Legislation for Cash Cattle
May 13, 2020
As packing plants and livestock markets have been put under a microscope, some senators are introducing legislation to mandate large packers buy at least 50% of their weekly cattle purchases on the cash market.
The legislation was spearheaded by Sens. Chuck Grassley, R-Iowa, and Jon Tester, D-Mont., along with three other senators.
Grassley said Tuesday that Iowa residents are increasingly noting the discrepancy between high beef prices and low cattle prices.
"It does not make sense to our producers, and I'm sure the price going up to consumers, they don't understand it either," he said. "And this is a situation that is not sustainable."
Boxed beef cutout prices are at record levels this month and continue pushing higher. Choice cutout closed Tuesday at $475.39 per cwt, effectively $4.75 a pound, while select cutout dropped slightly to $450.97, or $4.50 a pound.
June live cattle prices have been on an upward swing over the past week since President Donald Trump said last Wednesday he backs a Department of Justice investigation into what's going on with the cattle trade. The June contract has moved up about $7 since Trump made those comments and closed at $97.17 on Tuesday.
Grassley noted, "Independent producers will always struggle negotiating prices if there are only four large, multinational companies controlling 80% of processing."
A few states have strong negotiated cash trade, especially Iowa, where roughly 50% of cattle sales are on the spot market. But in several major cattle states, cash trade is in the single digits or close to it. In those states, most cattle are sold in some form of private formula contract, Grassley noted.
"These contracts hide the true value of production from the rest of the marketplace," Grassley said. The senator added, "This change is needed to increase price discovery for producers across the country. Failure to act is failing our independent producers."
Yet, legislation focusing on changes in cattle markets is akin to lighting a match at a fuel dump. To state cattle groups at the national and state level are divided is an understatement.
Joining Grassley and Tester on the legislation were Sens. Steve Daines, R-Mont.; Joni Ernst, R-Iowa; Cindy Hyde-Smith, R-Miss.; and Mike Rounds, R-S.D.
"This bill will force meatpackers to engage in more spot transactions, bringing up formula prices and making them more accurate while giving Montana producers and feeders more flexibility and transparency when they bring their livestock to market," Tester said.
DTN asked the North American Meat Institute, which represents major meatpackers, about the legislation but did not get a response before deadline.
While Grassley and others advocate for greater cash trade in the market, another set of senators on Tuesday added their letter to the multiple requests already sent to the Department of Justice.
Sen. Deb Fischer, R-Neb., spearheaded Tuesday's letter with a bipartisan group of 19 senators asking DOJ to "investigate potential anti-competitive activities in the highly concentrated beef packing sector." Several other senators had written similar letters to the Department of Justice last month as well. Then, the president also declared his support for such an investigation.
One group that has been advocating for a plan mandating higher cash cattle trade is the U.S. Cattlemen's Association. USCA has been focused on a grassroots petition effort for a mandated minimum 30% negotiated cash trade.
Jess Peterson, a lobbyist for USCA, told DTN that cattle producers in the countryside have been searching for a strategy that would bring more price discovery and bids for cattle.
"From our perspective, 30% has always been a floor, not a ceiling," Peterson said.
Corbitt Wall, a cattle market analyst on YouTube, earlier this year had begun calling, in part, for a 30% cash trade, but he did not think the industry could move to a 50% negotiated cash trade.
Members of Congress have been pitching several plans to help both cattle and pork producers with their market situation, given the way COVID-19 has disrupted the packing industry and livestock markets.
Still, Grassley said it could be several weeks before Congress comes to an agreement on the next possible bill.
"We spent $3 trillion with four or five pieces of legislation," Grassley said. "We need to pause to see the needs after all this money is out. It will be three to four weeks to assess and begin to move ahead."