Long-standing frustration over imbalances in the meat industry led to calls for greater transparency in livestock markets during the grassroots policy recommendations discussion from the largest agricultural group, but earlier this month the American Farm Bureau Federation stopped short of requiring mandated cash sales in the cattle markets.
AFBF supports the Sen. Chuck Grassley, R-Iowa, and Sen. Deb Fischer’s, R-Neb., Cattle Price Discovery and Transparency Act of 2021, with the exception of the bill’s establishment of mandatory minimums for negotiated purchases. The Grassley-Fischer bill includes a sliding shift to more cash sales which may limit the use of certain formula contracts in some regions.
Negotiated trade, also called the “cash” or “spot” market, increasingly has been replaced by formula pricing, forward markets and longer-term marketing agreements—collectively referred to as alternative marketing arrangements.
The shift from cash sales to AMAs has been more dramatic in certain regions. For example, from 2005 to 2018, there has been a 40% decrease in cash sales in the Texas/Oklahoma/New Mexico cattle region. Meanwhile, in the Iowa/Minnesota region, transactions in the cash market have dropped only 16% during the same time period. Today, 51% of cattle sales in Iowa are based on cash sales.
The legislation will establish regional mandatory minimum thresholds of negotiated cash and negotiated grid trades based on each region’s 18-month average trade which the bills’ authors believe would enable price discovery in cattle marketing regions. In order to establish regionally sufficient levels of negotiated cash and negotiated grid trade, the secretary of agriculture, in consultation with the chief economist, would seek public comment on those levels, set the minimums and then implement them.
No regional minimum level can be more than three times that of the lowest regional minimum, and no regional minimum can be lower than the 18-month average trade at the time the bill is enacted.
Texas delegates tip the scale
AFBF delegates voted at its annual meeting in Atlanta on Jan. 11 to revise 2022 Farm Bureau policy. While Farm Bureau supports robust negotiated sales, delegates voted to oppose government mandates that force livestock processing facilities to purchase a set percentage of their live animal supply via cash bids.
Tipping the scale in favor of the opposition to a government mandate includes the 28 Texas Farm Bureau delegates who were part of 345 voting delegates from all 50 states and Puerto Rico at the AFBF business session on Jan. 11.
“I think there was agreement here that transparency in those beef markets needs to be looked at, needs to be improved. We just didn't think that the mandatory negotiated cash trade was the way to do that,” says TFB President Russell Boening. “When you mandate how someone buys your cattle, you're also mandating how you can sell your cattle. And we just thought that our folks, from the resolution that came out of our TFB annual meeting, did not want to go down that route.”
TFB Vice President Pat McDowell of Wheeler County also spoke on the delegate floor in support of the policy language.
“In our view, our big argument was that a mandate hurts the cow-calf producer. And we've studied it, and we've had experts tell us. The money was going to be lost through the cow-calf end of it if we mandated the packer to be in there. The experts convinced us, and we just believe that we made the absolute right decision here on the convention floor. It’s going to be good for Texas cow-calf raisers,” McDowell says.
Speaking at a side session of the AFBF annual meeting, Colorado State University economist Stephen Koontz shared that his research has found that feedlot estimate formulas are worth $25/head to them. And packers say they’re worth $25/head as well. “By reducing AMAs, it lowers calf prices by $50/head,” Koontz warns if AMAs are limited.
University of Arkansas also released a new study which found that there is no statistically significant relationship between negotiated cash trade volume and either fed cattle prices or beef marketing margins. “In short, our results suggest AMAs do not allow beef packers to increase beef margins and lower cattle prices,” according to the research from University of Arkansas agricultural economists John Anderson, James Mitchell and Andrew McKenzie. “Our own analysis shows that even small increases in negotiated trade volumes through mandates could reduce Arkansas cattle value by $4 million to $6 million per year.”
Senators not giving up
The Cattle Price Discovery and Transparency Act was introduced by Grassley and Fischer along with Sens. Jon Tester, D-Mont., and Ron Wyden, D-Ore., and 14 co-sponsors. Grassley and Fisher both released a statement welcoming the Farm Bureaus support for components of the bill and were confident it would advance out of the Senate Agriculture Committee if it were brought up for a vote.
“Robust negotiated cash sales are integral to facilitating price discovery in the market. I am proud of the growing bipartisan consensus we’ve built for our legislation with seven republicans and nine democrats on the bill, including ten members of the Senate Agriculture Committee. We will continue to advance this proposal to ensure a fair and transparent cattle market for our nation’s cattle producers,” Fischer says.
Grassley says he partnered with the lead sponsors of the bill because of what he was hearing directly from Iowa’s independent cattle producers.
“When packers limit their ability to negotiate a fair price, especially when consumers are seeing prices skyrocket at the grocery story, the market clearly isn’t working. I understand that the cartel of four meat packers, which controls 85% of the beef market, is pressuring others in the ag community to oppose this bill. However, I remain focused on providing the most complete solution to improve price transparency and market access to the independent producers I hear from each day,” Grassley says.
Congress will likely try to address the handling of the cattle market within the discussion of the extension of Livestock Mandatory Reporting set to expire with the continuing resolution on Feb. 18. The Grassley-Fischer bill does include the establishment of a cattle contract library, something that did pass individually out of the House on Dec. 8, 2021 by a vote of 411-13.