R-CALF USA Urges Updates to Price Reporting ActThu, 10 Sep 2015 11:27:05 CDT
R-CALF USA submitted a white paper to the Chairman and Ranking Member of the U.S. Senate Committee on Agriculture, Nutrition and Forestry (Committee) urging them to update the soon-to-expire Livestock Mandatory Reporting Act (Act).
Originally passed in 1999, the Act was a response to the increasing concentration in livestock markets that resulted in fewer and fewer animals being sold in the price discovery market, also known as the cash or spot market. Increased market concentration brought with it new livestock procurement methods that significantly reduced marketplace transparency. Using new procurement methods, the concentrated packers in the 1990s began shifting large volumes of livestock away from the more public cash market and into more private marketing agreements, making actual sale prices difficult to discern.
The limited pricing information flowing from the concentrated packers placed farmers and ranchers who wanted to sell their livestock at a distinct disadvantage: the packers knew what the fair market value of livestock was at any given time, but livestock sellers did not.
To equalize this imbalance in market information, the Act requires packers to report prices paid for cattle twice daily along with other details of their cattle procurement transactions. The Act also requires packers to report boxed beef prices twice daily, which allows for real-time comparisons between cattle and beef prices.
Congress wisely included a sunset provision to allow it to revisit the Act every five years, so the Act could be updated to reflect marketplace changes and newly emerging livestock procurement methods. The Act has been reauthorized three times and the latest reauthorization expires on Sept. 30, 2015.
In its white paper, R-CALF USA explained that the cattle market had undergone considerable changes during the past five years that warranted updating the Act before its reauthorization.
The paper states that the competitiveness "of the entire U.S. live cattle industry is dependent first on the discovery of a competitive price arising from the sales transaction between the fed cattle seller and the packer and, second, on the timely disclosure of that price to all market participants."
But, the paper warns that the competitiveness of the cattle industry is in peril because industry concentration has continued unabated and packers have rendered the "ultra-thin" price discovery market dysfunctional. It describes how in the first few months of 2015, only 1.5% of cattle transactions were used to set the base price for 98.5% of all cattle actually sold in one of the major fed cattle markets.
"It does not take an economics degree to discern that this is not a competitive market nor does it take a law degree to identify this manifestation of abusive market power," the paper states.
R-CALF USA further explains that the Act is needed more now than ever because of the ongoing assault on the competitiveness of the live cattle industry. The group asks Congress to address several new cattle procurement methods that it says are causing price transparency to suffer. The new transparency-reducing methods identified by the group include:
-- The growing use of basis trade-type contracts to procure fed cattle.
-- The growing packer practice of delaying delivery of cash cattle for two weeks or longer.
-- The growing packer practice of offering lower bids during normal business hours and higher bids after hours.
-- The inclusion of cattle purchased at an established premium over the cash market into the category of formula-procured cattle.
In addition, the group asks Congress to investigate the impact of the Act's confidentiality guidelines that exempt reporting in regions where little to no competition exists.
"The nondisclosure of pricing information in regions with little to no competition is paradoxical to the LMR's (Act's) purpose of providing essential price transparency to the U.S. cattle industry," the paper states.
In closing the group encourages the Senate to hold a hearing to ensure that the Act is properly updated.
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