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.”