Livestock and poultry sectors need market transparency

Industry leaders testify before Senate Ag Committee

From a beef packing plant fire to weather events and disease outbreaks that threaten herds, the livestock and poultry sectors of the United States agricultural economy have serious concerns that need to be addressed so that producers and the rural communities that rely on them can survive.

Their leaders headed to Capitol Hill Sept. 25 to testify before the U.S. Senate Committee on Agriculture, Nutrition and Forestry.

Speaking before the committee were: Jennifer Houston, president National Cattlemen’s Beef Association, Sweetwater, Tennessee; Jayson Lusk, head of Purdue University Department of Agricultural Economics, West Lafayette, Indiana; Shane Eaton, member, United States Cattlemen’s Association, Lindsay, Montana; Trent Thiele, president Iowa Pork Producers Association, Elma, Iowa; Ron Kardel, vice chairman, National Turkey Federation, Walcott, Iowa; and Burton Pfliger, past president, American Sheep Industry Association, Bismarck, North Dakota.

Tyson fire and markets

Speaking on behalf of their cattlemen members, Houston of NCBA, and Eaton of USCA, highlighted the impact of the fire at the Tyson Fresh Meats plant, Holcomb, Kansas, and on cattle markets.

In her prepared testimony, Houston said the fire only highlighted the importance of interagency coordination and regulatory tools to respond to issues like this in real-time.

“This is the reason why NCBA strongly encourages the committee to continue its work to push for a much-needed CFTC reauthorization and a timely Mandatory Price Reporting reauthorization,” Houston testified. NCBA strongly supports Mandatory Price Reporting, to provide market data to cattlemen. But, the U.S. Department of Agriculture is still studying the five-area reporting regions, she testified, and once that is accomplished NCBA plans to work on advocating for sound enhancements that are backed by research.

“NCBA’s goal is to have Mandatory Price Reporting policy that is driven by verifiable facts and not formed by speculation of possible ‘what ifs,’” she testified. In response to a question from the committee, Houston said she sees feedlot members of NCBA hurting the most with this market volatility after the fire, which is starting to trickle down to cow-calf producer members now.

“Luckily, though, a lot of the capacity was taken up by more Saturday kills, or we could be in even worse shape,” she testified. “There was a long time when packers didn’t have a lot of margin and other parts were making more money. The optics to our members are bad. The ones who’ve had to deal with floods and fires, this is one extra thing we didn’t need in the beef industry.”

Eaton, in his prepared testimony, brought concerns about the extreme volatility seen in the daily feeder and live cattle futures prices in the days and weeks following the Tyson fire.

“Prices have not yet recovered from the impact of the fire, despite a return to business as usual for both processors and retailers,” Eaton shared in written testimony. He cited a Sept. 16 report from Kansas State University that projected values of finished steers in Kansas feed yards at minus $184.99.

“During that same time period, packer margins spiked significantly to nearly four times their annual average, or approximately $549,” according to his written testimony. The same report he cited predicted that cattle feeders will not see a positive net return on finished steers or heifers until May 2020. 

The fire in Holcomb, he testified, just brought to life the importance of the futures board to the cattle marketplace and the need for true transparency.

“When the fire happened we saw two and a half days of futures going straight down,” he testified. “I don’t see the futures going up for two and a half days when that plant reopens.”

Lusk testified that while the fire in Holcomb brought up the topic of packer concentration and potential anti-competitive behavior again, the details of this case are still emerging.

“Available evidence to-date suggest the observed reduction in cattle prices and the increase in wholesale beef prices following the fire are not inconsistent with a model of competitive outcomes,” Lusk testified. The unexpected loss of processing capacity would reduce the demand for live cattle, and lower live cattle prices, he explained. Likewise, the need to add labor and increase Saturday processing and temporarily repurpose cow plants for fat steers and heifers means more costs that would push up the price of wholesale boxed beef.

“These price dynamics are not surprising and are generally what would be expected from the fundamental workings of supply and demand,” he testified. What remains to be seen is how quickly that capacity can be added to handle the increased number of cattle coming online, and how quickly the cattle inventory can change in the cattle cycle. Lusk did bring up that the lack of available labor at processing facilities means a reduction in capacity, which would reduce demand and have a similar price effect as what was seen in the weeks after the Holcomb fire.

Livestock Mandatory Reporting

Lusk testified that the current authority for Livestock Mandatory Reporting is set to expire in 2020. And while it was meant to improve transparency, facilitate market convergence and reduce information asymmetries in 1999, academic research on its impact is mixed, he added.

“Some concerns have been expressed that LMR might facilitate rather than curtail anticompetitive behavior among packers,” he testified. “However, evidence indicates LMR helped facilitate integration of regional markets.” Lusk said it’s important that LMR continues to modernize and be flexible as the industry changes.

“One challenge is the dwindling share of cattle and hogs sold in negotiated or cash markets, which typically serve as the base price in formula contracts,” he testified. “There are significant benefits to formula contracts and more producers are voluntarily choosing this method of marketing over the cash market, but questions remain about the volume of transactions needed in the cash market to facilitate price discovery. A benefit of LMR is the massive amounts of data provided to economists and industry analysts to help understand these and other market dynamics.”

Eaton testified that USCA sees a problem with how feeder cattle prices are reported versus how the live cattle MPR reports are generated.

“The MPR classifications for live cattle must be updated to include a “non-native” division,” he testified. “This addition would improve transparency across all live cattle markets and prevent market manipulation.” What’s really troubling for the members of USCA is that negotiated sales of live cattle set the base price and weekly formula in live cattle marketing, Eaton testified, but only 15% to 20% of cattle sales are negotiated. That means the market can be manipulated by this undisclosed cattle origin, according to his prepared testimony.

The committee hearing also delved into issues such as trade impacts on the livestock and poultry markets; animal health and the need for more large animal veterinarians in rural communities; the need for immigration reform to bring in agricultural laborers; animal agriculture’s environmental footprint, and more. To watch the full hearing and see prepared testimony, visit www.agriculture.senate.gov/hearings/perspectives-on-the-livestock-and-poultry-sectors.

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].