Cattle producers agree better price discovery is needed in cattle markets — where the four largest meatpackers control more than 80% of U.S. cattle slaughter and processing — but they aren’t aligned on how to achieve it.
A bipartisan bill introduced in the U.S. Senate on May 12 requiring packers to purchase a minimum of 50% of their cattle through cash markets is pushing the conversation.
Introduced by Sen. Chuck Grassley, R-Iowa, and Sen. John Tester, D-Mont., the mandate would apply to packers with more than one processing plant and require the cattle be harvested within 14 days.
Grassley said the four large meatpackers have the unique ability to influence the price of live cattle, and more than 80% of cattle are sold through formula contracts and/or the cattle futures market.
“These private contracts don’t allow for price transparency and hide the true value of production from the rest of the marketplace,” he said.
Tester said market consolidation has enabled large-scale meatpackers to artificially lower prices for cattle.
National Cattlemen’s Beef Association has been working with stakeholders, industry experts and academia to increase price discovery but is not on board with a government requirement to force cash purchases.
“Any solution must not restrict an individual producer’s freedom to pursue market avenues that they determine best suits their business’ unique needs,” Todd Wilkinson, NCBA’s policy division chairman and South Dakota rancher, said in a statement.
“Government mandates, like that being proposed by Sen. Grassley, would arbitrarily force many cattle producers to change the way they do business,” he said.
NCBA will continue its work toward a more equitable and industry-led solution, he said.
Mandating a certain level of negotiated cash trade could cost the cattle and beef industries millions and possibly billions of dollars per year, Stephen Koontz, professor of agricultural and resource economics with Colorado State University, said in a letter to NCBA.
“The use of alternatives to the cash market are cost saving and revenue enhancing. The main beneficiaries of these relationships are the cow-calf producing sector and the U.S. consumer,” he said.
“We have known this for a long time, and we have solid empirical evidence,” he said.
The industry needs cash market price information and the information being produced is insufficient. But there are many alternatives to mandates that would be more flexible, less costly and effective, he said.
The bill does have the support of some producer groups.
Bill Bullard, R-CALF USA CEO, said the bill represents one of the first meaningful steps that must be taken to begin restoring competition to broken cattle markets.
“The largest beef packers have progressively shifted large numbers of cattle out of the competitive cash market and into contract arrangements where no price discovery can occur,” he said.
Beef packers continue tying the price they pay for contracted cattle to the razor thin cash market that is no longer capable of establishing a competitive price for cattle, he said.
The U.S. Cattlemen’s Association said the bill would have a real and meaningful impact on U.S. cattle producers’ bottom line.
“The lack of cash negotiated sales in recent years has decimated price discovery and undercut the fundamentals of the CME cattle futures contracts,” USCA stated.