Packers Pressed on Cash Cattle Prices Paid to Producers During Senate Hearing  

A Senate Judiciary Committee hearing on Capitol Hill this week focused on “beefing up the supply chain,” but it was the prices paid to producers that was also in focus. That’s as Sen. Chuck Grassley (R-Iowa) made clear his concerns about what he says are big companies that wield much of the control in the livestock processing industry Grassley claims the amount of cattle traded on the cash market in the early 2000’s was more than 50%, but today that number has dropped to 20%.

“Are independent producers who negotiate, offered the same opportunities to market their cattle as larger corporate feedlots do through formula contracts? And would you be opposed to having the base price premiums and any discounts shared with the public," Grassley asked during the hearing. 

"We are active in the cash market every single day at JBS," said Tim Schellpeper, of JBS USA. "In fact in the state of Iowa, we have several buyers that are headquartered there. Again, active participants, are they offered the same price? Yes, they are on a cash basis, on a day in day out basis."

Grassley disputed the issue with the representative of Tyson Foods, as alternative marketing arrangements (AMAs) are an increasing tool used in the livestock and meat industries and one that has raised questions on the economic impact to producers.

"We depend on independent cattle operations of all sizes, and we can't do without all of them," said Shane Miller of  Tyson Foods. "I don't know the specific date you referenced in May, what we were doing in the marketplace that day versus another day, but what we pay Iowa cattle feeders truly depends on the market conditions. But how they end up deciding to sell their cattle whether they want to negotiate or put them on an AMA, is totally up to them."

The North American Meat Institute (NAMI), which represents the meat packing industry, says a study directed by Congress found AMAs help producers manger their operations more efficiently while reducing the risk and improve beef quality.  NAMI says the results released also found restrictions on using AMAs would have a negative economic impact on livestock producers, meat packers and consumers.

But Senators didn’t seem sold on that idea, pressing further about price discovery in the cattle market. 

“Mr. Larew, we’ve heard from the meat packers that they're already required by law to report I think twice each day to the US Department of Agriculture, the price they pay for all cattle, and the price at which they sell, is that right? If that's the case, why is that reporting not enough to ensure adequate price discovery,” Sen. Mike Lee (R-Utah) asked Rob Larew, president of National Farmers Union (NFU).

“Most of what is  actually reported does not show a true cash,” answered Larew. “Because cash is now such a small part of what is reported, we don't have a true capture of where that market lies, because we have such a large amount of that not captured by the AMA's. This actually has a loop effect, not only does it have a effect of driving the cash price down. Then that gets built in to the AMAs, because that's typically used as the base price, which then further erodes that cycle. I would, if it would be okay I would just draw to the committee's attention. Earlier there was a reference to our report from 2008 they talked about the benefits of an AMA from USDA and their Packers and Stockyards Program, there is a 2014 report which describes this process that we are now seeing with the increase in AMA's and the lack of transparency, the effect that that has on the cash price, and then that loop and eroding effect.”

“So, are there changes can be made to the mandatory reporting requirements that would be more helpful that would make it more helpful,” asked Lee.

“Yes, first of all I do believe that we need to make sure that we are increasing amount of cash, or spot market, negotiation, I think  on top of that, bringing some light and transparency to the terms of these marketing agreements through a contract library would be very helpful,” added Larew.

Probing Price Transparency

Lee also pressed Tyson on the issue of AMAs, asking about transparency in pricing.

“In your opinion, would better price discovery and transparency benefit the producers and feeders, who were left out of the AMA's and other contract pricing,” asked Lee.

“AMAs do not lock out any supplier to selling to Tyson,” answered Miller. “We'll put together an AMA with anyone. So, I think that the negativity that's being cast on AMA's is not accurate. They do give producers, a forward look of what the value of their cattle are going to bring. But they do not lock them we don't say, if you're a smaller producer and you only bring 100 head, we're not going to put you on an AMA, that's not true.”

Market Consolidation Claims

During Wednesday’s hearing, Grassley also made clear his concerns over what he sees as anti-competitive practices, as he says the four meatpackers control more than 80% of the cattle market today and hold a tremendous amount of market power. He also said "independent cattle producers in Iowa and across the country need a free and fair market."

NAMI disputed those claims. In  submitted testimony to the hearing, saying when it comes to talk about concentration in the industry, "the four-firm packer concentration ratio for fed cattle slaughter has not changed appreciably in more than 25 years."

NAMI also says claims that the big four packers control 85% of beef production in the U.S. is a
misleading exaggeration. It says the number is more like 70%. The group also continues to say market fundamentals drive the cattle and beef markets.

Tyson Foods says the company stands by its claim that Tyson is committed to ensuring fair compensation for farmers and ranchers, and that the compensation in the industry is “intense.”

“Customers have multiple meat suppliers from which to choose and they subject suppliers to competitive bidding processes based on terms the customers specify,” Tyson Foods told Farm Journal in a statement. “Customers often work with several meat suppliers to ensure orders are filled according to their product specifications, volume requirements, and pricing terms, which adds to the constant pressure to outperform the competition. Data shows that while the concentration of the industry has remained relatively constant for close to 30 years, quality has significantly improved.”

Tyson also says it does not and cannot control market forces, as the company’s success depends on the entire beef supply chain.

“The present divide between live cattle and boxed beef prices is not the result of a consolidated industry, lack of competition or the cash markets. Industry consolidation has remained constant for decades.…the present spread has everything to do with the law of supply and demand and the unprecedented and massive – but we believe, temporary – system shock brought on by the COVID-19 pandemic.”

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