A bill reintroduced by two U.S. senators on March 24 would see U.S. meat processing facilities — those that slaughter over 125,000 head of cattle each year — purchase 50 per cent of their weekly volume of beef slaughter in the open or “spot” market. Further, these animals would need to be processed within 14 days.
The goal of the bill is to bring transparency back into the cattle market by balancing out the leverage between packers and feedyards on a weekly basis by reducing the captive supply, supporters say.
If passed, the bi-partisan bill, dubbed 50-14, put forward by Senators Jon Tester (D-MT) and Chuck Grassley (R-IA), would change how many producers market their cattle. The bill has been brought forward as some groups are concerned by the amount of cattle being sold on formula (grid) pricing and not through a traditional negotiated cash trade.
However, opinions are split on the concept among cattle organizations and regions of the U.S. Organizations such as the National Cattlemen’s Beef Association (NCBA) are opposing it, while R-Calf and U.S. Cattlemen’s Association support the bill.
Ethan Lane, vice president of government affairs at the NCBA, recently joined AgriTalk to discuss the bill. Lane says by taking a broad approach to cattle markets, they ultimately lose their uniqueness.
“We are opposed to 50-14. Our policy has been in that spot for quite some time and it has to do with the prohibition on how producers would be able to market their cattle,” Lane says. Regional differences, he says, doesn’t make a blanket 50 per cent all that useful.
The Iowa Cattlemen’s Association is saying a bill like this would create leverage in cases where leverage isn’t necessarily easy to come by. As opposers to the bill note, the leverage conversation has to include all levels of leverage, including expanded processing capacities, and additional avenues to market cattle.
In Canada there is similar marketing friction between feedyards and packers, but there is currently no similar legislative push to attempt to rectify how fat cattle are bought and sold.
“The Kansas packer fire and COVID-19 related impacts of a deepening spread between the live cash price and the boxed beef price resulted in record packer margins which has given much more attention to whether an increased cash trade would benefit feedyards financially,” says Shaun Haney of RealAgriculture.
Dr. Jayson Lusk, in an interview with Fair Cattle Markets regarding 50-14, stated, “A benefit to increasing negotiated cash trade would be a more liquid cash market that would provide increased certainty that the trade being observed is reflective of underlying fundamentals. The reason we don’t have more cattle traded in spot markets is because there are benefits that go along with coordination in various ways for both sides of the exchange. When the packer has a dedicated supply of cattle, their efficiencies increase and they’re able to increase profits. If the industry moves more towards a cash basis, you lose some of the ability to incentivize certain traits and characteristics like you see with contracts,” Lusk says.