R-CALF USA praises Representative Cynthia Lummis (R-Wyo.) and Representative Marcy Kaptur (D-Ohio) for their sponsorship and co-sponsorshi p, respectively, of H.R. 2631: the bipartisan Livestock Marketing Fairness Act (Act) introduced in Congress on Monday. The Act, among other things, would prohibit meatpackers from removing live cattle from the competitive marketplace without first negotiating a firm base price for the cattle – a practice increasingly used by meatpackers to gain an anticompetitive advantage over cattle farmers and ranchers through what are called un-priced formula contracts.
According to R-CALF USA, meatpackers tie-up large numbers of cattle in the marketplace with un-priced formula contracts that cause a severe reduction in the volume of cattle that comprise the negotiated market or cash market, which is the price-discovery market for the entire cattle industry.
“The primary benefit to cattle farmers and ranchers who enter these contracts is that they can avoid the meatpackers’ practice of restricting timely access to the market when their cattle are ready for slaughter, which is becoming a huge problem in the industry now that only four meatpackers control the slaughter of more than 80 percent of the nation’s slaughter-ready cattle,” said R-CALF USA CEO Bill Bullard.
“Because only a handful of meatpackers act as gatekeepers to the entire cattle market, they can - and do - coerce cattle farmers and ranchers to enter these contracts in return for timely market access, even though cattle farmers and ranchers know the aggregate effect of their un-priced formula contracts is to lower the price of cattle for everyone,” he added.
Bullard said these un-priced formula contracts benefit meatpackers by allowing them to have large numbers of cattle committed to them without ever having to negotiate a price. As a result, he said, “these formula contracts function like direct packer ownership of cattle – meatpackers control the cattle while they are being fed but with an additional advantage – they don’t have to pay for the cattle until after they are slaughtered.
“These un-priced formula contacts have thinned our cash market to the point where it is incapable of true price discovery, they have severely reduced price transparency in the marketplace, and they give the meatpackers leverage to manipulate the price-discovery market – an outcome that occurs when meatpackers call-in their formula contracts in order to avoid negotiating or bidding in the cash market.”
R-CALF USA has sought a prohibition against un-priced formula contracts for over a decade and claims such contracts have enabled meatpackers to prosper by unfairly capturing a significant percentage of the competitive value of cattle sold by U.S. farmers and ranchers. “Using USDA (U.S. Department of Agriculture) data, we developed a chart with trend lines that show since 1980, the spread between what meatpackers receive for beef and beef byproducts and the value of what U.S. farmers and ranchers receive for their cattle has increased about 60 percent,” Bullard said.
Bullard added, “It should surprise no one that over half a million U.S. cattle farmers and ranchers have exited the cattle industry since 1980 while meatpackers were engaged in such anticompetitive buying practices as exemplified by un-priced formula contracts that enable meatpackers to both prosper and keep up with inflation on the backs of hard working U.S. farmers and ranchers.
“We are grateful that Congresswomen Lummis and Kaptur have introduced the Livestock Marketing Fairness Act in recognition of the serious harm these anticompetitive, un-priced formula contracts are exacting on U.S. cattle farmers and ranchers,” he concluded.