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Legislative Answers to Market Tricks

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Econ101

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‘Captive Supply Reform’ bill



Bill would limit large packers' control over cattle market

By Mike Brue

Grand Forks Herald Staff Writer

November 10, 2005

North Dakota, US



Legislation introduced in Congress today attempts to change the way livestock is bought and sold in an effort to help level the playing field for "family ranchers," according to co-sponsor Rep. Earl Pomeroy, D-N.D.



Pomeroy said in a news release that cattle ranchers and farmers too often "are held hostage to the large packers who control the way livestock is bought and sold."



The so-called "Captive Supply Reform" bill would help prevent price discrimination or manipulation, plus undue preferences, according to the congressman.



Rep. Stephanie Herseth, D-S.D., is the bill's co-sponsor.



Captive supplies livestock that packers either own themselves or control through contracts with ranchers and farmers are not subject to normal market forces of supply and demand, according to Pomeroy.



Four companies buy 80 percent of the cattle and half of the hogs sold in the United States, according to Pomeroy's office. In such a concentrated market, buyers can use captive supplies to manipulate prices if they wished, he says.



The bill by Pomeroy and Herseth would require a fixed base price in formula contracts and also require that contracts be traded in open, public markets.



Not a 'tactic'



The National Meat Association, a non-profit trade group with membership including meat packers and processors in the United States, believes the bill could hurt smaller packers, according to Jeremy Russell, the NMA's director of communications and government relations in Washington.



"The problem," Russell said, "is it restricts markets and trade, so the people who are going to get hurt by it are the ones who can't survive such restrictions ... . It's going to make it harder for the smaller packers to be competitive, and therefore drive concentration or consolidation."



It's the association's sense, he said, "that captive supply isn't a hidden cost or a manipulative tactic on the price of cattle."



A federal mandatory price reporting law passed several years ago was passed out of similar intentions to help give cattle ranchers and farmers more leverage, Russell said. The law requires packers to report prices paid for cattle twice daily; the data is aggregated to create anonymity and then published. Price reporting existed before, but it was voluntary.



That law might benefit from some fine-tuning to provide more flexibility to accommodate market reporting realities, Russell said, but generally it has not created any dramatic price shifts and "wasn't the train wreck we thought it might become."



grandforks.com



Bill Prohibiting Livestock Forward Contracting Introduced in House

American Meat Institute

November 10, 2005



Rep. Earl Pomeroy (D-ND) this week introduced legislation (H.R. 4257) that would prohibit the use of forward contracts and formula pricing in the livestock sector. Reps. Barbara Cubin (R-WY) and Stephanie Herseth (D-SD) also co-sponsored the bill that could expose producers to greater price risk and market volatility.



The bill would amend the Packer and Stockyards Act to outlaw “formula price” and “forward contract,” as defined by the bill. Formula price would mean “any price term that establishes a base from which a purchase price is calculated on the basis of a price that will not be determined or reported until a date after the day the forward price is established.” A forward contract would be defined as an “oral or written contract for the purchase of livestock that provides for the delivery of the livestock to a packer at a date that is more than 7 days after the date on which the contract is entered into ….”



AMI, which opposes the bill, noted that while the bills' intention is to "prohibit the use of certain anti-competitive forward contracts," it disregards that many producers and processors jointly enter into contracting and marketing agreements to limit exposure to market volatility, access capital, and implement value-added business practices. Marketing agreements and contracting often provide the means to access capital for young producers often to enter farming and ranching.



Text language for H.R. 4257 may be found at the following link:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:h4257ih.txt.pdf





meatami.com
 

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