April 28, 2022
Over the past two days the Senate Agriculture Committee and House Agriculture Committee spent hours hearing different viewpoints on the issues facing the cattle industry and discussing possible legislative and regulatory solutions. After nearly nine hours of combined hearings, it does not appear there’s a clear path forward on finding clear consensus or whether government intervention could do more harm than good.
The House already passed its bill to establish a cattle contract library which stalled in the Senate. However, the final appropriations bill passed last month did include a pilot program to allow USDA to implement a cattle contract library and learn more before making it final.
A nearly three hour Senate Agriculture Committee hearing on Tuesday featured two panels, one that offered insight from USDA officials on how proposed legislative solutions could be implemented and the other with farmer and industry insight.
Agricultural Marketing Service Administrator Bruce Summers says the $1 million allocated to establish the pilot program should allow for the program to be designed and up and running for several months prior to September 2023. It could be launched by the first of next year.
NCBA President Don Schiefelbein shared during the House hearing that the cattle contract pilot allows USDA to carefully construct a library that is done in the right way of trying to improve transparency on current contracts. “As we enlighten what contracts look like, we don’t want to enlighten packers more than producers and make sure it benefits the right people,” Schiefelbein says. “The devil is in the details.”
Schiefelbein adds that in 2021 a group of agricultural entities met in Arizona and agreed on three key issues to move the industry forward, including the establishment of a cattle contract library. Other agreed upon goals included encouraging more packer processing capacity and proper oversight of packers. He says these should be the focus of legislative attention.
Mandated cash trade
The Senate Committee on Agriculture, Nutrition and Forestry met for three hours for its hearing Tuesday to discuss transparency and oversight within cattle marketing, specifically the Cattle Price Discovery and Transparency Act (S.4030) introduced by Sens. Chuck Grassley, R-Iowa, Deb Fischer, R-Neb., Jon Tester, D-Mont., and Ron Wyden, D-Ore. Nearly half of the members of the Senate Agriculture Committee are co-sponsors of the bill. The bill has been tweaked in recent months but aims to set regional mandatory minimum thresholds for negotiated purchases of fed cattle as well as establish the creation of a cattle contract library and includes a number of transparency measures.
Senate Agriculture Committee ranking member John Boozman, R-Ark., explains that if adopted, the impact of S. 4030 would decrease the number of cattle marketed under alternative marketing agreements but increase the number of cattle sold in the cash market. For example, in Texas, Oklahoma and New Mexico, between 340,000 and 2.5 million fed cattle will need to move out of formula contracts annually. In Iowa and Minnesota, it’s fewer than 2,000 head a year, Boozman says.
Kansas Livestock Association and National Cattlemen’s Beef Association member Shawn Tiffany testified in opposition to a government mandate as it could potentially result in fewer marketing opportunities and less incentive for producers to invest in genetics and innovative production techniques that lead to higher-quality beef.
“I ask Congress not to limit the use of AMAs,” Tiffin asked of the legislative members in the potential limiting of the alternative marketing arrangements that allow feedlots to source the type of meat they hear consumers desire.
Shelly Ziesch, a fourth-generation rancher from Pettibone, N.D. who testified on behalf of the National Farmers Union, offered support for the option to establish regional minimums for negotiated trades as a way to preserve the cash market as an option for cattle producers and improve and preserve price discovery.
Using Texas A&M’s analysis and economic cost estimates from Stephen Koontz, Boozman says the costs of this shift away from AMA’s will cost cattle producers between $23 million and $249 million annually, depending on how the secretary of agriculture decides to implement the law. Over the five years analyzed by Texas A&M, the costs are in the hundreds of millions to billions of dollars.
During his testimony to the members, Koontz says there’s no research that shows that increased mandated cash sales will improve the outlook for cow-calf producers. Instead, it could create a $50 loss in value of beef, and it’s likely that those losses will be felt at the farm level. “More bidders and more buyers are always better, but at what cost?” he asks.
More government oversight
Another bill discussed in the Senate is the Meat Packing Special Investigator Act, which would create a new "Office of the Special Investigator for Competition Matters" within USDA. This office will have a team of investigators, with subpoena power, dedicated to preventing and addressing anticompetitive practices in the meat and poultry industries and enforcing the nation's antitrust laws.
In his opening statement of the Senate hearing, Boozman says he’s very uncertain about this legislation’s purpose and goals, adding legal experts have shared with him that this newly created office at USDA will just duplicate functions already performed by either USDA, the Department of Justice, the Federal Trade Commission or the Department of Homeland Security.
“Do we really think that creating yet another government entity is a real solution? Is duplication of responsibilities and confusing the chain of command among federal regulators helpful to our stakeholders? Does the creation of this office discourage the establishment of new small and midsize meat packers?” Boozman asks.
Ziesch shares with the senators it would be useful.
"The Packers and Stockyards Act has existed for more than 100 years, but a lack of enforcement has allowed consolidation and anticompetitive practices to continue," testifies Ziesch. "USDA and the Department of Justice need stronger tools to enforce existing laws. Senate Bill 3870 would give USDA the authority and resources it needs to make sure our laws are enforced the way Congress originally intended."
In the House hearing, Schiefelbein says the government already has what it needs to provide effective enforcement. He, as well as many members, questioned why the DOJ has not offered any insight into whether beef packers have colluded after a nearly two-year investigation.
“The laws are in the books; we just need to make sure enforcement is occurring,” says Schiefelbein. “Knowledge is also power – if we knew what was occurring and why it occurred it would be so helpful to my membership. Our lives depend on fair markets. How come we can’t get answers on what has transpired and where we are today?”
Big Four meatpackers under fire
The Big Four meat packers – Tyson, Cargill, National Beef and JBS – testified before House ag members. Although attacked by many members, the leaders of the companies offered insight into their actions and future outlook of lower margins for processors ahead.
“We believe in price transparency and fair, open markets. In our North American protein business, for example, Cargill consistently purchases a third of our cattle on a cash basis,” explains David MacLennan, chief executive officer of Cargill.
MacLennan adds the cattle industry is cyclical, and “it is critical to all of us that ranchers sustain their operations and withstand market volatility.”
Tim Klein, National Beef Packing Company CEO, says the dynamics are now changing in that cyclical environment. Fed cattle supplies are peaking and continue to decline, and additional capacity is coming online.
“The cattle cycle has turned in favor of the cattle production sectors,” Klein says. “Fed cattle are 15% higher than one year ago, while wholesale boxed beef prices are 5% lower. We expect prices to trend higher, beef prices to moderate and return to a more normal seasonal trend and National Beef’s profit margins to compress.”
Julie Anna Potts, President and CEO of the Meat Institute, provided written testimony to the committee which detailed the complex integrated market players in the cattle sector. According to USDA, in the 627 months beginning January 1970 through March 2022, packers have received the smallest share of the consumer beef dollar in all months but May 2020, at the peak of the COVID related shutdowns on slaughter which reduced beef supplies.
Klein notes that a new, smaller plant in Iowa that only runs a single shift faces increased costs of $120/head higher than its larger plants. That cost penalty has to be passed on to someone, he says.
“Efficiency is not an excuse for exploitation,” challenges Rep. Randy Feenstra, R-Iowa. “That’s why I am planning to introduce legislation in the House to bring transparency and accountability back to our cattle markets. It’s time for the Big Packers to play by the rules that were set long ago.”
Rep. Dusty Johnson, R-S.D., also questioned the CEOs of the four largest meat packing companies on concentration within the market and whether or not packers were prepared for the next black swan event, following disruption in the market due to events like the COVID-19 pandemic and the Tyson Holcomb fire.
“Between 85 and 90% of the beef processing in this country is done at just 30 plants – in fact, 12 plants do more than half of all the beef processing,” says Johnson. “That seems like a lot of vulnerability. We don’t know when, but we know another black swan event is coming. Tightness keeps us exposed to unforeseen disruption and that creates a lot of vulnerability to the American cattle producer.”
Last summer, USDA announced its intent to provide $500 million in grants to expand meat and poultry processing capacity to restore balance in the meat market. In June, Johnson introduced the bipartisan Butcher Block Act which would establish a grant and loan program at USDA for new and expanding meat processors to drive competition within the packing industry.
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