Price Transparency

When cattle prices dropped by about 40% from late 2014 through 2016, it sparked calls for federal investigations into market manipulation. Some contended fewer packers were controlling more of the market.

Yet, increased concentration in the cattle industry had little overall effect on prices from 2013 to 2016, according to a Government Accountability Office (GAO) report. Instead, the group points to drought and feed prices for price fluctuations during the period.

The GAO did find the USDA needs to provide better transparency in pricing and sharing of that information among USDA agencies.

Responding, USDA states the Livestock Mandatory Reporting (LRM) Act of 1999 prohibits USDA’s Agricultural Marketing Service (AMS) from sharing reported pricing information with regulators who oversee enforcement of the Packers and Stockyards Act. USDA states routine sharing of data “could jeopardize the public’s trust in the agency’s administration of the LRM program.”

The study was conducted at the request of U.S. Sens. Charles Grassley, R-Iowa; Mike Lee, R-Utah; and Patrick Leahy, D-Vt. All have pressed for changes in federal law to combat what they believe are anticompetitive practices in the industry.

OVERSIGHT QUESTIONS

The U.S. cattle industry generated about $64 billion in receipts in 2016, according to USDA reports. “The price of fed cattle has fluctuated widely from 2013 through 2016 and experienced a sharp downturn beginning in late 2015, raising concerns about the market and questions about USDA’s oversight,” the GAO reports. “Our results suggest that when there is a more concentrated market of buyers [packers], those packers will have more negotiating and market power, and, therefore, with other factors held constant, these packers will be able to purchase fed cattle at lower prices from feeders.”

The GAO examined National Agricultural Statistics Service (NASS) data from the mid-1990s through 2016. The group found the number of cattle fed at large lots increased, while the number of cattle fed at smaller feedlots decreased. The study shows there was an expansion in the number of individual larger feedlots (capacity of 50,000 or more head) in both number and percentage of total feedlots--with an increase from 45 such operations in 1996 to 73 in 2016.

“Since the late 2000s, larger feedlots generally have been contributing an increasing portion of fed cattle to overall slaughter numbers, with medium-sized feedlots (those with a capacity of 16,000 to 49,000 head of cattle) generally contributing fewer,” the GAO reports.

“However, to better align futures contracts with the actual fed-cattle market, CFTC [Commodity Futures Trading Commission] reviewed changes to contract terms and will continue to monitor those changes.”

GAO RECOMMENDATIONS

The GAO is recommending USDA review the extent with which the price-reporting group can share daily transaction data with the Packers and Stockyards Program. If the law does not allow sharing price data, the GAO recommends Congress take action to allow it.

In a statement to DTN/The Progressive Farmer, Bill Bullard, chief executive officer of R-CALF, says GAO did not go far enough in its investigation.

R-CALF USA (Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America) submitted a formal request to the U.S. Senate Judiciary Committee seeking an investigation into the 2015 cattle price collapse. The group called for an investigation, because it said cattle prices fell further and faster than anytime in history.

“The [GAO] report used a very broad brush to describe a few of the more obvious problems in our U.S. cattle market. And, while it did identify some specific problems, it left several of the largest stones unturned,” Bullard says.

“In 2015, the cattle market was burdened by an unprecedented surge in imports that resulted in a record $9.1 billion in cattle and beef imports, while our U.S. exports were only $6.3 billion. This sudden increase of foreign cattle and beef had a much greater impact on the 2015 market collapse than is specifically acknowledged in the report.”

The GAO found cattle prices began increasing when supplies tightened as a result of widespread drought from 2010 to 2013. However, Bullard says the report did not address how supplies could have increased to “trigger the mid-2015 price collapse, particularly in light of the long biological cycle of cattle that would have limited domestic supply expansion for three years beyond late 2013.”

R-CALF challenges the GAO conclusion that increased packer concentration did not contribute to price drops.

“The report did not explain why a concentration level in which just four packers control 85% of the market would have to change at all for those few packers to exert abusive market power upstream into the live cattle supply chain,” the group says in a news release.

MARKET POWER

The GAO concluded limited competition in some cattle-procurement regions was associated with lower fed cattle prices in those regions, and “some packers may have been able to exercise market power.” R-CALF, however, says the report does not address the “extent to which the packers may have cooperated with each other to cause such reduced competition in certain regions.” The GAO also concluded the Packers and Stockyards Administration hasn’t adequately monitored the fed cattle market.

R-CALF adds the USDA response in the report indicates the agency did not intend to correct the deficiency of lack of access to USDA’s daily cattle-pricing data.

GIPSA RESTRUCTURED

Earlier this month, the Organization for Competitive Markets filed a legal challenge against USDA for withdrawing livestock marketing rules designed to level the playing field for producers while negotiating supply contracts with larger agribusinesses.

The rules originally were drafted by GIPSA. In November 2017, Secretary of Agriculture Sonny Perdue announced that, as part of a USDA reorganization, GIPSA would no longer be a stand-alone agency. Officials renamed the Packers and Stockyards Division to the Fair Trade Practices Program as part of the Agricultural Marketing Service.

The livestock marketing rules date back to language in the 2008 farm bill. The rules were designed to give farmers more bargaining power to negotiate livestock contracts with meatpackers.

For more information:

> GAO Report

> R-CALF

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