The bipartisan, bicameral Cattle Price Discovery and Transparency Act, first introduced in November 2021 by U.S. Sen. Deb Fischer (R-NE), recently received updates to address a significant challenge facing the cattle industry around the declining number of participants in the negotiated cash market.
“Our family farmers and ranchers have told us about the need for both robust price discovery and transparency in the cattle markets,” said Sen. Fischer. “The updates to our legislation incorporate a variety of stakeholder feedback to achieve our goal of ensuring more fairness in cattle markets.”
Sen. Fischer sponsored S. 3229 with 10 original cosponsors, including U.S. Sens. Joni Ernst (R-IA), Steve Daines (R-MT), Bill Cassidy (R-LA), and Jon Tester (D-MT). The identical H.R. 5992 also was introduced on Nov. 17, 2021, by U.S. Reps. Cynthia Axne (D-IA) and Randy Feenstra (R-IA).
In order to have robust price discovery that provides accurate information about market dynamics along the supply chain, there needs to be a competitive cash market with multiple price discovery points, according to a bill summary provided by Sen. Fischer’s office.
Negotiated trade, also called the “cash” or “spot” market, increasingly has been replaced by formula pricing, forward contracts and longer-term marketing agreements — collectively referred to as alternative marketing arrangements, according to the summary.
Negotiated transactions involve a bid and ask process. Formula pricing, where a reference price from a published report is used as the base price for the transaction, is becoming more common, the summary says, noting that the bulk of formula pricing uses negotiated cash prices as the base in the formula — meaning information from the negotiated cash market is being heavily leveraged by nonparticipants, even as negotiated purchases decline in volume.
If a packer relies on the negotiated market to set the price for a large portion of the cattle they purchase, they should actively participate in establishing the negotiated price, Sen. Fischer says.
To solve this issue, the updated bill would require the U.S. Secretary of Agriculture to establish five to seven regions covering the continental United States that reasonably reflect similar fed cattle purchases; designate a set of approved pricing mechanisms for covered packers that contribute to price discovery and transparency; require the U.S. Department of Agriculture (USDA) to set minimum levels of purchases through approved pricing mechanisms that covered packers — those controlling 5 percent or more of fed cattle slaughter — must make; and mandate that each regional mandatory minimum be not less than the average of that region’s negotiated trade for the two year period of 2020-2021.
Additionally, the bill would set a maximum threshold for any region at 50 percent and require USDA to conduct an initial review of mandatory minimums after two years as it works with the cattle and beef industry to periodically review and modify regional minimums after a public notice and comment period, the summary says.
“It’s encouraging to see our bill gain momentum and I am hopeful we will have a hearing on this important legislation in the Senate Agriculture Committee in the coming weeks,” said Sen. Fischer, who serves on the Senate Agriculture, Nutrition, and Forestry Committee, which is considering S. 3229.