Call the Market

Is the Cattle Price Discovery and Transparency Act a Sweet Spot for the Market?

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
A lively marketplace is needed to garnish demand and seek the highest prices possible. (DTN file photo by Robert Lagerstrom)

What a time it is to be alive. You'd think that as the world continues to spin, we'd get smarter and things would get easier, but I can't say that's the honest truth or reality. As the world sits today, U.S. consumers are facing a 7% year-over-year inflation spike, Ukraine continues to battle a horrific war with Russia, and the cattle market is on the brink of being like its counterparts -- the chicken and hog industries.

On April 26, I sat and listened to the Senate Ag Committee Hearing where Senate bill 4030 "The Cattle Price Discovery and Transparency Act of 2022" was discussed. From the viewpoints of our nation's three largest cattle organizations, three different opinions about the bill can be formed. The National Cattlemen's Beef Association (NCBA) has been sheepish about the bill after its study of how a voluntary cash cattle market would work in today's marketplace failed miserably.

Why you ask?

As Sen. Deb Fischer, R-Neb., stated at the hearing, "It didn't work because packers didn't participate." The United States Cattlemen's Association has backed the bill from its origin, and as William "Ricky" Ruffin (a cattle producer from Mississippi who testified on behalf of USCA) said, "It may not be perfect, but it throws cattlemen a real-life raft." And lastly, R-CALF USA wishes the bill more closely represented what the original 50/14 concept was. Proposed Senate bill 3693, The "50/14" Cash Market Cattle Mandate required beef packers to purchase 50% of the fed cattle they slaughter each day on a cash, spot-market basis, to be slaughtered within 14 days of delivery. This measure did not pass.

DTN's Ag Policy Editor Chris Clayton described the S4030 bill well: "The bill would require USDA to establish minimum levels of negotiated cash trade for fed cattle by dividing up regions of the country. The cash-trade floor would depend on the number of packers in a region, availability of fed cattle, and the number of contractual arrangements -- alternative marketing agreements (AMAs) -- in each region as well. The mandate for cash trade would fall to packers that on average handle at least 5% of daily fed cattle slaughter. The bill also would create a library at USDA of AMA contracts that would allow cattle producers to see the premiums others are receiving."

To read Clayton's full story about Tuesday's hearing, click here:

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https://www.dtnpf.com/….

So, producers again are left in the middle. They're in the middle of the crossfire of cattle originations, fighting against and amongst themselves as family ranches get sold by the dozen and packers get fatter by the day.

While it may seem like the writing is on the wall as your banker is breathing down your neck, hay prices are upward of $300 per ton and grass has yet to grow, I'm here to talk to you as the producer I am myself and as an analyst. I hear your frustrations, I feel your frustrations, and I know how tiring this fight can be. What I also know is that the solution is never found lying down or giving up. This industry -- this way of life -- is too precious to let go and not be able to be handed down to the generations to come. As Ruffin perfectly said at the hearing, "If you're in the cattle market, you've got to be resilient."

Let me walk through Tuesday's hearing and today's market with you and share a couple of key thoughts.

First, many are worried if this bill is passed it will limit cattle feeders' ability to use alternative marketing arrangements (AMAs). AMAs are an alternative to the cash cattle market such as forward contracts, marketing agreements or even packer ownership of the cattle. Shawn Tiffany, president-elect of the Kansas Livestock Association, testified Tuesday about this exact matter and how, if AMAs were compromised, his business would flounder and producers should be able to capitalize financially on the high-quality cattle they produce.

But to rebut that exact point, Fischer, who really was the highlight of the entire hearing, said AMAs will still exist, and that people should indeed get premiums for their superior genetics.

Then, Sen. Chuck Grassley, R-Iowa, addressed the remark by assuring there are other ways beside AMAs to get good money for high quality cattle. Grassley said, "Over 94% of the cattle in that region (Iowa, Minnesota) grade over 80% choice. This compares to less than 13% from the Texas/Oklahoma/New Mexico region, and yet our opponents point out that AMAs are needed to capture the value of better genetics."

Brett Crosby, the Region IV director for USCA, shared, "The implication that AMAs will be substantially reduced is an effort to divert people's focus from the bill, which is in fact an effort to ensure that enough cash cattle trade is transpiring to sufficiently meet true price discovery in the marketplace."

Second, we cannot overlook or minimize the fact that no Nebraska producers even felt comfortable testifying Tuesday in fear of retaliation. Fischer stated, "None of our producer members we encouraged to testify were willing to put themselves out front for fear of possible retribution by other market participants -- an unfortunate reality of today's cattle industry." This couldn't be any clearer on the power held by those who influence the cattle markets.

Lastly, from a market example, look at the last two weeks in the cash cattle market to spark your fighting spirit. Last week's negotiated cash cattle market was stellar. Throughout the week, 110,597 head traded (71% for the nearby delivery, 29% for the deferred delivery), which is thus far the largest weekly volume that 2022 has seen traded in one single week. Southern prices averaged $140, which was $1 higher and Northern dressed prices averaged $230, which was $4 higher. A lively marketplace is needed to ensure demand and seek the highest prices possible. Last week we saw the market grow stronger as packers competed against one another to get the cattle bought that they required, and now the market needs this type of interaction on a consistent basis so feedlots and cow-calf producers can once again become a sustainable business.

I understand that, to some, the bill isn't everything. To some, it's too much and to others it's not enough, but as I see it, we can't squander anymore time hoping that something either changes on its own or that better legislation is rolled out in the months to come. The cash cattle market is truly the bedrock of the cattle market and if it's allowed to wither away, the market will conduct business behind closed doors where corporate feedlots and the nation's four largest packers walk away with immeasurable profits, while independent feedlots and cow-calf producers become a relic of days past.

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The views expressed are those of the individual author and not necessarily those of DTN, its management or employees.

ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com

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ShayLe Stewart