OSKALOOSA — The U.S. cattle industry is facing controversy after the Cattle Price Discovery and Transparency Act cleared the Senate Agriculture Committee on Wednesday.
A main section of the bill, led by Sen. Chuck Grassley, R-Iowa, would require that packers procure a certain amount of their weekly quotas using negotiated trade rather than formula pricing, causing concerns about excessive governmental oversight and unnecessary difficulties for producers in the cattle industry.
Formula pricing ensures that the producer and packer have a pre-arranged contract determining how the cattle will be valued at the time of slaughter. Negotiated trade means that all bets are off and it’s up to the producer to find the best bid for their product.
The National Cattlemen’s Beef Association (NCBA) is leading the grassroots-effort to oppose the bill, arguing that it muzzles industry innovations, rather than supporting its growth.
“The U.S. cattle industry is home to one of the most complex set of markets in the world," said NCBA Vice President of Government Affairs Ethan Lane. "Rather than embrace the freedom of that marketing system, Congress is instituting a one-size-fits-all policy that will hurt cattle producers’ livelihoods. Cattle markets are finally returning to normal after pandemic-fueled uncertainty, but these heavy-handed mandates will stifle innovation and limit marketing opportunities."
Sen. Joni Ernst, R-Iowa, has lent her support to the bill and celebrated its success with the committee in a press release Wednesday, saying, “I’m proud to support Senator Grassley on this bill that takes major steps towards creating a more transparent market to allow our independent, hardworking cattle producers in Iowa and across the country to get the best and most competitive prices for the high-quality cattle they raise.”
Industry experts, however, have reservations about the efficacy and benefits of the legislation.
“In theory, the legislation gives the cattle feeder a reason for optimism, but we’ve yet to see how this will all be implemented and enforced,” said Nathan Harris, a commodity broker at Ag Optimus, a trading and risk management firm based in Akron, Iowa. “Captive supply [because of formula pricing] has been a growing issue in the livestock industry for years. Most independent producers would like to see a higher percentage of negotiated trade, rather than formula-based pricing.
"But negotiated trade won’t always mean higher pricing. There are many variables that exist, and the process of selling fat cattle has become something of a lost art, it seems.”
Harris emphasized that the disparity in the negotiation process isn’t always a one-way street. Producers are occasionally their own worst enemy when it comes to achieving the best margin of profit possible on the cash marketing side of the business.
“I don’t want to make it sound like the packer is constantly the bad guy out to get the producer," he said. "The cattle feeder needs them just as much as they need us. But in a capitalistic environment, each party will work to operate at the best margin possible. It’s our job as cattle feeders to work harder to capture more of that margin. Hopefully this legislation will help."
Grassley’s bill requiring packers to source a certain percentage of their quota from negotiated trade would force producers into a situation where they would need to broker transactions regularly. This would necessitate producers to be more well-versed in negotiation and commodity pricing.
It’s something that might, in a relationship between an evenly-matched producer and packer, be a good step toward better producer autonomy. However, experts say, it could more easily pose problems of fairness in situations where producers must navigate the process of selling their product without pre-existing contracts.
“The problem on the producer level is that we need producers to do a better job when they are negotiating. Producers need to be educated,” Harris explained. “Producers need to be aware of their surroundings and what’s going on. Hopefully more transparency is the result of this legislation, which could in turn help producers understand the true value of their product.”
In spite of these concerns over implementation and negotiation, the upside to the act is that it has the potential to provide more opportunities to producers who do, in fact, want to negotiate their own transactions, and Harris doesn’t want to forget that.
“Capitalism is a good thing, functioning with transparency, and I hope that that’s one of the benefits that comes from this legislation.”