Big Ag got a big break in the U.S. Senate’s version of the farm bill, according to Wyoming ranchers and stock grower advocacy groups.
Sen. Mike Enzi, R-Wyo., filed two amendments that aimed to provide more transparency in the beef market, but the proposed legislation failed to become part of the Senate’s version of the five-year, $500 billion farm bill last week. Enzi called the legislation a step backward for agriculture policy.
His amendments sought to eliminate practices that allow meat packers to manipulate prices and shut out independent cattle producers from beef markets, said Sara Kendall, the Washington, D.C., office director for the Western Organization of Resource Councils. The lobbying firm promotes the interests of independent cattlemen in the West.
Enzi has for years aimed to change the way prices are negotiated between the nation’s 75,100 feedlot operators and the four dominant meat packers in the country: Tyson, Cargill, National Beef and JBS.
“The big boys are getting their own way,” said Randy Stevenson, owner of Double S Livestock in Wheatland.
Enzi’s amendments would have required that a base price be set at the time of the deal instead of using formulas to predict prices. The amendments also called for the sale of all cattle on the open market instead of through contracts signed behind closed doors.
The contracts that feedlots and meat packers make are based off formulas used by the packing companies, said Bill Bullard, CEO of the Ranchers-Cattlemen Action Legal Fund, a nonprofit organization that represents 5,000 cattle producers in 45 states. There is no price set at the time the contracts are signed, Kendall said.
The prices packers offer are based off the weekly average price from the week prior to the transfer of cattle from the feedlot to the packers. Since the price isn’t the most up to date, ranchers often lose out, Bullard said.
Most contracts are done up to a month before the cattle goes from the feedlot to the slaughterhouse. Because the contracts are not priced, feedlots have no idea what they will be paid at the time they make the deals, Bullard said. If feedlots aren’t getting the optimum fair market price, stock growers also get paid less for the cattle they raise, he said.
The large packing companies sidestep the open market process by using the contract formulas, said Jim Jensen, owner of Lucky 7 Ranch in Riverton and member of the Independent Cattlemen of Wyoming, a nonprofit that represents stock growers in the state.
Since the packers don’t have to use the up-to-date value of cattle, ranchers and feedlot operators have seen the volume of cattle on the open market fall and the number of cattle sold under formula contracts rise.
Thirty-three percent of all cattle were sold under formula contracts in 2005, according to the U.S. Department of Agriculture. The number jumped to 54.8 percent in 2012.
“Ranchers are getting less money because the packers have figured out a way to monopolize the industry without bidding on cattle,” Jensen said. “We have no say. We can either quit the business or deal with it.”
There’s a Catch-22 that makes the current system in the cattle industry even worse for producers and feedlot operators, Bullard said.
Meat packers have begun to buy their own stock in a process known as captive supply.
Captive supplies are the livestock that meat packers own or control through contracts with farmers, ranchers and feedlot owners.
The biggest concern from producers and feedlot operators is that the stock that packers own are used as a way to sidestep the market when prices aren’t favorable to their company, Bullard said. Instead of having to make a contract or bid on animals, the meat packers can take from their own supplies and use them for slaughter — essentially manipulating the market, he said.
Just like a piece of fruit, the price of a cow depreciates for every day it sits past its optimum slaughter date. When packers can take from their own supplies, producers are stuck with animals that are worth less than what it costs to raise them, Jensen said.
The volume of cattle sold on the open market has dropped from 52 percent to 26 percent in the past eight years, according to the USDA.
While many say the packers have a stranglehold on the market, Jim Magagna, executive vice president of the Wyoming Stock Growers Association, said that’s not the case.
“You have to look at the big picture,” he said. “Have there been times when the large packers have taken advantage of their position in the industry? Undoubtedly. In this year’s market scenarios, the supply of cattle determines a lot of that. It hasn’t happened. Packers need every animal that every producer in the country can provide.”
The number of cattle in the country is the lowest it’s been since 1960, making the beef supply tight, Magagna said.
The limited supply makes for higher prices, he said.
“There’s a concern that it’s driving consumers away from beef,” he said. “The supply chain has got to work for everybody. All parties involved take hits. Costs either go to consumers or down the line in the industry.”
The House will debate its version of the farm bill this week. Rep. Cynthia Lummis, R-Wyo., has worked with Enzi in the past to get similar legislation through the House. She doesn’t expect to get amendments similar to Enzi’s into the current bill.
“While Rep. Lummis supports a free and open market, the farm bill does not seem like a viable vehicle to do so,” Lummis spokeswoman Christine D’Amico wrote in an email to the Star-Tribune.
Kendall echoed Lummis’ thoughts about resolving the issues in the House’s farm bill.
“The current House hasn’t been friendly to competition issues,” she said.