The United States is pondering federal legislation to boost competition among beef packers and improve cattle price discovery, and the Canadian cattle industry is watching closely.
“Producers in general, but more specifically cattle and beef producers on both sides of the border, crave better price transparency and price discovery,” Manitoba Beef Producers president Tyler Fulton said.
“That’s a desirable goal but we have to be mindful of the unintended consequences that go along with it. I said that only because I know how complicated the issue is in the United States in particular. I just don’t understand all the consequences that may go along with the particular decision they make.”
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It’s a work in progress, with both Houses of Congress working on legislation.
And while there is bipartisan support to address cattle producers’ concern about packer concentration — 85 per cent of American cattle are processed by four companies — some worry about government “overreach,” such as forcing a certain volume of cattle to be purchased by cash sales to provide that pricing data.
Canada has shipped a five-year average of 660,000 head of Canadian cattle, largely slaughter cattle, to the U.S. each year.
The proposed legislation, Senate Bill 4030, would:
- Require the U.S. Department of Agriculture (USDA) establish five to seven regions that reflect similar fed cattle purchases.
- Designate a set of pricing mechanisms for covered packers that contribute to price discovery and transparency. These include fed cattle purchases through negotiated cash, negotiated grid, at stockyards and through trading systems where multiple buyers and sellers can make and accept bids.
- Require the USDA to set minimum levels of purchases through approved pricing mechanisms that covered packers — those controlling five per cent or more of fed cattle slaughter — must make.
- Mandate that each regional minimum not fall under the region’s average negotiated trade for the 2020-21 two-year period.
- Require the USDA to conduct an initial review of those mandatory minimums after two years.
- Allow the USDA to work with the cattle and beef industry to periodically review and modify regional minimums, after a public notice and comment period.
New Jersey Sen. Cory Booker, a Democrat, argues that the bill does not go far enough.
“The fact that they (cattle producers) are afraid to come here to testify because of the outrageous power of these consolidated meat-packing companies is just a testimony to the unacceptable unaction (sic) of Congress over the last decade to allow these meat-packing companies to continue to consolidate,” he said during an April 26 Senate agriculture committee hearing.
“We have seen the devastation of farmers in the poultry and pork industries that happens when big packers take control and pervert our free market system. And unless Congress acts quickly that is where the beef industry is now headed,” he later said.
View from the north
The U.S. already has better cattle price transparency than Canada.
Dennis Laycraft, executive vice-president of the Canadian Cattlemen’s Association (CCA), said they are closely following the happenings to the south.
“We have an integrated market here in North America, so whatever is good for the U.S. market is ultimately good for ours,” he said. “Ours is going to operate within a range of the U.S. price all the time.”
An integrated market helps producers, packers and consumers on both sides of the market, he added. When cattle or slaughter capacity are short in one area, other areas can pick up the slack, Laycraft said.
While the U.S. legislation calls for more cash buying to improve cattle price discovery, Laycraft added that contract buying and alternative marketing agreements (AMAs) are important tools to building cattle value, since they are producing to buyer specifications.
Improving cattle markets and potential returns to producers isn’t only based on marketing, he also said. Often, packing plants are short on labour, reducing slaughter capacity. That, he said, potentially both lowers producer prices for cattle, while prices at the meat counter rise.
Encouraging smaller and medium-size packing plants is laudable, he said, but those plants are also more impacted by reduced economies of scale, labour issues and regulations.
“You’ve got to look at every factor that’s been influencing profitability through the industry… If people are looking for a silver bullet there isn’t one,” Laycraft said.
Looking at the cut-out value of meat coming out of the packers, he added, it’s obvious that there is enough value there that “everybody should be making money in the industry.”
“If we can get these things addressed there should be a good, long-term future for everyone involved,” he said.
