Mr. President, I wish to speak on the introduction of the Livestock Marketing Fairness Act. I want to also acknowledge that I am joined in introducing this legislation by Senators Tim Johnson, Grassley, and Tester. Without their support this bill would not be possible. We have always enjoyed bipartisan support on this issue and I want to thank them for their work in making sure that our livestock markets remain competitive.
Our nation’s ranchers and family farmers aren’t looking for handouts when they take their animals to the auction barn – they simply expect that they will receive the price they deserve for the quality they produce. However, there is evidence that there are bad actors out there who stack the deck when it comes to the prices they use in livestock contracts. The Packers & Stockyards Act was enacted at a time when there was significant concentration in the livestock and poultry industry. That law since that time has provided protection and remedy from manipulative market practices but the growth of our markets in recent decades have opened up opportunities for new abuses that the original law never could have expected.
These opportunities for manipulation have developed as our markets have become increasingly more consolidated. The top four firms control over 69 percent of the domestic cattle slaughter and this statistic doesn’t even include the acquisitions that have taken place in the industry in recent years. Gone are the days when a simple handshake between buyer and seller was all you needed.
The Livestock Marketing Fairness Act strikes at the heart of one particular anti-competitive practice. Over the years, livestock producers, feeders, and packers have been given a number of new marketing tools for price discovery and hedging risk. One of those tools is the forward contract where a buyer and seller agree to a transaction at a specified point of time in the future. However, certain types of forward contracting agreements have become ripe for price manipulation. This is because a growing number of packing operations own their own livestock or control them through marketing agreements. These firms then can buy from themselves when prices are high and buy from others when prices are low. Captive supplies are animals that packers own and control prior to slaughter. The Livestock Marketing Fairness Act prohibits certain arrangements that provide packers with the opportunity use their captive supplies to manipulate local market prices. First, the legislation requires that forward contracts contain a “firm base price” which is derived from an external source. Though not outlined in the legislation, commonly used external sources of price include the live cattle futures market or wholesale beef market. This ensures that both buyers and sellers have a basis for how pricing in a contract will be derived at the time the contract is agreed upon. Second, the bill requires that forward contracts be traded in open, public markets. This guarantees that multiple buyers and sellers can witness bids as well as offer their own. Some livestock markets already do this to ensure transparency but there are others who allow transactions to happen behind closed doors.
The Livestock Marketing Fairness Act also ensures that trading of contracts be done in a manner that provides both small and large buyers and sellers access to the market. Contracts are to be traded in sizes approximate to the common number of cattle or pigs transported in a trailer, but the law does not prohibit trading from occurring in multiples of those contracts for larger livestock orders.
I travel to Wyoming nearly every weekend and have heard the same concerns from many of our ranchers. They want to be competitive in the market and sell the best animals possible so that they can continue the work that so many in their family have done for so many years. However, this problem is not isolated to Wyoming. Livestock producers from coast to coast are finding that with consolidation there are fewer and fewer buyers for their animals and their options for marketing too are being lost. This legislation not only increases openness in forward contracting but preserves the right for ranchers to choose the best methods for selling their animals without worry that their agreements will be subject to manipulation. The bill does not apply to producer cooperatives who often own their processing facility. The legislation also carefully targets the problem – large packers owning captive supplies - by also exempting packers that only own one facility and those that do not report for mandatory price reporting. The Livestock Marketing Fairness Act does not apply to agreements based on quality grading nor does it affect a producer’s ability to negotiate contracts one-on-one with buyers. Therefore, sellers can still choose from a variety of methods including the spot market, futures market, or other alternative marketing arrangements.
This bill is common sense and ensures that our ranchers have access to a competitive market in these difficult economic times. All our livestock producers are asking for is a level-playing field and this bill helps them do what they do best – continue producing the finest meat in the world.