Many cattle producers feel like the market is broken and that has been exaggerated even more during the COVID-19 pandemic.
Negotiated boxed beef prices hit record highs during the height of the pandemic, while at the same time the prices cattle producers were receiving for cattle in the negotiated cattle market moved lower. In the northern feeding areas, producers believe it is strongly tied to the large amount of captive supply or formula cattle packers can use to fill their weekly processing needs. That means the packers don’t have to bid in the open market and can commonly offer lower prices for negotiated cash cattle. In the north, most of the cattle are procured through negotiated sales, which are based on the quality of the animals, breed and other specifications for slaughter.
In the southern feeding areas, the vast majority of cattle are formula priced where the packer and feeder strike an agreement and at the time of slaughter are delivered to the packer and the net price received is the base value plus a premium. That premium is based on feedlots’ ability to deliver a large amount of cattle. Nationally, between 80% to 85% of cattle are priced in this manner.
Cattle producers in the north say the lower negotiated cash cattle prices have left very little profitability for their operations, especially the last five years. This was exaggerated during the COVID-19 pandemic as many were unable to get their animals harvested because the packers used their formula cattle. At the same time, boxed beef values were at record levels, so the packers reaped the financial benefit. This disconnect in the cattle market has prompted a legislative fix.
A group of senators, led by Iowa’s Chuck Grassley, have proposed legislation to require large packers to buy at least 50% of their weekly cattle slaughter on a negotiated basis, with a 14-day delivery. Some cattle feeders and associations in the north are supporting this legislation, including the Nebraska Cattlemen Association. Troy Stowater, past president of the group, says it’s needed to restore price discovery.
“Price discovery happens when we have enough cattle in the marketplace that we are able to establish that. We know in Nebraska we need a short 40,000 head a week and we need participation by the three major packers that have facilities in our state," he says.
Stowater adds that the cattle industry needs to get the weekly slaughter back to a Monday-through-Friday schedule because cattle producers are losing leverage with beef packers having a Saturday kill. Stowater says from 2013 to 2015, the beef packing industry lost four plants across the country as numbers declined after the 2012 drought. When producers rebuilt the herd, there were too many cattle and too few hooks for cattle slaughter and thus packers had to go to Saturday processing.
Other Midwest cattle groups are backing the 50-14 bill, including the Iowa Cattlemen’s Association. However, their national organization, the National Cattlemen’s Beef Association, is not in favor of the legislation.
“Well NCBA is opposed to it because that’s their current policy. The Association is a policy driven organization, so current policy, whatever is on the books, is where they stand,” Stowater explains. He serves on the NCBA committee looking at cattle market reform and is hopeful that can get that policy changed at the August meeting.
Todd Wilkinson, past president of the South Dakota Cattlemen’s Association, also serves on the same NCBA committee with Stowater. He agrees the cattle market is broken but isn’t sure the bill will help the northern feeding areas, as they generally run a higher percentage of negotiated trade and some weeks already hit the 50% mark.
“So I don’t see as how it’s going to impact us as much, but as you get into the southern part of the United States, I mean you get Kansas and Texas, there isn’t very much if any negotiated trade on a regular basis,” he says.
Wilkinson, who is also an attorney, is unsure if a marketplace mandate is the way to go.
“I’m concerned that a legislative fix is sometimes brings more baggage than it promises to deliver,” he says.
It’s uncertain if the bill has congressional support to pass, and so far, no lawmakers from southern states have signed on.