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Bipartisan bill to increase transparency in cattle pricing

Bipartisan bill to increase transparency in cattle pricing
Sen. Grassley and colleagues introduce bill to require minimum of 50% of meat packer’s volume to be from spot market.

A bipartisan group of senators introduced new legislation requiring a minimum of 50% of a meat packer's weekly volume of beef slaughter to be purchased on the open or spot market. The bill also requires that cattle be delivered within 14 days.

Sen. Chuck Grassley (R., Iowa), along with colleagues Sens. Jon Tester (D., Mont.), Tina Smith (D., Minn.), Joni Ernst (R., Iowa), Mike Rounds (R., S.D.), Cindy Hyde-Smith (R., Miss.) and Steve Daines (R., Mont.), introduced the legislation to foster more efficient markets while increasing competition and transparency among meat packers that purchase livestock directly from independent producers.

The bill, which was introduced on May 12, closely mimics a bill first introduced by Grassley and former Sen. Russ Feingold (D., Wis.) in 2002. That bill required a minimum of 25% of a packer’s daily kill to come from the spot, or cash, market to improve the accuracy and transparency of data reported through Mandatory Price Reporting. In addition, the bill intended to give independent producers a competitive opportunity as packers would have been required to participate in the cash market. The newest version of the bill mandates a minimum of 50% cash trade and a 14-day delivery period.

“The lack of transparency in cattle pricing isn’t a new problem, but the negative effects of the fire in Holcomb, Kan., and COVID-19 have highlighted the need for additional price transparency measures to ensure producers are getting a fair price for the hard work of raising cattle,” Grassley said. “Food doesn’t come from the grocery store; it comes from tens of thousands of farmers and independent producers who work day and night to ensure families across the country have an abundant supply of food. Independent producers deserve to be paid what their beef is worth.”

The bill closely resembles the official policy and advocacy efforts of the Iowa Cattlemen’s Assn. (ICA). Earlier this spring, the association’s Feedlot Council and board of directors assumed policy supporting a mandate on cash trade because of the lack of long-term changes necessary to provide price transparency and competition among cattle feeders who market cattle though traditional cash means. Since that time, leaders and staff have worked to inform Grassley and Ernst of the challenges faced by Iowa’s cattle producers and encouraged their support of a mandate requiring at least 50% cash trade.

“As a cow/calf producer and feedlot nutritionist, I can say that our group has examined and discussed many ways to remedy the up-trend in committed cattle to packers,” ICA Feedlot Council chair Dustin Purhmann said. “Unfortunately, we feel that a mandate is the only way to make a lasting change our industry needs to regain some leverage, competitiveness, price discovery and transparency.”

ICA said Iowa’s cattle producers participate in the cash market with higher frequency than other regions of the U.S., setting the base price for formula transactions that are much more commonplace in large feedyards in southern states like Texas. In most weeks, more than 50% of Iowa’s fed cattle are traded through cash negotiation, compared to about 5% in Texas.

Cattle traded through formula transactions bring $20-40 per head more than negotiated cash cattle, even though the cash cattle in the Upper Midwest generally grade much higher.

“Ultimately, cattle feeders in the South are rewarded for the quantity, not quality grade, of their cattle,” Purhmann explained. “The current system makes it difficult for Iowa’s producers to capture a premium for our high-grading fed cattle.”

While speaking on the Senate floor, Grassley noted that more than 80% of all cattle across the country are sold through formula contracts and/or the cattle futures market. “These private contracts don’t allow for price transparency and hide the true value of production from the rest of the marketplace,” Grassley said.

ICA pointed out that industry experts, livestock economists, the Chicago Mercantile Exchange and the Commodity Futures Trading Commission have all advocated for increased price discovery across the U.S.

“This problem has plagued our industry for years. With the reauthorization of Livestock Mandatory Reporting scheduled for later this year, now is the time to take action,” ICA chief executive officer Matt Deppe said.

“Traditionally, the cattle industry does not support increased regulation, but at this point, we have exhausted all other options, and we cannot allow Iowa’s cattle producers to continue carrying the burden of price discovery for the entire industry, especially when it does not bode well for producer leverage,” Deppe said.

“Market consolidation in the livestock industry is making it harder and harder for producers to meet their bottom lines, especially as large packers rely on fewer spot transactions to purchase live cattle at the farm gate,” Tester said. “This bill will force meat packers to engage in more spot transactions, bringing up formula prices and making them more accurate while giving Montana producers and feeders more flexibility and transparency when they bring their livestock to market.”

Smith, a member of the Senate Agriculture Committee and leader of the bipartisan Senate Rural Working Group, added, “We must help livestock producers in Minnesota and nationwide get a fair and accurate price for their animals. It’s important to promote transparency and improve efficiency in the livestock markets, and our bipartisan bill will go a long way to achieving these goals.”

Rounds noted that even before COVID-19 hit the country, there were serious concerns about price discrepancies in the cattle market. Cattle prices in South Dakota are affected by the average negotiated cash trade nationwide, which has dropped dramatically over the past 15 years; the decrease in cash trades has reduced price discovery.

“In order to establish a fair cattle market for cattle producers, real, vigorous price discovery is needed. Our legislation will provide much-needed transparency to the cattle industry to make sure producers are paid fairly for their product. This is only one piece of what needs to be fixed in the cattle market, but it’s an important step forward,” Rounds said.

“It is essential to restore a reasonable degree of transparency in the cattle marketplace, and this bill seeks to do that,” Hyde-Smith said. "These commonsense reforms are important to the overall health of the industry and key to long-term sustainability of an abundant U.S. beef supply. Producers deserve fair and transparent pricing. It is apparent in this COVID-19 pandemic that packers are taking advantage of producers."

Daines noted, “In light of the significant disruptions taking place in the cattle markets, it is critical that the market is as transparent as possible. As fewer cattle are sold on a negotiated cash basis, this bill will help support price discovery and increase transparency in the cattle markets and help ensure that Montana ranchers are treated fairly in the marketplace.”

Meanwhile, the National Cattlemen’s Beef Assn. (NCBA) voiced opposition to the bill.

NCBA Policy Division chair and South Dakota rancher Todd Wilkinson said in a statement that cattle producers currently utilize a multitude of methods to market their livestock, including the cash market. Increased price discovery will benefit all segments of the cattle industry, and that is why NCBA has been working closely with key stakeholders, industry experts and partners in academia to develop tangible means to meet that end.

“Any solution must not restrict an individual producer’s freedom to pursue marketing avenues that they determine best suit their business’s unique needs," Wilkinson said. "Government mandates, like that being proposed by Sen. Grassley, would arbitrarily force many cattle producers to change the way they do business. We will continue to work toward a more equitable solution and invite Sen. Grassley, and other lawmakers interested in this conversation, to join us in the search for an industry-led solution based in free market principles."

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