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Cattle market consensus still eludes Congress

USDA Photo by Lance Cheung Cattle red angus USDA Lance Cheung.jpg
House Ag hearing features testimony on need for cattle contract library but questions remain on 50/14 proposal.

Congress continues to look for ways to address the growing disparities between cattle prices paid to producers while consumers see continued increases in beef prices. Discussion has increased over the past year; however, no clear consensus can be found as warnings against one-size-fits all approaches offer the only thing different segments of the industry agree on.

And now the clock is ticking again. Last year Congress extended for one year the reauthorization of Livestock Mandatory Reporting, and just recently Congress again punted action until December 3. LMR offers a vehicle for changes going forward if desired. But finding middle ground remains difficult.

At USDA, Secretary of Agriculture Tom Vilsack is directing steps to expand the meat processing industry with grants and loans to address bottlenecks in the food supply chain and additional money to expand processing capacity for small to medium-sized entities. He has also taken action to support the enforcement of the Packers and Stockyards Act with promised changes soon to the GIPSA rules yet this year.

In addition, President Biden issued an executive order where he called on the secretary of agriculture to ensure farmers have, “measures to enhance price discovery, increase transparency and improve the functioning of the cattle and other livestock markets.”

During a House Agriculture Committee hearing regarding the livestock industry on Oct. 7, Sen. Chuck Grassley, R-Iowa, opened up the hearing sharing comments about how reauthorization of Mandatory Price Reporting is the vehicle available where Congress can add additional price transparency and price discovery measures.

“There is no denying we need serious reform in the way our country markets cattle,” Grassley said, as he asked House Ag Committee members to join senators to include “real reform” in mandatory price reporting.

He has proposed a 50/14 plan, which he says would create additional price transparency. Grassley’s bill would mandate negotiated cash trade at 50%. The '50-14’ or spot market bill follows the introduction of the Cattle Market Transparency Act of 2021 by Sen. Deb Fischer, R-Neb., which establishes regional mandatory minimum thresholds of negotiated cash and negotiated grid trades to enable price discovery in cattle marketing regions.

Related: Senators introduce fix for cattle market price discovery

Rep. Dusty Johnson, R-S.D., said during the hearing that in Phoenix earlier this year, major livestock groups representing historically different viewpoints on the cattle sector walked away with an agreement for the need of additional actions including a call for additional transparency through the formation of a cattle contract library, more robust antitrust investigations, and investment in additional processing capacity.

“I’ve taken those as marching orders,” Johnson said, as he serves as the ranking member of the livestock subcommittee. The 50/14 or the 30/14 proposal did not come out of those meetings, and he warned could impose unintended consequences to cattle producers.

Johnson cited a report called for by the request of the former House Agriculture Committee leaders – Rep. Mike Conaway, R-Texas, and Rep. Collin Peterson, D-Minn. The analysis is a 180-page book called “The U.S. Beef Supply Chain: Issues and Challenges,” and is the result of a collaboration with Texas A&M’s Agricultural and Food Policy Center, national experts and USDA.

As noted in the analysis, Dr. Stephen R. Koontz, professor in the Department of Agricultural and Resource Economics at Colorado State University, found negative impacts of the minimum negotiated cash proposals.

“The short-term impact for a policy most like that being considered is a $2.5 billion negative impact in the first year and a cumulative negative impact of $16 billion over 10 years, inflated to 2021 dollars. This cost is leveled mainly on cattle producers,” said Koontz. “The 50/14 proposal would have these negative impacts and the 30/14 would have similar negative impacts albeit approximately halved.”

Vilsack noted in his response to questioning that it’s important to be aware of the need for greater transparency while also maintaining the efficiencies of the current system. He cautioned to “look for the proper balance as we try to provide greater transparency that we don’t necessarily sacrifice the benefits of the existing system in terms of efficiencies,” he said.

Cattle contract library

Fisher’s bill also requires USDA to create and maintain a publicly available library of marketing contracts between packers and producers in a manner that ensures confidentiality. A cattle contract library, similar to the existing USDA swine contract library, will help producers evaluate their marketing options and make more informed decisions for their business.

The cattle contract library received considerable amount of discussion during the House Agriculture Committee hearing.

Cattle producers have long witnessed the decline of negotiated fed cattle trade in favor of Alternative Marketing Arrangements or AMAs, including formulas and grids. While these AMAs may help cattle producers manage risk and capture more value for their product, these methods depend on price discovery that occurs in the direct buyer-seller interactions of negotiated trade. But the AMAs are often only disclosed between the packer and individual producer.

National Cattlemen’s Beef Association Vice President and South Dakota rancher Todd Wilkinson testified that a contract library could be beneficial to him as a producer to know what other producers are being offered for their cattle. “Until we get that, beef producers are going to be at a disadvantage,” he shared.

Wilkinson testified that improvements could be made to LMR to increase transparency, while still allowing for the continued use of AMAs. His written testimony noted that the benefits of AMAs cannot be allowed to come at the cost of robust price discovery. “There must be a balance,” which is why NCBA has continued to encourage for the greater use of the cash market and negotiated grids through its voluntary framework.

Wilkinson said NCBA supports the establishment of a cattle contract library, reporting of formula base prices, and next-day carcass weight reporting among other things in LMR reauthorization.

Scott Blubaugh, an Oklahoma rancher on behalf of the National Farmers Union, said a contract library with the data on all sales, not just those on the cash market, is going to help cattle producers decide the true value of their cattle.

Francois Leger, owner and CEO of FPL Food and on behalf of the North American Meat Institute, warned AMAs allow him to continue to source the beef quality his company desires, while rewarding producers for providing that quality.

“My understanding is if today we open up those contracts to everyone, I have the possibility to end up in litigation because we could give more money to producers I want,” he says of the AMAs ability to reward quality desired to him as a processor.

Scott Hays, vice president of National Pork Producers Council, testified that the swine industry has benefited from additional information provided under its contract library. “We had some of the same fears, but I don’t think it’s caused the issues that some of the folks were concerned about,” he said of providing additional contract information.

Following the hearing, House Agriculture Committee Chairman David Scott, D-Ga., said, two of the themes that were the focus of the hearing were “the need to improve price discovery and how essential it is for us to look more closely at how we can incentivize competition and capacity in our processing sector.”

Scott said the multiple voices together to discuss difficult questions facing the livestock industry certainly helped the Committee to get a better idea of how to tackle the ongoing challenges in the industry and move towards a reauthorization of Livestock Mandatory Reporting.

TAGS: Policy
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