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Senators reach compromise on cattle market bill

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CHECKOFF FOUND CONSTITIONAL: Decision ends a legal battle that has spanned more than six years and exhausted significant checkoff and industry resources.
Legislation would create cattle contract library and require packers to participate in the cash market based on region.

Senators have reached a compromise on measures they see as improving the cattle market, combining components of previously introduced bills in their new Cattle Price Discovery and Transparency Act as Congress works towards reauthorization of the Livestock Mandatory Reporting set to expire Dec. 3, 2021.

Sens. Deb Fischer, R-Neb., Chuck Grassley, R-Iowa, Jon Tester, D-Mont., and Ron Ryden, D-Ore., say they plan to introduce the act in the coming days that addresses many of the concerns troubling the cattle industry plagued with a disparity between what producers are receiving and prices at the retail level. After introducing previous cattle marketing legislation and soliciting feedback from stakeholders in the cattle industry, all four legislators have identified common ground. 

In brief, this legislation will enhance price discovery and transparency by requiring packers to participate in the cash market on a plant-by-plant basis within each major cattle feeding region; creating a library of formula contracts; and expediting the report of average carcass weights to the public. It also requires a cost benefit analysis after two years to ensure the program is working as intended.

The creation of a cattle contract library is the most widely supported. The U.S. House Agriculture Committee unanimously passed the bipartisan Cattle Contract Library Act of 2021 (H.R. 5609) in action by the committee Oct. 21. The Senate proposal also requires the USDA to create and maintain a publicly available library of marketing contracts between packers and producers in a manner that ensures confidentiality.

Related: Cattle contract library legislation advances

The next tenet of the Senate bill prohibits USDA from using confidentiality as a justification for not reporting and makes clear that USDA must report all Livestock Mandatory Reporting information, and they must do so in a manner that ensures confidentiality.

The bill also requires 14-day slaughter reporting, similar to what Grassley first introduced in his 50-14 plan. Specifically, it requires that a packer report the number of cattle scheduled to be delivered for slaughter each day for the next 14-day period. This tool can be used by producers to project estimated slaughter numbers and packers’ needs for cattle.

The bill also updates Livestock Mandatory Reporting definitions for “Fed Cattle,” “Heifer,” “negotiated grid purchase,” “regional mandatory minimums” and “steer,” and redesignates paragraphs of existing definitions as appropriate. Cattle Reporting Definitions are amended by revising the definition for “formula marketing arrangement,” and by adding “contract,” “type of contract” and redesignating paragraphs of existing definitions where appropriate.

Cash sales

A significant challenge facing the cattle industry is the declining number of participants in the negotiated cash market. In order to have robust price discovery that provides accurate information about market dynamics along the supply chain, the senators claim the market needs a competitive cash market with multiple price discovery points. 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 or AMAs.

In a summary of the bill, it explains today the bulk of formula pricing uses negotiated cash prices as the base in the formula — meaning information from the negotiated cash market is being heavily leveraged by nonparticipants, even as it declines in volume.

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.

“Absent government intervention, or any way to enforce a voluntary approach, cash market volumes are unlikely to return on their own — despite the fact that both parties in an AMA rely heavily on the information that is produced by cash market participants,” the summary adds.

Related: Cattle market consensus still eludes Congress

The legislation will establish regional mandatory minimum thresholds of negotiated cash and negotiated grid trades based on each region’s 18-month average trade to 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.

“The foundation of price discovery in the cattle market is negotiated cash sales. One or two regions of the country should not have to shoulder the burden of price discovery and that’s exactly what has been happening,” says Fischer.

Even regions that primarily use AMAs such as formula contracts predominantly rely on negotiated cash sales to set their base prices. “Our compromise proposal takes regional differences into account and ensures fairness for every segment of the supply chain,” Fisher adds.

Support growing

The American Farm Bureau, U.S. Cattlemen’s Association and National Farmers Union offered their initial support for the proposal. The National Cattlemen’s Beef Association supported the cattle contract library creation, but reserved judgment on the Senate’s full proposal over concerns with how it matches up with its grassroots policy.

“While we are still reviewing the new language and comparing it against our producer-passed policy on this issue, it would appear that – as in previous versions – we can support much of this bill. That being said, that same policy book directs us to oppose government mandates on cattle marketing methods. We take the discussions and deliberations that go into our grassroots policy process seriously, and we will hold this bill – as we would any other – up against the policy of this association,” says NCBA Vice President of Government Affairs Ethan Lane. 

The Iowa Cattlemen’s Association supports the bill and has been in close contact with Grassley’s staff as it continued to work towards improving price discovery and improving transparency.

“The provisions outlined in this legislation are based on feedback from the cattle industry, specifically taking into account testimonies shared by independent cattle producers at the Senate Agriculture Committee and Senate Judiciary Committee hearings this summer,” says ICA President-Elect Bob Noble. 

The North American Meat Institute warns against unintended consequences. 

“Beef and cattle markets are dynamic. This fall prices cattle producers received for their livestock have risen without any government interference,” says Julie Anna Potts, NAMI president and CEO. “In a rush to do ‘something,’ this bill would replace the free market with government mandates and harm those it is intended to protect: livestock producers.”

“If this bill becomes law,” adds Potts, “there will be cattle producers who want alternative marketing arrangements, but will instead be forced to sell on the cash market, and the industry will turn back time to the days of commodity cattle.”

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