Beef producers hammer out compromise policy on addressing price discoveryBeef producers hammer out compromise policy on addressing price discovery
In a marathon session, members of the NCBA Live Cattle Marketing Committee agreed, disagreed and finally compromised to move the market forward.
July 30, 2020
It was long. It was contentious, sometimes heated and passionate. But in the end, it resulted in a compromise that gives the beef business a way forward to tackle the tough issue of price discovery for fed cattle.
Like me, nobody had any illusions going into NCBA’s Live Cattle Marketing Committee at the cattle industry Summer Meeting in Denver. A confluence of events had brought matters to a head: Market disruptions from the Tyson fire; market disruptions, plant processing problems and shutdowns due to COVID-19; the market investigations by the government; the re-introduction of Sen. Chuck Grassley’s mandatory negotiated cash bill and unrest in the country.
All the angst and disappointment in the cattle market culminated in Denver. Should the beef industry investigate a regulatory/legislative fix to price discovery or would a voluntary approach be better? To its credit, though, NCBA went to great lengths to make sure this issue was fully aired and debated. The question was whether or not all this gathering momentum could be harnessed to propel progress.
All this suggested a long, complex, heartfelt and passionate committee session. It did not disappoint. Fully 100 cattlemen and cattlewomen with voting cards were present in the main committee room, with another 80 in the overflow room and over a dozen affiliates connected via the internet to monitor the session, make comments and register votes.
Through it all, the members kept a gentlemanly and gentlewomanly demeanor. The chairman, Stephen Sunderman from Nebraska, made sure everyone had their turn to speak and a professional parliamentarian minded the procedure. Which was a wise choice, because it was a parliamentarian’s dream.
Not only did dozens of well-known names speak up and conduct adroit parliamentary moves to advance their causes, people from all types and sizes of operations from around the country got a chance to voice their opinions, introduce amendments and vote. I can’t remember when a NCBA committee meeting produced over a half-dozen roll call votes. But this one did, with votes on amendments, amendments to amendments and finally resolutions themselves.
Nobody disagreed on the overarching issue—that more robust price discovery is needed in the fed cattle market. The debate centered on how best to make that happen.
In the process, over some five hours of debate and with amendments, resolutions from both sides of the debate came to resemble each other. Both agreed in terms of acknowledgment of the industry situation, intent to utilize the research and data available, the quest for more transparency faster, and the agreement that some steps needed to be taken sooner rather than later.
The contention really boiled down to one word—legislation. Many individuals and groups had given up on the hope that voluntary action could or would do anything to increase the percentage of negotiated cash marketing of fed cattle. Some folks acknowledged the dangers in getting government involved but felt they had no choice to preserve the long-term survivability of their operations. Others seemed confident that the industry could remain in control of legislation in Congress and get what they wanted without interference. Their resolution called for NCBA to pursue legislative or regulatory action.
The other contingent remained opposed to government intervention, feeling it was against historical industry philosophy, dangerous because of politicians’ natural inclinations to interfere with business and the forced elimination of some cattle operations’ abilities to do business as they saw fit. They wanted to pursue a number of intermediate, voluntary steps to boost negotiated cash markets.
The taskforce created at the cattle industry winter convention in February had been meeting on a frequent, regular basis, with representation from multiple industry sectors, operation sizes and geographic regions. Besides evaluating the data, consulting with researchers like Steve Koontz from Colorado State University and discussing lots of ideas, they also created two subcommittees. One subcommittee examined the potential of the “bid the grid” concept, with the base price of any formulas reported so as to transparently increase the price discovery database. Another looked at the market maker concept used by other stocks and commodities.
In a series of roll call votes on amendments and amendments to amendments, the contingent opposing government intervention prevailed, but by relatively narrow margins. Neither of the base resolutions as amended had come to a final vote as the meeting neared the four-hour mark on this one agenda item. The chairman then called for a recess, apparently to provide opportunity for some sideline negotiating on some kind of compromise.
Finally, some agreement
Obviously, I didn’t sit in on those discussions or read anyone’s minds. But the attitude of the leading spokesmen for both contingents coming out of nearly an hour of discussions suggested what happened. The following is my speculation.
This bedrock issue had nearly even support on both sides. The close preliminary votes suggested that the folks opposed to government intervention could very possibly have prevailed, but at the cost of nearly as many people very unhappy with the outcome.
It appears the groups decided on a compromise that accomplished a lot of what both sides wanted but with steps spelled out to advance the core desire—real results in increasing transparent cash-negotiated trade. Triggers and deadlines both determined and to be determined were included, with legislative action to follow if voluntary steps did not get results. After nearly five hours of vigorous debate and parliamentary work, the committee, and subsequently the board of directors, was able to pass a resolution unanimously.
The key part of the resolution said that NCBA supports a voluntary approach increasing “frequent and transparent negotiated trade to regionally sufficient” levels, to “achieve robust price discovery determined by NCBA funded and directed research in all major cattle feeding regions.” The other key element was “triggers to be determined by a working group of NCBA producer leaders by Oct. 1, 2020.”
The resolution went on to specify that if the voluntary approach does not achieve robust price discovery and meet the triggers, NCBA will pursue legislative or regulatory solutions as membership decides. In addition, the resolution called for a three-year review/sunset provision on any negotiated trade solutions implemented to allow for a thorough cost-benefit analysis to be conducted.
Some other related resolutions were renewed or amended. The Livestock Mandatory Reporting (LMR) program is up for reauthorization Sept. 30. Tanner Beymer, committee staffer, said the House and Senate Ag Committee staffers had warned that with the crowded legislative calendar, any substantive changes to the bill could jeopardize getting it passed in time.
The committee passed the resolution supporting continuing the LMR program. Committee members also passed a resolution calling for next day by 11:00 a.m. reporting of average carcass weights. Another resolution calls for USDA to create a library of the various types of contracts offered by packers to provide equal access to market information for all participants. The committee also extended the tenure of the Working Group until at least the annual convention in 2021.
As one NCBA officer commented, democracy can get muddy and messy, but it can work, given time and opportunity.
Here is the final compromise resolution approved by the NCBA Board of Directors:
WHEREAS, a competitive fed-cattle market, based on multiple price discovery points, is necessary to achieve robust price discovery that sends proper price signals throughout the supply chain, and
WHEREAS, robust price discovery is vital for all cattle market participants, and
WHEREAS, properly functioning cash and futures markets require transparent distribution of market information and regionally sufficient negotiated trade to achieve robust price discovery, and
WHEREAS, Livestock Mandatory Reporting defines negotiated trade as a cash or spot market purchase of cattle by a packer or negotiation of a base price, from which premiums are added and discounts are subtracted, and
WHEREAS, the bid-and-offer cash fed cattle trade remains the primary base factor for fed cattle value determination on a nationwide basis, including those transacted on alternative marketing mechanisms, and
WHEREAS, all fed cattle market participants have a shared responsibility to contribute to regionally sufficient levels of negotiated trade in all cattle feeding regions to achieve robust price discovery,
THEREFORE BE IT RESOLVED, NCBA supports a voluntary approach that: 1) Increases frequent and transparent negotiated trade to regionally sufficient level, to achieve robust price discovery determined by NCBA funded and directed research in all major cattle feeding regions, and 2) Includes triggers to be determined by a working group of NCBA producer leaders by October 1, 2020.
BE IT FURTHER RESOLVED, if the voluntary approach does not achieve robust price discovery as determined by NCBA funded and directed research, and meet the established triggers that increase frequent and transparent negotiated trade to a regionally sufficient level, and triggers are activated, NCBA will pursue a legislative or regulatory solution determined by the membership.
BE IT FURTHER RESOLVED, NCBA support a three-year review/sunset provision on any negotiated trade solutions implemented to allow for a thorough cost benefit analysis to be conducted.
Steve Dittmer is a longtime beef industry commentator and executive vice president of the Agribusiness Freedom Foundation. The opinions of the author are not necessarily those of beefmagazine.com or Farm Progress.
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