It’s looking like mandated negotiated cash trade for fed cattle may become a reality, which I don’t think is a good move for the cattle industry. Senate Bill 3229, the Cattle Price Discovery and Transparency Act, looks like more political pandering that will strain the industry.
It seems to me that the cattle markets are already transparent; we know what’s happening in the feeder cattle markets at any time of the day because they are constantly being sold in an open auction environment. Fed cattle are reported twice a day by USDA. Alternative marketing agreements (AMA) are a little less transparent, but the already approved and funded cattle contract library will take care of that if you really want to know.
There is one aspect of this entire debate about AMAs that I never hear—cattle feeders complaining. They must be content with their marketing arrangements with packers; it would sure take a lot of stress out of the marketing portion of their business. And you must admit that beef products are in great demand because we produce a much better product than we did 10 years ago.
But the politicians are from ag states, and I’m going to assume that many of them are up for reelection this year. Sens. Deb Fischer (R-NE), Chuck Grassley (R-IA), Jon Tester (D-MT) and Ron Wyden (D-OR) are pushing this bill out of the Senate Ag Committee. I am absolutely perplexed why they’re doing this and why cattlemen want this. The government can’t make a market, and mandating the volume of weekly negotiated cash trade in each feeding region is a bad idea.
Several well-known ag economists at the Agriculture and Food Policy Center at Texas A&M University evaluated the bill and concluded that it will cost cattlemen the most. It won’t do anything to increase price discovery, but it could add some transparency to the market.
They said, “Mandated levels of negotiated trade are expected to have negative effects on cattle and calf prices. That is to say that the mandate will result in lower short-term fed cattle prices due to the increase in the costs of the feeder-packer cattle sale transaction. Research has shown there is a value to AMAs in the form of lower costs, improved logistics and reduced risk.
“Negotiated trade mandates do provide additional price discovery and market transparency. More price discovery, however, does not mean that cattle prices would be higher. It’s worth explicitly pointing out the economic trade-offs this portion of S.3229 creates. The bill does increase price discovery, but at the cost of lower prices to cattle producers and higher prices to beef consumers. There is no evidence that increasing price discovery would increase cattle prices.
“The effects of the contract library would be exclusively felt in terms of market transparency. The contract library would increase market transparency. Some in the industry believe that there are secret or special deals offered to some sellers but not others. A library would clear up some questions about what is offered.
“This analysis examines the expected effects of S.3229 on various segments of the beef and cattle supply chain. Bottom line: There are trade-offs. While more price discovery and market transparency can be achieved, forcing the movement away from AMAs via regional mandatory minimums for negotiated purchases will result in lower cattle prices and higher wholesale and retail beef prices.”
In the bill, the words “approved pricing mechanisms” were used, which bothers me. Does this mean the government must approve several types of marketing transactions? I don’t think anybody wants to operate like the dairy industry, where the government sets the milk prices, or the raisin industry, which also has a marketing order from the government.
The real issue here is labor, and it appears the packing industry has solved some of their capacity issues, as processing levels are up to 125,000 head per day now, which is the highest since the pandemic started. Labor appears to be a widespread issue and continues to plug up supply lines.
Perhaps I’m wrong, but cattle groups have received so much attention from the government over cattle prices that there is a lot of momentum for the government to push this thing through. Meanwhile, keep praying for what we really need: rain. — PETE CROW
