Ag Policy Blog

Agriculture Undersecretary for Marketing and Regulatory Programs Greg Ibach said Tuesday that the USDA is nearing conclusion of its investigation into the cattle market after the August 2019 Holcomb, Kan., Tyson beef processing plant caught fire and the volatility in the market in the early stages of the COVID-19 outbreak.

Asked by Rep. Dusty Johnson, R-S.D., at a House Agriculture subcommittee hearing for an update on the investigation, Ibach said, "I think we are nearing conclusion of that process and look forward to being able to release a report from USDA in the very near future."

Asked by Johnson whether the Packers and Stockyards division of USDA has the resources it needs, Ibach said there will be several things that come out of that report that both Congress and the industry will want to discuss.

"I think there are going to be several things that will come out of that report that members of the committee, as well as the industry will want to consider to discuss, and there may be actions that the committee and the industry may want to consider as a result of that report."

R-CALF Releases 2014 USDA Report

R-CALF USA on Tuesday released a six-year-old report from the former USDA Grain Inspection, Packers and Stockyards Administration (GIPSA), which is now an arm of the Agricultural Marketing Service.

GIPSA looked at alternative marketing agreements (AMAs) and their economic impact. The 93-page report conclude AMAs benefit packers in a variety of ways, including reducing procurement costs, and allowing plants to operated and higher, more efficient capacity levels, and more steady volumes of cattle. AMAs also benefit consumers "by improving overall beef quality as they send price signals to producers on the value of specific cattle qualities related to consumers' beef preferences."

"AMAs also have significant benefits for fed cattle sellers that use them," the report states. Sellers can lock in futures prices, or a pricing method. "AMAs help sellers reduce price risks of raising and selling fed cattle. AMAs assure sellers that they will have timely market access, which historically has been a major concern."

But the report goes on to add, "The investigation found that AMAs have a negative price effect on fed cattle" even though "AMAs also have legitimate business justifications for both packers and cattle sellers."

R-CALF points out that in 2009, nearly 40% of fed cattle volume at that time came from the cash market. AMAs suppressed prices, on average nationally $33.28 per head. To put that into larger context, the U.S. slaughtered 33.3 million head of cattle in 2009. If AMAs suppressed prices an average of $33.28 per head, that translated into $1.1 billion in lower prices paid to cattle feeders.

R-CALF states that in some regions where the cash market is significantly lower, the GIPSA report found lower prices per head because of AMAs. The per-head price was $50.44 lower in Kansas, $44.46 lower in the Texas-Oklahoma-New Mexico markets, and $42.77 lower in Colorado.

There is no clear explanation why the 2014 report was not released by GIPSA at the time, or how R-CALF obtained it.

Bill Bullard, CEO of R-CALF USA, stated the report "firmly supports Senator Grassley's and Senator Tester's Senate Bill (S.3693) and Congresswoman Cindy Axne's House Bill 7501 (H.R.7501) that restore the integrity of the thinning cash market by requiring packers to participate in the negotiated cash market at least at the 50% level."

Bullard added, “It is clear that the report's finding of significant producer losses associated with nearly a 40% cash volume level is unacceptable and bringing the volume up to 50% will at least minimize some of that harm to cattle producers who trade on the cash market. On the other hand, lowering the cash volume to only a 30% cash volume level is stripping almost $39 per head of income from cattle producers nationally, and significantly more from cattle producers selling in the low cash-volume regions.”

The Grassley-Tester bill, also introduced in the House, would require each individual packing plant to buy 50% of its cattle from the cash market. The bill was introduced earlier this spring when the spread between live cattle and boxed beef hit record levels. It should be noted that so far neither the Senate nor House Agriculture Committees have held hearings on the impact of COVID-19 on the livestock markets, or held any hearings on the Grassley-Tester bill.

Link to R-CALF website and USDA GIPSA report: https://www.r-calfusa.com/…

DTN Political Correspondent Jerry Hagstrom contributed to this report.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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