A segment of the cattle industry is looking for a legislative fix to the market meltdown from this year’s COVID-19 pandemic and the 2019 packing plant fire in Holcomb, Kan.
Many cattle producers and lawmakers are frustrated and impatient with the Department of Justice investigations into both events and have decided to take matters into their own hands.
One of the first concepts was the 50-14 rule, which mandates packers buy at least 50% of the cash supply on a negotiated basis, instead of pulling from captive supplies or their own inventory. Earlier this year, U.S. Sen. Chuck Grassley, R-Iowa, introduced legislation on the 50-14 Rule, and many in industry support it as a way to increase the competition in the marketplace.
“If we can ever get to those situations where the packer can bid on these cattle instead of just having them given to them, then we can get a market, but there is no fat cattle market. When they need them, they give a little bit; when they don’t need them, they pound us in the ground, and it’s just not a market," said Steve Hellwig, Hub City Livestock, Aberdeen, South Dakota.
Proponents say this would prevent packers from reaping all the profits like they did during the height of the COVID meltdown. Keith Eichler, of Eichler Livestock in Aberdeen, S.D., said the packing sector used COVID as an excuse.
“The packers were making a great amount of profit during that COVID, and it's proven. And I’ve got numbers to show that those packers were making from $500 all the way up to $2,000 a head,” he said.
“There’s plenty of money there at the grocery-store level. If it would just filter back the way it should; everybody could make money. But right now one segment is getting 80% of it and everybody else is scrambling to make a living on 20% of it," he said. "It’s just not right.”
The National Cattlemen’s Beef Association has a Cattle Market Subgroup that has been working on a market fix for many months. They originally were looking at ideas like the 50-14 concept. However, NCBA is taking an unprecedented move, by backing a proposal developed by the subgroup called the 75% Rule, which asks each feeding area to trade a set negotiated cash threshold.
Brad Kooima is a member of the Iowa Cattlemen’s Association and serves on the NCBA Cattle Market Subgroup. He said the rule is based on research from Dr. Stephen Koontz of Colorado State University and sets a level of negotiated cattle that must be traded in each major feeding area. For example, for Kansas to have robust price discovery, they should trade roughly 22,000 cattle a week, he said.
“Well then Kansas needs to do that now voluntarily. Trade 75% of that robust number. Now follow along, it has to be 75% of the time,” he said.
Quarterly analysis of negotiated cash starts Jan. 1, 2021, for a year before NCBA would push for a legal mandate.
“So if they fail a couple of times right, more than 75% of the time, that’s going to be a trigger. That happens twice in a quarter, two quarters of a year, that’s when we’re going to go, OK, we tried voluntary, we tried your system. Now we’re going to seek a legislative solution,” Kooima said.
He said it's unprecedented for NCBA to back this type of approach.
U.S. Rep. Dusty Johnson, R-S.D., also has introduced a market fix known as the PRICE Act, which promotes more small packers and creates a cattle contract library to increase transparency.
Keith Eichler said knowing what other deals are being struck in the market would be extremely helpful, “But there are contracts that I don’t think we know about, some of the higher-dollar deals that are being done. And . . . the packers need those big feedlots. They do. And there’s some deals being done that I’m sure we wish we all could have.”
“It just seems to me we’d have more competitiveness if we had more packers. You know, I’d probably talk about something radical like breaking up the packers, and I think that’s probably, I don’t know if it’s unrealistic. Something similar to how they broke up AT&T in the '80s,” he said.
The one area of agreement is that more competition and negotiated cash is needed, and without intervention the cattle industry may not survive.
“The packing industry is big, it's big money, and if we don’t do something and we don’t do it right now and make it mandatory, there’s going to be a lot less farmers and ranchers out there,” Eichler said.