said for the past several years that three things needed to happen to keep us from becoming nothing more than chicken farmers in cowboy boots. First of all we needed to develop an organization that truly represented the wishes of the cow-calf operators in this country. Thanks to Leo McDonnell and the meteoric rise of R-CALF that is now a reality. Secondly, the NCBA needed to be separated from the checkoff. Taking away their money would make it harder for them to pander to the packers and carry their water in Washington DC. This will happen any day now when the Supreme Court refuses to hear their appeal and the checkoff is declared unconstitutional once and for all. (The dairy checkoff was the latest to be declared unconstitutional.)
I have thought for some time now that the our best chances of remaining free and independent cattlemen rested with the brave cowboys who took on IBP in the now famous captive supply case: Pickett versus IBP/Tyson. Like my good friend and Picket plaintiff Johnny Smith always said, “We knew we could win if we got the facts before a jury of our peers.” Eight years later the cowboys finally got their chance in front of a jury and just like Johnny Smith prophesied those twelve Alabama jurists proclaimed IBP/Tyson guilty of using captive supplies to manipulate cattle prices.
Fred Stokes of The Organization for Competitive Markets called the verdict “the greatest day for cattlemen since the passage of the Packers & Stockyards Act.”
The P & S Act of 1921 eventually broke the stranglehold held by the big five packers of that era. Eighty-three years later the Pickett decision has the potential to do the same thing to today’s big three.
Winners and Losers
Among the winners in this case are the plaintiffs: Henry Lee Pickett, Mike Callicrate, Chris Abbot, Robert Rothwell, Johnny Smith, Pat Goggins and anyone else who owns a cow in this country. A potentially huge winner is their lead attorney, David Domina, who took the case on a contingency meaning he got nothing unless the ranchers won. Legally the Pickett plaintiffs are said to represent a class of approximately 30,000 cattlemen who sold to IBP exclusively on the cash market from 1994 to 2002, but in reality they represented everyone striving for a free and independent cattle industry. The $1.28 BILLION dollar judgment against Tyson won’t break the company, but if the courts force them to give up their sweetheart deals and captive supplies they’ll have to find another way to pilfer the pockets of ranchers.
The losers were IBP/Tyson, the USDA, NCBA and slick papered journalists who have been promoting “strategic alliances” and captive supply. Make no mistake, during this trial their traitorous stands were exposed and their actions proven indefensible.
The trial, which lasted about a month with the jury deliberating for four days, revolved around the plaintiff’s claim that IBP used contracts with a select few beef producers like Cactus, Simplot, CattleCo, Beef Marketing Group, Pioneer Feeders and others to create a captive supply of cattle which they could use to manipulate prices. The plaintiffs argued Tyson relied on this captive supply when cattle prices were high and entered the cash market for cattle only when prices were low. They also argued that such a scheme violated the 1921 Packers and Stockyards Act which is supposed to prohibit packers from employing any “unfair, unjustly discriminatory, or deceptive practice or device” or from making preferential sweetheart deals.
One of the stars of the trial was Auburn ag economist Robert Taylor. He calculated for every 100,000 head of captive supply cattle killed by Tyson the packer reduced the price they’d have to pay in a fair market by $5.62 per hundredweight. When you consider that half of the 9.5 million head of cattle Tyson slaughters each year are captive, Taylor calculated that between early 1994 and late 2002 (the period covered by the lawsuit) IBP/Tyson cheapened their cattle back by 2.1 BILLION dollars!
By many accounts the Tyson team put on a weak defense. This is easily explained: they had no plausible defense for how they have been ripping you off. Even their own people, put on the stand to defend their actions, ended up helping the cattlemen’s cause. Bruce Bass, head cattle buyer for IBP testified that he informed their 75 cattle buyers four times daily as to the supply of captive supply. He then told his buyers the number of cattle to buy on the spot market and what they should give. Bass also testified that during some weeks IBP owned as much as 190% of its kill needs, nearly double what they’d need for their slaughter plants the following week. When that happened Bass told his buyers to lower their bids for cash cattle.
“The preferential captive supply deals started a market destroying cycle,” said Steve Cady, Director of The Organization for Competitive Markets. “Tyson could pull out of the cash market and destabilize it. Then it would offer more “marketing alternatives” as the remedy for the problem it was creating in the cash market. As it enticed more producers to use captive deals the disease kept getting worse. The disease is a dysfunctional cash market caused by the captive supply treatment.”
Tyson, other packers and most livestock journalists these days argue that captive supply deals and strategic alliances are necessary in order for a packer to acquire the higher quality cattle they need for their branded beef programs. Packer’s professors like Ted Schroeder of Kansas State paraded to the stand and testified that beef quality would go down without captive supply. Clem Ward, an agriculture economist at Oklahoma State University, said after the verdict, “I’m worried that this case will dismantle the alliances that are creating better products for consumers.”
This argument was shot full of holes big enough to drive a semi through. Tyson’s own data revealed that the cattle IBP bought in the open market graded 10% HIGHER than their captive cattle. “For years, packers, the NCBA and land grant economists on the packer payroll claimed that these so-called alliances were necessary to buy high quality cattle to combat declining consumer demand. But the evidence in the Pickett case revealed that captive cattle were of a much lower average quality,” said Stokes.
“It is especially ironic that CattleCo, a large cattle feeding corporation closely tied to Sparks Companies in Memphis, has a very favorable contract with Tyson that allows them to deliver very low quality cattle, 30% average choice grade, without being discounted,” said Steve Cady of OCM. “The average grade in Nebraska is 60 to 65% choice. Yet, Sparks Companies performed a January 2002 study on the packer ban claiming that captive supplies are necessary to increase beef quality. It is clear that they were not only false, but serving their own profit interests.”
You may recall the Sparks name. The NCBA often cites studies done by that firm to justify the NCBA’s packer friendly positions.
The Real Cattlemen’s Friend
Speaking of the NCBA… How do they justify having Bruce Bass play such a pivotal role in their association, holding such sway over their marketing committee meetings, when he works for a company that has now been found by a jury to have been manipulating the cattle prices paid to the people NCBA supposedly represents?
And why did six brave men have to do this on their own, without any help whatsoever from the supposed national organization for cattlemen? Plaintiff Johnny Smith said, “We beat Goliath without help from what is supposed to be the cattlemen’s best friend, the National Cattlemen’s Beef Association.”
Says OCM executive director Steve Cady, “The NCBA, and the USDA, for that matter, never once helped the Pickett plaintiffs over the eight years this case has been around. That’s pretty astounding. I mean this was the biggest trial in the cattle industry in nearly a century and neither played any role in it? Wow.”
R-CALF stepped up to the plate once again on behalf of grass roots ranchers. R-CALF Directors Leo McDonnell, Kathleen Kelley and Herman Schumacher all testified on behalf of the plaintiffs as did R-CALF member, and Pickett plaintiff, Sam Britt. The rancher from Pasamonte, New Mexico testified that, “The packing industry has been holding us hostage for a long time. They [Tyson/IBP] took over the chickens and hogs, but they just found out cowboys weren’t going to role over and play dead for ‘em!”
Even after the verdict the NCBA was still pushing strategic alliances and captive supplies. Their lobbyist in Washington, Chandler Keys, told BEEF Magazine, “I also think that this decision serves as a wake-up call to the beef industry. If you’re out there involved or trying to get involved in a value-based marketing system, the plaintiffs in this case are trying to take that opportunity away from you. They want to get the industry back to a commodity product.”
Award winning columnist Alan Guebert had a far different take on recent events: “The Alabama jury only did what its buddies at the U.S. Dept. of Agriculture, the market’s legal protector, and friends at the National Cattlemen’s Beef Association (NCBA), the industry’s self-proclaimed protector, failed to do for years. It took an impartial look at the cattle market and declared it a manipulated, stinking mess.”
They Did Nothing While Doing Nothing
Guebert and Cady mentioned another group whose lack of action is totally indefensible: the USDA. One wonders, why did it take a lawsuit eight long years in the making to begin to enforce rules that have been on the books since 1921? Do you know how much more money has been stolen in the meantime? While Omaha, Ogagllala and Oklahoma City burned the USDA fiddled.
Dennis Olson, of the Institute for Ag and Trade Policy said, “This groundbreaking legal action was only necessary because federal law agencies have turned their back on U.S. farmers. It is both disgraceful and inexcusable that secretaries of agriculture under both the Clinton and Bush administrations for years stood idly by and abandoned independent cattle producers to the predatory practices of the meatpacking cartel. This Alabama jury has provided a ray of light for cattlemen and producers alike to follow out of the darkness of the predatory, anticompetitive jungle, and towards the light of fair, open and transparent markets. It is time for federal agencies to step in on behalf of farmers and restore fairness to the marketplace.”
While cattle producers were losing 20% of their share of the consumer beef dollar (from 65% to 45%) the Packers and Stockyard division of the USDA failed to enforce rules already on the books. Our elected representatives have refused to implement a rule proposed by the Western Organization of Resource Councils that would require meatpackers to bid in open, competitive manner for captive cattle supplies. The USDA and NCBA have opposed any new legislation to ban packers from owning livestock by saying we already have enough laws. And that we do. What we don’t have are government agencies or a USDA Secretary with the backbone to enforce them.
The Check Is Not In The Mail
This war isn’t won yet. Tyson intends to ask Judge Lyle Strom to throw out the jury’s verdict and some people think he might because the Judge suggested during trial proceedings that the case appeared weak to him. He could throw out the verdict if he thought the expert witness testimony was defective or the jury failed to follow his instructions. He had already removed any punitive damages from the decision. Judge Strom is also the judge for two more captive supply lawsuits against Excel and Swift. Both are similar to Pickett and the Judge may wait for outcomes in those cases before deciding whether to accept or throw out the Pickett verdict.
Roger McEowen, an ag law expert from Kansas State thinks the verdict is likely to stand. “For there to be some basis for appeal, there would have to be an error in trial court, and I just don’t see any. I think this verdict will stand and I think that is a good thing.”
If Judge Strom accepts the jury verdict, the case moves into a separate trial to determine how the current system of acquiring fat cattle will be fixed. Attorney David Domina told the Wall Street Journal that he plans to ask the court to require that Tyson turn to the open market to buy 90% of the cattle it slaughters. Any decision in this case is also apt to apply to all major beef packers.
If you are part of the class that fed cattle and sold to IBP and wonder where your check is… relax. It will be a while. The decision will be appealed and it will be years before the legal wrangling is over. But money was never the main objective of the plaintiffs anyway. They wanted to change the way packers do business, reestablish open and competitive markets and take back our business. Chances are if your kids, and their kids, are able to become independent cattlemen it will be because these brave men took a stand for justice and freedom. And for that we tip our hats to them.