Agricultural News
Fifteen Livestock Groups Urge Senate to Pass the Ban on Formula Contracts
Fri, 31 May 2013 11:05:26 CDT
Fifteen national and state livestock groups including R-CALF USA, sent a joint letter to U.S. Senators urging them to aggressively support the bipartisan Farm Bill amendment sponsored by Senators Mike Enzi (R-Wyo.), Tim Johnson (D-S.D.), and Jon Tester (D-Mont.). The amendment, Senate Amendment 982, would prohibit the largest meatpackers from using anticompetitive formula contracts to procure livestock from independent cattle and sheep feeders.
According to the group's letter, the amendment would end the meatpackers' practice of enticing cattle and sheep feeders to commit livestock under a formula contract that, while granting livestock sellers timely access to the marketplace, does not even include a negotiated base price. For this reason, the groups refer to anticompetitive formula contracts as un-priced contracts.
The numbers of cattle that have exited the price-discovery cash market in favor of formula contracts has skyrocketed during the past several years. According to national data collected by the U.S. Department of Agriculture (USDA), the volume of cattle sold in the price-discovery cash market shrank from 52% in 2005 to only 26% in 2012, while the volume of cattle procured under formula contracts increased from 33% to 55% during the same period.
The group's letter explains that formula contracts are anticompetitive because their ultimate settlement is based on prices discovered in the cash market, which is a market the meatpackers can readily manipulate simply by avoiding it and relying on their formula livestock.
"The meatpackers have created a vicious conundrum," said Bill Bullard, CEO of R-CALF USA .
Bullard explained: "First, the meatpackers restrict timely access to the marketplace for independent producers, forcing them to enter formula contracts; second, the meatpackers rely on their formula livestock to avoid the cash market, causing the cash market to fall; finally, the meatpackers slaughter their formula livestock and pay the livestock producers a price based on the depressed cash market that the meatpackers had just manipulated."
"Dominant meatpackers are able to artificially lower the price they pay for all cattle and sheep," the groups highlighted in their letter.
In support of their call for the ban on anticompetitive formula contracts, the groups wrote that the U.S. sheep flock has declined by more than half in just three decades and lamb prices fell over $100 per head between early 2011 and mid-2012, a period when consumers continued paying high prices for lamb.
"Also, while consumers continue paying record prices for beef, independent cattle producers have suffered horrendous, long term losses. During the 26-month period from March 2011 to April 2013, when beef prices were reaching historic highs, independent cattle producers lost an average of about $116 per head for every animal sold to the dominant meatpackers," the letter states.
The letter concludes, "Both the cattle industry and the sheep industry are shrinking fast and neither industry will recover on its own unless Congress takes immediate action to end the manipulative practices caused by the dominant meatpackers' use of anticompetitive formula contracts."
Groups that joined the request for the ban on formula contracts include: Buckeye Quality Beef Association (Ohio), Cattle Producers of Louisiana, Cattle Producers of Washington, Colorado Independent CattleGrowers Association, Independent Beef Association of North Dakota (I-BAND), Independent Cattlemen of Nebraska, Independent Cattlemen of Wyoming, Kansas Cattlemen's Association, Missouri's Best Beef Co-Operative, Murray County, Oklahoma Independent Cattlemen's Association, Nevada Live Stock Association, Northern Wisconsin Beef Producers, Organization for Competitive Markets (OCM), R-CALF USA, and South Dakota Stockgrowers Association.
WebReadyTM Powered by WireReady® NSI
Top Agricultural News
More Headlines...
