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Lots of industry support for the Cattle Market Transparency Act of 2021
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Lots of industry support for the Cattle Market Transparency Act of 2021

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Selling a mandatory minimum amount of fat cattle on a negotiated cash basis, like as is done at an auction, will allow for more robust price discovery and great transparency in the cattle market.

Many U.S. cattle producers are rallying behind the Cattle Market Transparency Act of 2021, which was introduced into Congress by U.S. Senators Deb Fischer (R-NE) and Ron Wyden (D-OR) on March 2. This dynamic piece of legislation aims to promote healthy cattle markets by ensuring transparency and establishing regionally sufficient cash negotiated trade.

Brett Crosby, a member of the marketing and competition committee for the United States Cattlemen’s Association (USCA), explained during a phone interview there are four main elements to this piece of legislation. Firstly, it requires the USDA to maintain that a certain minimum amount of cattle must be sold on a negotiated cash basis. The specific minimum amount of cattle to be sold this way will differ by region.

“The purpose for having a mandatory minimum number of cattle sold via negotiated cash is so everyone knows what cattle are worth,” Crosby explained.

Over the past 15 years or so there has been a dramatic shift in the way cattle are marketed in the U.S. According to the American Farm Bureau Federation, in the mid-2000s about 50 or 60 percent of fat cattle were sold using negotiated trade with about 30 percent sold using formula pricing. Nowadays formula pricing is the most common way, with 60-70 percent of fat cattle marketed using the method and only about 20 percent marketed using negotiated cash.

The flip-flopping of marketing methods has led to issues in price discovery and with such a small percentage now being sold via negotiated cash, a lack of confidence in cattle prices has developed. Over the last couple of years, industry and political leaders have tried to come up with ways to promote price discovery. The Cattle Market Transparency Act of 2021 is unique because it acknowledges that the volume of fat cattle sold in the U.S. can vary drastically from region to region. The legislation proposes that greater success can be achieved if the mandatory minimums are representational of each region’s varying volume of fat cattle.

“The number of animals and transactions that form the minimum is going to be derived from a statistically-driven process. It is going to be a number that will be defensible to anyone,” Crosby said.

Once the bill passes Congress, the push is to have the USDA seek public comment and then implement the regionally-specific mandatory minimums recommended straight from the industry itself.

To promote market transparency, the second element of this legislation is to have the USDA maintain a library of formula contracts made between packers and producers with the packers required to provide the USDA with this information.

“This gives feeders an opportunity to see what kinds of contracts people are negotiating and that transparency then allows them to understand what they may be able to negotiate in their own formula contracts,” Crosby stated.

As packers have grown and monopolized, there has been less competition and with less competitors. Large packers have skirted mandatory price reporting by claiming it is a breach in confidentiality. In the third element of the Cattle Market Transparency Act, it is made clear that all formula contracts must be reported tactfully and respectfully, but monopolized packers will no longer be incentivized by confidentiality.

Crosby noted, both the formula contract library and the confidentiality element of the Cattle Market Transparency Act will help address the industry-wide concern that the packers have managed to capture their supply and therefore can strong-arm the market.

“We want to make sure we maintain fair competition and that the forces of supply and demand are driving market prices, not the forces of captive supplies and monopolies,” he added.

The fourth element of the legislation mandates that packers be timely, relevant and honest by requiring them to report the number of cattle to be delivered each day for slaughter for the next 14 calendar days.

With such vast industry support, the Cattle Market Transparency Act stands a good chance of making it all the way through Congress. The wheels of government do not move fast, however, and Crosby predicts it would still be two years before it is enacted. Even so, this legislation has the potential to fix some glaring issues in the current cattle markets and Crosby tips his hat to Senators Fischer and Wyden for introducing such a pragmatic piece of legislation.

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