By Jennifer Whitlock
Field Editor

The U.S. Senate Committee on Agriculture, Nutrition and Forestry recently held a hearing on examining markets, transparency and pricing from cattle raisers to consumers.

The hearing was set after recent events, including a meatpacking plant fire and the COVID-19 pandemic, created major disruptions in the beef supply chain. In the past several years, cattle ranchers have received low prices for fed cattle while the boxed beef cutout has soared to record highs, creating a disconnect between cattle and beef prices, which historically trended together.

“Though we are moving beyond the havoc wreaked by COVID-19, new challenges are now confronting this industry. The past two years have been some of the most difficult this sector has ever experienced,” Sen. John Boozman, ranking member of the Senate Ag Committee, said in his opening statement of the hearing. “Mounting frustration is resulting in calls for widespread reform of the cattle industry due to these difficulties. We must carefully consider reforms in response to the exceptional black-swan events that have occurred since 2019, and the consequences, both intended and unintended, of such actions.”

Ranchers and other stakeholders have been left questioning whether current market conditions allow for adequate price discovery for fed cattle and the effect a smaller cash market could have throughout the supply chain, he said.

Worsening drought in the western half of the U.S., input costs, labor shortages, export challenges and regulatory overreach were all cited by Boozman as other factors that may be impacting the situation.

In her opening remarks, Senate Ag Committee Chairwoman Sen. Debbie Stabenow suggested impacts in the beef cattle supply chain may also be attributed to consolidation among meatpackers.

“[The U.S. Department of Agriculture’s] (USDA’s) Packers and Stockyards Division data show that four companies account for 85% of fed cattle slaughter. With fewer companies—and more foreign-owned companies—controlling more of the marketplace, there is a widening gap between those giant players and the small- and medium-sized processors that many local farmers and ranchers count on,” she said. “What happens when farmers and ranchers have fewer options? What are the immediate effects? And what are the unintended consequences? Those are the questions I hope we can begin to answer today.”

Stakeholders representing several sectors of the industry testified before the committee. Two ranchers, two academics and an animal protein analyst for a major agricultural and food sector financier presented testimony explaining their perspectives and outlined steps that could be taken to resolve current issues.

Many cautioned the lawmakers proposed legislation intended to help cattle ranchers may do more harm than good, while others contended the current cattle trade system is broken beyond repair and must be corrected through governmental oversight.

Regulations and legislation would have the unintended consequence of hurting value-based marketing, according to Mark Gardiner, an Angus cattle rancher from Kansas and a member of the National Cattlemen’s Beef Association.

“We have a volatile marketplace created by outside, unavoidable factors, not any one market player,” he said, citing similar disruptions in other industries like lumber and automobiles. “The solution is very complicated. The processing industry is adjusting by adding capacity. This additional capacity will take time, but mark my words, history tells us we will likely reach a point where there is ample processing capacity for a limited supply of cattle, and the marketplace will shift once more where the producer will garner increased price leverage.”

His family’s operation participates in a value-based marketing arrangement with U.S. Premium Beef in which the cattle is priced based on the quality of beef produced. Any undesirable beef which doesn’t hit defined targets is discounted, incentivizing participants to focus on creating the best product possible.

“We have gone from selling a commodity product on a cash market which does not differentiate quality attributes to marketing on a value-based program which fully recognizes and pays premiums for quality production,” he said. “It is important to understand packers did not force cattle feeders into Alternative Marketing Arrangements (AMAs). Producers were the brainchild of such ideas to get paid for the value produced.”

Fixed national levels of negotiated trade for live cash cattle or minimums set by regional levels to establish mandatory minimums would have a negative impact on operations like his, he told the legislators.

Another rancher who testified, U.S. Cattlemen’s Association (USCA) Vice President Justin Tupper, argued AMAs hinder price discovery, transparency and competition.

USCA would like to see established negotiated cash requirements, a base price proxy peg that cannot be easily manipulated, limiting the number of cattle a plant can procure in advance, and requiring packers to offer cash bids or floor prices on cattle they would like feedlots to commit, Tupper said.

USCA wants additional oversight of the meatpacking sector to ensure anti-competitive practices are not occurring, changes to the USDA’s Agricultural Marketing Service (AMS) Livestock Mandatory Reporting program and increased diversification in the meatpacking industry.

Public funding opportunities to build new processing plants, halting federal subsidies to the “Big Four” meatpackers, requiring USDA to set aside a percentage of bids for meat purchases to “very small/small independent meatpacking facilities” and stronger predatory pricing guidelines to protect new facilities were included in Tupper’s list of requests by USCA.

In Texas, the largest cattle-producing state in the nation, the issue is being followed closely, according to Texas Farm Bureau (TFB) Associate Director of Commodity and Regulatory Activities Tracy Tomascik.

“This is a very important issue for Texas Farm Bureau members, and we are actively engaged in national, state and local discussions,” he said. “We’re working to influence regulatory efforts according to our grassroots policy.”

Tomascik said he understood the frustrations of receiving low prices for fed cattle but cautioned regulatory intervention may not be the best way to accomplish true price discovery.

“It’s a multifaceted situation, and there is likely not one clear answer or solution,” he said. “This organization represents a variety of operations of all sizes and scopes, from cow-calf producers to family-owned backgrounders and feeders, so we understand the complexity of the issue and are working to make sure our members’ voices are heard and well-represented on this matter.”

A recording of the hearing, the full list of witnesses and copies of their testimony are available here.