The omnibus spending bill, which is expected to be signed by President Biden shortly after this document goes to press, includes $1 million to fund a contract livestock library.
The idea is to establish a contract library for the Agricultural Marketing Service (AMS) to report the terms of alternative marketing agreements between packers and growers. Although some negotiated cash feeder cattle sales are reported through MRL, commonly referred to as mandatory price reporting, there is no way to know what contracts are being used between feeders and packers.
Tanner Beymer, policy analyst for the National Cattlemen’s Beef Association, said his organization has long advocated for this contract library.
“Information is power. You have to know what your options are,” Beymer said, regarding how it could help feeders or livestock producers.
He said he hoped a contract library would provide small producers who currently do not have contracts with packers with enough information to negotiate with packers in the future.
Beymer also believes that providing cattle producers with information about the most valuable cattle will help them make production decisions as they target a value-added market. “If you’re in the beef cattle business, you’re ultimately looking at a price derivative of the fed cattle price,” he said.
Beymer believes that if, for example, NHTC cattle (non-hormone treated cattle) or CAB cattle (Certified Angus Beef) require premiums through contractual agreements, producers will be able to adjust their breeding or management plans. to try to meet the demand for these cattle. value-added products.
He does not believe that the contracts library will reduce the volume of traded cash exchanges. “For people who trade cash, it works for their operations,” he said.
The NCBA has asked packers to buy more cattle through negotiated cash deals, and while “not the level of progress we hoped to see,” Beymer said that on the southern plains, some livestock producers have increased their cash trading percentages.
In a press release, the NCBA said other programs it supports are funded by the omnibus bill, such as the exemption of electronic logging devices for livestock transporters, an important regulatory relief from the EPA and an expansion of the mandatory livestock reporting program.
Brett Crosby of USCA of Wyoming said the contract library could be a useful tool, but “the devil is in the details” and USDA’s implementation of the concept will determine its effectiveness. He said the contract library originated as a way to address the “unintended consequences” of the MRL. “With the contract library, there may be other unintended consequences that we will need to consider later,” he said.
“Ideally, in a perfect world, we would be able to see the basic price grid structure and the total number – or range of numbers – for every contract between packers and feeders,” he said. he declares.
“It’s what we call transaction-level data,” Crosby said. This data should be helpful to feeders when making decisions, he said.
It’s possible that the contract library could actually cause the percentage of exchanges traded in cash to decrease, he said, but he expects traded network deals to likely increase at the same time.
Crosby said more information is always good, “as long as there’s a limit to how it can be used,” he said. He said mandatory livestock reporting was a good idea, but “cannibalized the cash trade. And now we’re at a point where we can see that formula trading is going to be the trading of the future because people want to see how their cattle are performing on the network.
R-CALF USA Director Eric Nelson of Moville, Iowa fears that without competition reform such as 50-14, a contract library will push an already fragile industry ahead of a high-speed train.
As the hog industry faced significant vertical integration, with less and less spot trading, a contracts library served to provide the means to further increase the number of hogs sold under contract. Nelson said that in the pig industry, small independent farmers have not been given contracts and most have been forced out of the industry, while large barns have been built based on contractual agreements.
“They ended up leaving out the little guys – the little guys knew about the contracts, but that didn’t mean they had the clout to get contracts. The contracts are assumed to be great, but the contracts are based on a working spot market,” Nelson pointed out.
One solution would be “a return to competition”, Nelson said. “Until we can get the government to enforce the anti-trust laws, we need 50-14,” he said.
“If we don’t stop the integration, nobody will know what the livestock market is. And there are a lot of days where we’re close to that,” Nelson said.
R-CALF USA President Brett Kenzy believes that the contract library and other pieces of legislation, including the cattle market compromise bill, are making much ado about nothing and he points out that although well-intentioned, the contract library is not a solution. “Never confuse activity with progress,” he said.
Spot trading is the only way the livestock market can truly respond to the world around it in real time, he said. “Traded cash is more capable of reacting in real time and providing accurate real-time value discovery,” he said. “I don’t think spot trading is sunshine and lollipops, but it’s the glue that holds supply and demand together,” he said.
“Academics don’t live in the real world with us. They can’t take the whole world into account like the market does. The market can take into account the weather, Ukraine, everything that happens on a given day. There is no way to accurately override this.
Kenzy compared the contract library to opening the mailbox and browsing the Sears catalog as a child. “Just because I get it in the mail doesn’t mean I have access to what’s in the photos,” he said.
More information is good, but not necessarily a viable solution here, he said. “I guess knowledge is power, but to the extent that it (the contract library) drives profitability, I don’t know.”
“Therein lies the beauty of 50-14. It’s not just about spot trading, it’s about delivery and a more informed futures market. The increase in spot trade values may not always be higher, but these values will be more real.
Competition is the solution the industry needs, and it won’t come from more contracts or even more contract information, he said.
“Daily spot trading – give and take between a buyer and a seller in an open competitive forum, is what correlates the price of beef to the price of cattle,” Kenzy said.
“No matter how many reports you make about a patched game, if you don’t do anything to fix the problem, the game is still patched.”