Questions at AFBF Over Legislation to Mandate Regional Levels of Negotiated Cash Trade Sales

 

By Chris Clayton, DTN/Progressive Farmer

1/10/2022

 

ATLANTA (DTN) -- With farmers and ranchers who are members of the American Farm Bureau Federation expected to hand down policy this week on cattle marketing legislation, speakers at the annual meeting have thrown some cold water on exactly what mandated negotiated cash trade would mean to cattle producers.

 

Stephen Koontz, a livestock marketing Extension economist and professor at Colorado State University, told livestock producers on Monday that mandating a higher level of negotiated cash trade might provide "price discovery," but it also would likely cost producers in general about $50 a head.

 

"More cash trade will not result in better prices or change the market situation we've been in since 2016," Koontz said at a livestock markets outlook. He added, "There are people who argue having more packers to bid on your cattle will raise prices. That's baloney."

 

The Biden administration last week laid out plans to spend as much as $1 billion to add packing capacity with smaller processing facilities. The Department of Justice and USDA also stated they would provide more ways for producers to raise concerns about the packing industry. USDA also is planning to rewrite some rules related to the Packers & Stockyards Act...

 

... Koontz said formula contracts with feeders -- alternative marketing agreements (AMAs) -- don't change the fundamentals of the cattle markets. His analysis shows AMAs are worth roughly $25 a head to feeders and another $25 a head to the packers. Legislation to require regional mandatory cash minimum trades would be disruptive to a handful of states -- Colorado, Kansas, New Mexico, Oklahoma and Texas -- where a high percentage of cattle are sold on formula AMA contracts.

 

"So, this legislation is really targeted at Texas and Kansas for some reason," Koontz said. He added, "Mandated cash trade is not going to get you better price discovery. It's going to put a $50 cost on calves impacted. Price discovery is not something we solve. It's something we work on."

 

The cash market bills came out of the high spreads between live cattle prices and boxed beef prices at the height of the pandemic. Koontz said the high volume of cattle on the market and shut down packing plants, meant packers could have brought down live cattle prices even lower than they hit in spring and summer in 2020. He said packers showed restraint in the market at that time. Live cattle in May 2020 were trading in a range of $90 to $100 per cwt before packer processing began to stabilize...

 

...  John Newton, chief economist for Boozman's staff, spoke Sunday at the meeting about agricultural-related legislation as well. Newton, a former AFBF economist, also talked about cattle markets...

 

... Newton pointed to numbers showing that, in 1970, the share of the beef dollar broke down to 64% to the farmer, 13% to the packer and 23% to the retailer. In 2020, the farmer gets 38%, the packer gets 18% and the retailer gets 44%...

 

much more

https://www.dtnpf.com/agriculture/web/ag/blogs/ag-policy-blog/blog-post/2022/01/10/questions-afbf-legislation-mandate