The Iowa Cattlemen’s Association fully supports U.S. Sen. Charles Grassley’s newly introduced legislation mandating a minimum level of negotiated cash cattle trade.
The bill, introduced May 12, closely mimics a bill first introduced by Grassley, R-Iowa, 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 market, or cash market, to improve accuracy and transparency of data reported through mandatory price reporting. In addition, the bill intended to give independent producers competitive opportunity as packers would have been required to participate in the cash market.
The newest version of the bill, co-sponsored by Sen. Jon Tester, D-Mont. and Sen. Joni Ernst, R-Iowa, mandates a minimum of 50% cash trade and a 14-day delivery period. This bill closely resembles ICA’s official policy and advocacy efforts.
Earlier this spring, ICA’s Feedlot Council and the ICA board of directors adopted 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.
Lack of price discovery
“After working diligently for nearly a decade, ICA has encouraged our industry and other organizations to trade more cash cattle, but to no avail,” says Dustin Purhmann, ICA’s Feedlot Council chair. “As a cow-calf producer and feedlot nutritionist, I can say that our group has examined and discussed many ways to remedy the uptrend in committed cattle to packers. 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.”
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 to $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 says. “The current system makes it difficult for Iowa’s producers to capture a premium for our high-grading fed cattle.”
‘Time to take action’
Industry experts, livestock economists, the Chicago Mercantile Exchange and the Commodities Future Trading Commission have all advocated for increased price discovery across the United States. “This problem has plagued our industry for years,” says Matt Deppe, CEO of the ICA. “With the reauthorization of Livestock Mandatory Reporting scheduled for later this year, now is the time to take action.”
Iowa’s cattle producers have recently had to bear the brunt of the challenges caused by decreased packing capacity due to COVID-19. Formula-priced cattle have filled nearly all available slaughter space, leaving Iowa’s market-ready cattle in the feedyards.
With the spread between boxed beef and live cattle prices widening to historic levels ICA earlier this spring called for regulations requiring packers to purchase at least 50% of their cattle through negotiated cash trade. “Traditionally, the cattle industry doesn’t support increased regulation,” says Deppe. “But at this point we have exhausted all other options and cannot allow Iowa’s cattle producers to continue carrying the burden of price discovery for the entire industry.”
In addition to the lack of price discovery caused by this situation, Iowa’s cattle producers have borne the brunt of the challenges caused by decreased packing capacity due to COVID-19 this spring. “Formula-priced fed cattle have filled nearly all available slaughter space, leaving Iowa’s market-ready cattle on farms and in feedlots unable to get a fair price,” says Jim Carlson, a Webster County producer.