Earlier this week, a rally of 400 cattlemen in Omaha voiced concerns about low cattle prices and excessive profits they said beef packers are making.
Also concerned about the cattle market, Nebraska Farm Bureau has offered the United States Department of Agriculture a series of recommendations to reform the way beef cattle are marketed.
According to Steve Nelson, Nebraska Farm Bureau president, his organization is asking the USDA to create a more transparent and value-based system that would more closely link the prices farmers and ranchers receive for their cattle to the value of beef products sold at the wholesale and retail levels. Nelson shared the recommendations with U.S. Secretary of Agriculture Sonny Perdue in an Oct. 2 letter.
“With only four major meatpackers, many Nebraska cattle producers have expressed concerns about the level of control that exists within the consolidated meat packing industry, specifically in the way of packer captive supplies of cattle and the diminishing cash market for live cattle,” Nelson said.
He said his organization believes reexamining the cattle-pricing system and moving toward one where cattle prices and cattle contract prices are discovered under a more transparent and value-based system would be beneficial in addressing producer concerns and allow the cattle market to better respond to actual supply and demand conditions.
According to Nelson, beef producers’ concerns about the potential for anti-competitive actions in cattle markets heightened after a July fire at a Tyson meat processing facility in Holcomb, Kan., with producers seeing prices paid for cattle drop while meatpackers made significant profits.
He said Nebraska Farm Bureau had urged, and USDA stepped forward, in investigating the situation under the powers given to the agency under the federal Packers and Stockyards Act, the long-standing legislation targeted to eliminating anti-competitive measures in livestock markets.
“We have no preconceived outcome in mind for the Packers and Stockyards investigation and our state’s cattle producers are grateful USDA is doing its due diligence,” Nelson said. “However, we believe the best way to address real or perceived manipulation concerns is to move to a value discovery system that more closely links what cattle producers receive for the beef they produce and the value of that product as it nears the end consumer.”
Nebraska Farm Bureau’s recommendations to USDA for changes under the Packers and Stockyards Act include:
n Create regulatory standards requiring that cattle marketing contracts have a set, negotiated base price before cattle are committed for delivery.
n Assure that cattle marketing contracts utilize reference or base prices that are more broad-based and publicly available rather than the shrinking cash markets.
n Consideration of requiring contract standards that have reference prices or base prices that are more value-based such as using wholesale price cuts, retail meat values, or beef cut-out values.
Requiring base or reference prices for cattle contracts that are more value-based up the beef supply chain would reduce, by market forces, any real or perceived incentives for packers to manipulate captive supplies in order to drive down local cash markets.
n Consideration to developing a live cattle value index which would be required to be used as a reference or base price standard for cattle marketing contracts. The index could use a combination of average spot cash prices, average weekly close of nearby live cattle futures, weekly average of beef cutout value, and weekly average of retail meat values.
Using this live cattle value index would help ensure that cattle are marketed on a value discovery system rather than a price discovery system.
“This has been a challenging year for Nebraska beef producers as weather, trade disputes, rising debt issues, increased input costs, and now difficult marketing conditions have created great stress on the largest sector of Nebraska’s agriculture-based economy,” Nelson said.
“We appreciate the work USDA has done on many fronts for farmers and ranchers. It’s our hope Secretary Perdue and USDA will consider these ideas for reforms to move our beef industry forward toward a value-based cattle marketing system that would offer true reform.”