Tester, Grassley, Fischer, Wyden release cattle price discovery bill
Sens. Jon Tester, D-Mont., Chuck Grassley, R-Iowa, Deb Fischer, R-Neb., and Ron Wyden, D-Ore., on Monday released the Cattle Price Discovery and Transparency Act of 2022, a revised version of similar legislation introduced last year.
The National Farmers Union (NFU) immediately announced it supports the bill and urged Congress “to act quickly to pass this critically important legislation.”
“Rampant consolidation in the cattle industry has made pricing in the cattle market increasingly opaque,” said NFU President Rob Larew. “Fair and competitive markets rely on price discovery and transparency. For farmers and ranchers to bargain effectively with packers, they need access to reliable, accurate pricing information. This bill would shed light on the market and bring about greater fairness.
NFU said the bill makes important reforms, including:
▪ Establishing mandatory minimum purchase volumes for packers through “approved pricing mechanisms” based on five to seven geographic regions, to be determined by the Agriculture Department.
▪ Bringing more transparency by requiring reporting of cattle weights and slaughter deliveries two weeks in advance.
▪ Clarifying and implementing a cattle contract library.
▪ Increasing penalties for violations by packers.
▪ Requiring livestock mandatory reporting data be made consistently available.
“The updated bill comes after hours of deliberation with leaders of the Senate Agriculture Committee and weeks of technical feedback from the U.S. Department of Agriculture,” said the U.S. Cattlemen’s Association (USCA).
The USCA said its Marketing and Competition Committee will review the proposed revisions tonight.
“USCA stands with county, state, and national producer associations across the U.S. in supporting mandatory cash trade minimums — a concept that is also supported by the majority of Senate Agriculture Committee members,” USCA President Brooke Miller said in a news release.
–The Hagstrom Report
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, you need 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 Negotiated trade, also called the “cash” or “spot” market increasingly has been replaced by formula pricing, forward contracts, and longer-term marketing agreements—collectively referred to as “alternative marketing arrangements” (AMAs).
Negotiated transactions involve a bid and ask process. The negotiated market facilitates price discovery, which is the process of establishing the “going rate” of cattle based on market conditions at any given time. Formula pricing, where a reference price from a published report is used as the base price for the transaction, is becoming more common.
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 non-participants, even as negotiated purchases decline in volume.
If a packer relies on the negotiated market to set the price for a large portion of the cattle they purchase, they should actively participate in establishing the negotiated price.
Issue:
Requires USDA to establish 5-7 regions covering the continental United States and that reasonably reflect similar fed cattle purchases.
Designates a set of approved pricing mechanisms for covered packers that contribute to price discovery and transparency. These include fed cattle purchases through negotiated cash, negotiated grid, at stockyards, and through trading systems where multiple buyers and sellers can make and accept bids.
Requires USDA to set minimum levels of purchases through approved pricing mechanisms that covered packers – those controlling five percent or more of fed cattle slaughter – must make.
Mandates that each regional mandatory minimum be not less than the average of that region’s negotiated trade for the two-year period of 2020-2021. Additionally, sets a maximum threshold for any region at 50 percent.
Requires USDA to conduct an initial review of mandatory minimums after two years.
Allows USDA to work with the cattle and beef industry to periodically review and modify regional minimums after a public notice and comment period.
Solution:
Accordingly, The Cattle Price Discovery and Transparency Act would address these issues by:
Requiring USDA to establish 5-7 regions covering the continental United States and that reasonably reflect similar fed cattle purchases.
Designating a set of approved pricing mechanisms for covered packers that contribute to price discovery and transparency. These include fed cattle purchases through negotiated cash, negotiated grid, at stockyards, and through trading systems where multiple buyers and sellers can make and accept bids.
Requiring USDA to set minimum levels of purchases through approved pricing mechanisms that covered packers – those controlling five percent or more of fed cattle slaughter – must make.
Mandating that each regional mandatory minimum be not less than the average of that region’s negotiated trade for the two-year period of 2020-2021. Additionally, sets a maximum threshold for any region at 50 percent.
Requiring USDA to conduct an initial review of mandatory minimums after two years.
Allowing USDA to work with the cattle and beef industry to periodically review and modify regional minimums after a public notice and comment period.
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