On Aug. 9, 2019, a fire broke out at one of the largest beef packing plants in the U.S. The Finney County beef plant in Holcomb, KS, owned by Tyson Foods, accounts for nearly 6 percent of the nation’s slaughter capacity. In the days following the fire, southeast Colorado cattle producers witnessed extreme volatility in the daily feeder and live cattle futures.
A Sept. 16, 2019, report released from Kansas State (K-State) University listed projected values for finished steers in Kansas feedyards at -$184.99. During that same period, packer margins spiked significantly to nearly four times their annual average, or approximately $549. Within that same report, K-State predicted that cattle feeders would not see a positive net return on finished steers or heifers until May 2020.
Unfortunately, that positive net return never came. Instead, a global pandemic disrupted supply chains across the globe. The arrival of COVID-19 exposed inherent flaws in the U.S. meatpacking industry, resulting in a compromised food supply chain and exposing the vulnerability of our global meat processing workforce. In a report prepared by Brett Crosby of Custom Ag Solutions Inc., the United States Cattlemen’s Association (USCA) estimated the total impact of COVID-19 on the cattle industry would exceed $14.6 billion.
Then, on May 30, 2021, JBS detected a ransomware attack that temporarily halted all production at its U.S. facilities and certain facilities around the world.
The combination of these so-called “black swan” events earned the attention of lawmakers, media and the public. With the spotlight now on the cracks in the system, can we finally make meaningful change to ensure a robust and secure domestic food system?
Negotiated cash sales form the foundation of price discovery in the cattle marketplace. All sectors of the beef market depend on ranchers and meatpackers arriving at a fair cash price through price discovery. Even alternative marketing arrangements, also known as formula sales, often rely on cash prices as the basis of their contracts—and a dwindling number of ranchers are doing the work of price discovery, even though everyone stands to benefit.
Sens. Deb Fischer (R-NE), Chuck Grassley (R-IA), Jon Tester (D-MT) and Ron Wyden (D-OR) are leading the bipartisan Cattle Price Discovery and Transparency Act, which would make sure everyone does their part to achieve price discovery in the market. The bill would establish minimum levels of cash sales that vary based on cattle marketing region, using each region’s previous 18-month average trade as a guide for the level of cash sales necessary for price discovery in a particular region.
USCA was one of the first groups to endorse this bill. Some of the other cattlemen’s groups prefer a voluntary approach to ensuring price discovery. But if a voluntary approach works, why hasn’t it worked already? Instead, after decades of trying, this approach has brought us exactly the opposite of a healthy market: today’s widespread dysfunction and abuse.
We have seen some economists say that price discovery is functioning effectively in the market already. But the same economists are unable to answer a simple question: How thin of a cash market is too thin?
Those same economists have also said that if the minimums are set too high or too low, you could end up disrupting the cattle market in the long term. To address that, the bill would require USDA to review the levels of cash sales every other year. If anything changes after the bill passes, there is a built-in mechanism to quickly make it right.
Something is deeply wrong when so-called black swan events leave ranchers vulnerable while other parts of the supply chain profit. We have momentum on our side, and now is not the time for complacency. Remember, nearly all of the cattle industry has a common goal: making sure enough price discovery is happening in the market.
The bill introduced by Fischer, Grassley, Tester and Wyden would do that. It is a long overdue lifeline for America’s independent producers. And it is a key piece of returning transparency to the industry and achieving the level of price discovery that every link of the beef supply chain needs.
I urge Colorado Sens. Michael Bennet (D) and John Hickenlooper (D) to join the 17 other co-sponsors of this bill and support the Cattle Price Discovery and Transparency Act. — Keven Falduto, La Junta, CO, cattle producer
