It wasn’t long ago, in fact it was during just the last congressional session, that U.S. cattle producers worked with Sens. Charles Grassley (R-IA) and Jon Tester (D-MT) to introduce what was then called the 50/14 bill.
The bill was elegantly simple. Upon its enactment, each plant owned by the largest four multinational beef packers would be required to compete for at least 50% of their weekly cattle needs in the cattle industry’s most important price discovery market – the negotiated cash market, and they would be required to slaughter those cattle within 14 days.
But the beef packers and all their allies, including groups that claimed to represent independent cattle producers, pushed back on the bipartisan Grassley/Tester bill, and they pushed back hard. They claimed that requiring beef packers to compete for at least half of their cattle in the competitive cash market would be too much of a burden, and that burden would also be too great on the large corporate feedyards in the south.
It’s true. Competition takes work – buyers and sellers actually have to negotiate a price in the competitive cash market. And that’s the point – you want cattle prices to be determined by competitive market forces, not by the packers’ buyer power.
But the beef packers and their allies did not want to infringe on the beef packers’ buyer power so they picked an arbitrary number and said if the packers would compete for just 30% of their weekly cattle needs, well that would be enough. But the supporters of 50/14 bill knew it wasn’t close to being enough. Nevertheless, Congress kowtowed to our adversaries and came up with a very week compromise bill, known as the Fischer/Grassley bill. And as a result, we have this:
We have continuing strong beef demand. We have strong beef exports. Wholesale and retail beef prices are strong and there is a scarcity in cattle supplies. Now in a competitive market, scarce cattle supplies and strong beef demand equals higher cattle prices.
But the opposite is happening right now. Instead of scarce cattle supplies and strong beef demand equaling higher cattle prices, cattle prices are actually falling.
The fact is this. The economic law of supply and demand only applies to a robustly competitive market. It does not function in a market that is not competitive. And that’s why the marketplace is dysfunctional today.
Now some in the industry are trying to deflect attention away from the serious problem in the actual cash cattle market and toward the cattle futures market, claiming it’s the futures market that is acting erratically. But the futures market takes its information from the cash market, meaning the futures market is informed by the cash market. Now if the cash market is dysfunctional, then the information it sends to the futures market is likewise dysfunctional. The problem is that the foundational price discovery market – the cash market, is not competitive. And you cannot create a competitive market in the cattle futures market when the foundational competitive cash market is broken.
So how do we know it’s broken? In 2015 when cattle prices began their freefall and kept falling further and faster than in any time in history, the volume of cattle sold in the cash market fell to the all-time low of less than 22%, and the years of depressed cattle prices that followed were associated with continuing low cash volumes hovering around 26%, though they fell to less than 20% in 2021.
And during the first quarter of 2023, it’s still slightly below 20%. And the national average is below 20% even while Iowa maintained a cash volume of more than twice that…at almost 52%. So, what’s pulling the national average down? Well, it’s the TX/OK/NM region where the cash market has fallen to less than 7%.
If you add the negotiated grid market, you’ll find that we’re already at about the 30% level of volume in the cash and negotiated grid markets, and as the market is showing us this is totally inadequate.
What is happening in the cattle market today is what the law of supply and demand dictates. And that is, if you don’t have sufficient competition the law of supply and demand will become subservient to beef packers’ buyer power and cattle prices will fall.
So, if you want your cattle market to respond to supply and demand fundamentals, then you must force the multinational beef packers to compete and you must do so at a level that actually allows competitive market forces to prevail over the beef packers’ buyer power.
Our industry shot itself in the foot by not supporting the 50/14 bill. But Congress is working on the 2023 Farm Bill right now. That means there’s still time to call your members of Congress to urge them to include the previously introduced 50/14 bill in the 2023 Farm Bill. As revealed by falling cattle prices in the face of scarce supplies and strong demand, the 50/14 bill is needed now more than ever.
