​Equity Livestock's year reflects cattle price slump

Ray Mueller

Brillion - In sync with the challenging year that livestock producers faced in 2016, the Equity Cooperative Livestock Sales Association's bottom line also suffered a significant setback during its past business year, members learned at their annual district meetings.

The Baraboo-based cooperative, which has auction markets across Wisconsin and in northeast Iowa, along with other marketing programs, had its net proceeds shaved from $664,880 in 2015 to $236,965 in 2016, the report of financial operations indicated. Payments to producers selling through Equity plunged from nearly $754.130 million in 2015 to just under $502.569 million in 2016.

Equity's vice-president for finance Nancy Bilz noted that net operating revenue dropped by nearly $2 million from 2015 to a total of $12.359 million in 2016. This was due mainly to the loss on tariffs and commissions generated by livestock sales, she explained.

Sales volume decline

That reduction was tied to the combination of lower sales prices during 2016 and of a cutback in livestock volumes in Equity's sales channels, Bilz pointed out. For sales volume in 2016, Equity handled 736,213 head – down from 805,819 in 2015.

Those decreases were shared by the cooperative's four categories of livestock, Bilz noted. The 2016 totals and the percentage decreases from 2015 were 442,899 cattle (3 percent), 207,451 calves (18 percent), 47,676 hogs and feeder pigs (12 percent), and 38,187 sheep and goats (5.25 percent), she reported.

Market dilemmas

Equity's president and chief executive officer Charles Adami observed that Holstein bull calves that were once going to out of state buyers are no longer being consigned because of very low prices. Instead, many of them are staying within Wisconsin to be raised, he suggested.

Adami is also concerned by the choices being made by large consolidated dairy operations in the state to sell their cull cattle directly to buyers rather than through auction markets. Equity's volume also suffered a bit in 2016 because of competition that arose for one of the cooperative's auction markets, meeting attendees learned.

In a wider spectrum, the demand and prices for Holstein steers collapsed during 2016 because Tyson Foods stepped away as a buyer, leaving only two major packing company buyers, Adami explained. Overall plentiful beef cattle supplies along with Choice grading of carcasses reaching 80 percent, up from only 52 percent three years ago, probably prompted the Tyson decision, he said.

Price discovery lagging

Adami and Equity's chief operating officer Tod Fleming cited “a thin cash market” as another reason for the low prices, including the greatest price spread between Holstein and colored beef breed steers in many years. They noted a great portion of sales are through negotiated contracts, preventing the cash market from providing a fair price discovery process.

Asked what the portion of contracted and undisclosed price sales is, Adami estimated it to be at least 75 percent. He said a 25 percent cash market is not sufficient to establish a valid overall market price.

Not having a widely based cash market leads to wild swings in futures market prices and creates uncertainties for those in the feeder cattle segment of the market, Adami remarked. Fleming reported that the National Livestock Producers Association is urging its members to strive for a 50 percent cash market for cattle.

On another point, Adami warned that what's being said at a national level about relations with Mexico and Canada “could hurt us in the export market” because the two countries rank 1st and 3rd on agricultural exports by the United States. While noting that it's too early to draw any conclusions about that concern, he nonetheless hopes that “logical minds would point out the effect this could have on agriculture.”

Considering all those actual and potential elements of “doom and gloom,” Adami sighed and quipped that this could mean that “we're going to have a good year.”

Director's reflections

In his remarks to fellow district III members, district director Steve Schleis of Kewaunee agreed that 2016 was “not a year for the record books” in any good way. He said that the drop in Equity's livestock volume was not a surprise but that the major drop in prices for mature cattle and calves was not expected.

Amid its financial challenges, Equity is nonetheless continuing to build a new auction market facility at Stratford, completing replacements or upgrades on roofs, lights, furnaces, air conditioners, skidsteers, and office equipment at other sites, proceeding with its cooperative-wide installation of a new computer system, adding waterers at some locations for cattle held overnight, and now serving as an originator of federal Farmer Mac loans, Schleis reported. He noted that Equity, which is the compilation of 34 local shipping associations, has 50 loans worth $6.75 million on cattle, land, and crops.

Bilz exhorted members to enroll for direct deposit of payments to their banks. She indicated that mail service to some areas in the state is not satisfactory.

Cooperative mindset

In his prepared remarks, Adami dwelled on a district director's question to list five reasons “to do business with Equity.” He suggested that there are far more than five.

To address the question directly, Adami said the top five reasons all pertain to being a cooperative – an entity that's owned and governed by its members, an organization that's a social and financial partner in communities, a business whose employees are dedicated to serving the members, an institution that can obtain knowledge from its sister cooperatives, and an organization with a history of education and advocacy for its members.

Other reasons to do business with Equity cited by Adami and Fleming are its multiple channels for handling sales, its self initiated program to address animal welfare, its third party evaluation of that program, its 120 years of “honesty and integrity,” its setting of market standards for reporting and transparency, its programs to address market risks, its work with the Wisconsin Veterinary Association to develop the six-step “Food Armour” program, its membership in many related livestock and agricultural groups, its support of youth groups, and its efforts to respond with truth to false claims by anti-animal activists. Despite doubts in some quarters, Adami said Equity's leaders are convinced that sales checkoff fees for livestock are beneficial for the producers.

Local market activities

In an update on activities at the local Reedsville auction market, manager Andy Bubolz reported that the hay and straw sales have been attracting 40 to 45 loads on Wednesdays in recent weeks. He reminded shippers that cattle can be delivered on Monday afternoon for the Tuesday auction sale and that a lamb pool sale is conducted on a Monday every month.

Bubolz commended the local shipping association for its bidding activities for youth project livestock sales at the Manitowoc and Calumet County fairs and the Northeast Wisconsin Junior Livestock Show. He offered to visit livestock producers at their farms to talk about raising and marketing their animals.

In the election for the Reedsville association, Mike Van Duerzen, Marvin Schleis, and Jeff Wunrow were chosen as board members. The local association is working with total assets of $782,333.

Equity Cooperative