Finally hearing the calls of producers concerned with the unfair state of the cattle markets, the Senate Committee on Agriculture, Nutrition and Forestry held a hearing June 23 on “Examining Markets, Transparency, and Prices from Cattle Producer to Consumer.” Several industry witnesses testified at the hearing, offering their perspectives on what needs to change.
Justin Tupper, United States Cattlemen’s Association (USCA) vice president and manager of St. Onge Livestock in South Dakota, spoke of the need to secure “our food system, our rural communities and our members’ livelihoods” through a fair and competitive market. Tupper stated in his opening statement there is an oligopoly with the meatpackers controlling the industry. He suggested eliminating anti-competitive practices and market manipulation and breaking up the packers, so they do not have as much influence and ownership in the market.
In Tupper’s written testimony, he and USCA suggested amending the Packers and Stockyards Act by supporting the Meat Packing Special Investigator Act introduced by Sens. Jon Tester (D-MT), Charles Grassley (R-IA) and Mike Rounds (R-SD). USCA also recommended changes to the Livestock Mandatory Reporting (LMR) program to provide accurate and transparent reporting of daily prices and the number of cattle sold via the cash market.
Another cattle producer, Mark Gardiner of Gardiner Angus Ranch in Ashland, KS, emphasized that the series of black swan events in the industry caused “too many cattle and too little processing capacity.” Gardiner said adding processing capacity will provide competition for a limited supply of cattle, but will take time.
Gardiner stressed that some bills introduced in Congress would negatively affect the beef industry, including proposed regulations such as Grassley’s 50-14 bill and Sen. Deb Fischer’s (R-NE) Cattle Market Transparency Act. In Gardiner’s written testimony, he wrote that value-based marketing such as U.S. Premium Beef, LLC and Certified Angus Beef, reward the cattle industry for producing a superior product. Gardiner wrote, “Any changes to pricing solutions are much more effective when created and implemented by the industry, as opposed to government mandates.”
Dr. Glynn T. Tonsor, professor in the Department of Agricultural Economics at Kansas State University, likened the industry to a Rubrik’s Cube, where when one thing changes, so do many others. Currently, that relationship is illustrated in the ratio of fed cattle to processing capacity. Tonsor believes USDA’s Agricultural Marketing Service does a “sound job” of implementing LMR, but encourages adjustments and enhancements.
In his written testimony, he recommends several changes to LMR such as adjusting the collection of raw data; aggregating some categories to increase reporting frequency; removing forward contract data from the currently reported weekly fed cattle comprehensive report to better reflect the current price environment; and periodic reassessment of procedures used to assure confidentiality.
Another economist, Dr. Dustin Aherin, vice president of RaboResearch and animal protein analyst at Rabobank, stated that while the recent events in the industry were unexpected, they are explainable. The imbalance of excess market-ready cattle supplies and reduced operational packing capacity has put downward pressure on cattle prices.
Dr. Mary K. Hendrickson, associate professor in the Division of Applied Social Sciences at University of Missouri, focused on the social infrastructure between producers, communities and consumers and how to make rural communities more resilient. Hendrickson stated the lack of competition in the marketplace has resulted in producers having fewer choices of where to market their animals.
Hendrickson said while there is not one thing that will be effective in strengthening community wellbeing, the key is a “diversity of public, private and cooperative food and farm businesses, both small and large, that are transparently interconnected through multiple networks, to build redundancy and provide fallbacks when some organizations or networks fail.”
Senator questions
Out of the two-and-a-half hours spent in the hearing, most time was allocated to committee members for questioning. Senators took full advantage of their individual opportunities and directed most of their questions to Tonsor and Tupper. Cash trade was most frequently the topic of discussion, with Fischer and Grassley interjecting with comments related to their proposed legislation for mandated trade.
Most of the questions asked of Tonsor were related to what exact solutions were going to fix the markets. Tonsor answered often with what he said was his personal opinion, as economists have yet to fully quantify benefits of certain proposals, like mandated cash trade.
Tonsor emphasized that USDA has access to a lot of market data, but not all of the data shows up in reports to the public. Reviewing and revising how data is displayed could potentially allow for different reports and remove the confidentiality requirements, he said, alleviating market transparency concerns.
Tonsor expressed his support for alternative marketing agreements (AMAs), saying they allowed for the most economic benefits, efficiency in coordination and aligning demand. Regarding mandated trade, he said he was concerned with the rigidity of the system, and any sort of government mandate makes him hesitant.
Aherin echoed Tonsor’s points, stating that mandated trade could hamstring the ability of smaller plants that compete in the marketplace to offer niche products. He said many new market entrants are separating themselves based on product quality, which is why they may pursue AMAs over mandated trade.
Aherin also noted that cash trade as a percentage of total transactions hasn’t changed since 2014, but price has, due to supply and demand. With the current drought situation and herd liquidation, Aherin said the cow herd will likely decline over the next several years.
“Consumer demand drives the price and value of the animals, but capacity allows the demand to trickle down to the feeder and producer,” he said. “There may be great consumer demand, but it’s not necessarily trickling down to the cattle feeder in the way it did in 2014, because of the oversupply related to capacity.”
Gardiner also shared his support for AMAs, saying they are the best options for small producers. He added that he was concerned with mandates, but putting all base prices into LMR could allow it to become more inclusive and create a more robust, transparent market.
Fischer directly asked Gardiner about the National Cattlemen’s Beef Association’s 75 Percent Plan, and said that many states did not make the cut the first quarter and that was the issue with keeping everything voluntary. In response, Gardiner agreed voluntary measures were not working, but putting more information in mandatory price reporting for full disclosure would be beneficial.
Tupper expressed his disagreement with the others’ remarks on AMAs and said AMAs between the packer and feeder offer no benefit to the producer.
“When the Big Four have all of that captive supply—they do not have to go out and compete for those cattle—then they can push down the prices,” he said. “If we had more competition and [the Big Four] could not hold captive supply, then when we have higher boxed beef prices, we would directly see the benefit of that.”
He also posed the question: “Why aren’t any of the Big Four trying to gain more market share if it’s not a monopoly?”
Tupper stressed the importance of having a second bidder, which hasn’t been happening in recent times. “In order to have true price discovery, you have to have a second bidder,” he said. “If there is no second bidder, there is no market competition.”
When asked by Sen. Cindy Hyde-Smith (R-MI) if the committee should consider legislative solutions, Tupper replied, “Absolutely.” Hyde-Smith also asked if including formula base pricing in LMR would be beneficial, to which Tupper also said yes.
“Confidentiality kills LMR. When there aren’t enough participants in the market, we can’t report it. Confidentiality does not fit in this industry.”
In related news, Sen. Amy Klobuchar (D-MN) noted during her questioning that she was working with the antitrust committee on how markets can be more pro-competition, and would soon hold a hearing over the meat packers. — Anna Miller and Charles Wallace, WLJ editors
