Cattle Market Price Discovery Transparency

from Illinois Beef May/June 2022

New Faces at Illinois Beef

Cattle market price discovery and cattle market transparency have been primary topics of discussion within the last two years. Members of the IBA Board of Governors and IBA staff continually receive questions regarding what is IBA policy concerning these two related but distinctly different issues; and, IBA welcomes your questions and comments on these topics. The IBA board first developed official policy for cattle market discovery and transparency in the fall of 2020 and revised this policy during 2021 as opinions and actions on these issues evolved. Here is where the industry is currently.

Regarding cattle market transparency, key components include a library of marketing contracts, 14-day slaughter reporting and clarifying confidentiality guidelines so they do not prevent reporting. A beef contract library requires USDA to create and maintain a packer supplied library of marketing contracts between packers and producers, giving beef producers awareness and access to information they can use to negotiate favorable contracts. Current IBA policy supports this concept.

Fourteen-day slaughter reporting would require a packer to report the number of cattle scheduled for delivery for slaughter each day for the next 14 days (up from the current seven-day requirement). This reporting provides beef producers with a mechanism to have awareness of the number of animals scheduled for harvest, thereby leveling the playing field when negotiating cattle trade, as packers have access to current and ongoing cattle on feed inventories. Current IBA policy supports this concept.

Under current law, USDA is required to report information in a manner that ensures confidentiality, which allows USDA to withhold regional reports to maintain confidentiality. Current IBA policy supports legislation that maintains confidentiality without limiting regional reporting.

Pertaining to cattle market transparency, the Consolidated Appropriations Act of 2022 directed the USDA Agriculture Marketing Service (AMS) to create a Cattle Contracts Library Pilot Program. On April 22, 2022, AMS held a listening session to help determine: 1. What information should a Cattle Contract Library include? 2. What are the concerns with USDA releasing a Cattle Contracts Library? 3. What format should be used to present the information contained in a Cattle Contracts Library?

Several organizations (NCBA, USCA, LMA and others) and private entities (feedlots) provided oral and/or written testimony.

Some of the primary concerns included that a contract library should be user friendly, confidentiality must be maintained, unintended consequences should be kept in mind/avoided (for example, reporting number of cattle contracted may effect futures markets) and the same basic information should be included in every reported contract (such as base price, premiums or discounts, who pays transportation, financing agreements and inclusion of open contracts). The pilot program is a two-stage process — design (a May/June timeline) and implementation (perhaps by September). Participants were reminded that two entities share in the cost of a contract library, that is, AMS bears the cost of compiling and publishing the reports, and packers bear the cost of submitting the contracts.

Pertaining to cattle market price discovery, several U.S. House and Senate bills have been introduced but the bill with the most traction is the “Cattle Price Discovery and Transparency Act of 2022” sponsored by Senators Grassley, Fischer, Tester, and Wyden. There are five primary components of this bill, four of which align with IBA policy: • 14-day slaughter reporting • Expediated carcass weight reporting • Mandatory reporting of cutout yield • A Cattle Contract Library

The fifth component titled “Mandatory Minimums” is contrary to IBA policy. Mandatory minimums require USDA to establish 5-7 regions that encompass the entire continental United States and to establish minimum levels of purchases that covered packers must make through approved pricing mechanisms that contribute to price discovery and are transparent. This wording sounds good, but the devil is always in the details. Illinois already markets close to 50% of its fed cattle through one or more of the approved pricing mechanisms. Therefore, depending on which region USDA assigns Illinois determines whether IBA could support this component. Placing Illinois in a region that markets less than 45%-50% of fed cattle on a cash basis limits how Illinois beef producers market cattle. Second, IBA policy opposes any mandatory legislation that may limit a beef producer’s choice of marketing options. Mandating a minimum percent of cash purchases by packers limits the alternative marketing arrangements packers can offer beef producers.

During the spring of 2021, IBA conducted a survey of IBA members marketing fed cattle. Of the respondents 93.1% marketed cattle on a cash basis. When asked if the profit margin between each industry segment (feeder to packer, packers to retail, etc.) should be regulated by government mandates, 72.9% responded no. However, Illinois beef producers were, at that time, evenly split on specific government mandates. The IBA board will continue to monitor and participate in national discussion as it relates to cattle market transparency and price discovery. The IBA board and staff will continue to seek input from IBA members and will continue to support IBA members’ collective best interest. This is not always an easy task, but the IBA board and staff will continue to try.