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Congress again looks to improve cattle market woes

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Senators reintroduce Cattle Market Transparency Act that establishes minimum of fed cattle traded on cash market.

After the Holcomb fire and fallout from the COVID pandemic, cattle producers went looking for answers on improving market transparency. In an ongoing effort to provide a legislative response, Sen. Deb Fischer, R-Neb., joined with Sen. Ron Wyden, D-Ore., to offer the Cattle Market Transparency Act of 2021 to ensure robust regionally negotiated cash trade and provide producers with more pricing information.

The bill builds off the recommendations provided by USDA in its Boxed Beef and Fed Cattle Price Spread Investigation Report and discussions producers across the U.S. are having in response to historically low cattle prices and a dysfunctional marketplace. In response to the introduction, the bill was welcomed by industry players including the U.S. Cattlemen’s Association and the American Farm Bureau Federation, but each group left the door open for the need for additional discussion on the hotly debated topic that has varied by region and producer type.

“Leveling the playing field and putting more of the beef dollar in producer pockets remains the top priority of this association. NCBA shares Senator Fischer’s objectives, as do its affiliates and indeed the entire industry. The best way to achieve those objectives, however, continues to be hotly debated by the very cattle producers this legislation would directly impact,” says National Cattlemen’s Beef Association Vice President of Government Affairs Ethan Lane.

The Cattle Market Transparency Act does align with the goals set forth by the AFBF Cattle Market Working Group in 2020, as well as new cattle marketing policy passed at Farm Bureau’s Virtual Annual Convention earlier this year, the farm bureau says. The Cattle Market Working Group, comprised of 10 state farm bureau presidents, spent more than two months investigating factors that led to market disruptions following the Holcomb packing plant fire and the COVID-19 pandemic. 

Curtis Martin, cattle producer from North Powder, Oregon, explains, “As packing facilities began experiencing the bottlenecking of line speeds at their plants, the first ties they cut were those with independent producers. Corporate feeders went largely unharmed, due to their contract agreements, while independent producers were left with over-finished cattle and few, if any, marketing alternatives.”

Martin, who serves as the USCA Region 1 board member, says, "The Cattle Market Transparency Act pulls the meatpacker’s thumb off of the scale, so to speak, and begins the rebalancing of negotiating power between packer and producer.”

Senator Fischer first introduced the bill last year and as USCA Region V11 Board member Lee Reichmuth adds, Fischer and her team “condensed a years’ worth of industry discussion into an economically solid and proven piece of legislation that will put us on the path to a more competitive business landscape.”

Required cash trade

Specifically, the bill establishes regional mandatory minimum thresholds of negotiated cash and negotiated grid trades to enable price discovery in cattle marketing regions. It will require the secretary of agriculture in consultation with USDA’s chief economist, to establish regionally sufficient levels of negotiated cash and negotiated grid trade, seek public comment on those levels, then implement.

Cattle producers have long witnessed the decline of negotiated trades in the fed cattle complex. While the use of formulas, grids, and other alternative marketing arrangements (AMAs) help cattle producers manage risk and capture more value for their product, these AMAs depend upon the price discovery that occurs in the direct, buyer-seller interactions of negotiated transactions, NCBA explains.

The AFBF Cattle Market Working Group report released last year detailed that negotiated trade is more common in certain states, such as Nebraska, where the negotiated percentage has ranged from 30-60% in recent years. Other states typically have very little negotiated trade. In Texas and Oklahoma, for example, negotiated trade accounts for only 5-8% of cattle transactions. These discrepancies between regions contrast with the national picture, where negotiated trade hovers around 20-23%.

Current academic research has shown that more negotiated trade is needed to achieve “robust” price discovery within the industry, but each of the five USDA reporting regions contributes to this price discovery differently, NCBA explains.  “To truly contribute to an environment with robust price discovery, policies must factor in the unique characteristics of each reporting region,” NCBA explains.

AFBF’s report also notes that in discussing the optimal level of negotiated transactions is that price discovery is not the same as price determination.

Mandates on negotiated cash trade ultimately limit the use of alternative marketing agreements, AFBF’s report adds. “While more negotiated trade would further bolster price discovery, a minimum negotiated trade threshold would require the federal government to monitor and maintain the minimum, inviting further government intrusion into the industry. Additional regulation may not solve the problems as intended and could potentially result in negative consequences.”

Formula pricing agreements pay producers a premium for this more desirable beef, allowing them to capture more of the beef dollar, adds NCBA. “The details of these agreements, however, vary widely and this lack of transparency can potentially act as a barrier to producer profitability,” warns NCBA.

Last July, at NCBA’s 2020 Summer Business Meeting, the Live Cattle Marketing Committee heard a wide range of disparate viewpoints from producers on this issue and spent hours in debate to arrive at a compromise. The resulting grassroots policy states that, “NCBA supports a voluntary approach that 1) increases frequent and transparent negotiated trade to regionally sufficient levels… and 2) includes triggers to be determined by a working group of NCBA producer leaders.” The policy further states, “if the voluntary approach does not achieve robust price discovery…and triggers are activated, NCBA will pursue a legislative or regulatory solution determined by the membership.”

In August of 2020, NCBA President Marty Smith appointed a subgroup of the Live Cattle Marketing Working Group to develop the triggers required by the member-approved policy. The voluntary framework — now two months into the implementation phase — established a series of triggers to evaluate negotiated trade volumes in each region and benchmarks for improvement. The subgroup is led by a group of producers from various regions with wide-ranging perspectives and opinions on this issue, and still meets regularly to discuss new and innovative solutions to this issue.

Additional transparency measures

The 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.

It also establishes a mandate that a packer report to USDA the number of cattle scheduled to be delivered for slaughter each day for the next 14 days and require USDA to report this information on a daily basis. USDA currently reports the number of cattle committed to meatpackers in seven-day increments. Expanding this to 14 days will help producers better anticipate packer needs for cattle and increase their leverage as prices are negotiated, NCBA says.

Finally, the bill prohibits the USDA from using confidentiality as a justification for not reporting and makes clear that USDA must report all Livestock Mandatory Reporting (LMR) information, and they must do so in a manner that ensures confidentiality.

LMR is an Act of Congress which requires large meatpackers to report market information to USDA’s Agricultural Marketing Service (AMS), who then release it to the public. AMS is also mandated by LMR to keep the “proprietary business information” of reporting entities confidential.

In some major cattle feeding regions, like Colorado, USDA’s rules of confidentiality oftentimes prevent any price information from being publicly available. Cattle producers rely upon transparent reporting of transaction prices to make marketing decisions. “By clarifying Congress’ intent behind LMR, USDA can equip producers with the data they need to make critical marketing decisions while still protecting sensitive business information,” NCBA says.

 

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