Iowa Senator Charles Grassley has introduced a bill requiring mandatory cash cattle trade in the U.S. Senate. It closely mimics a bill first introduced by Sen. Grassley and former Sen. Russ Feingold, D-Wis. in 2002. That bill required a minimum of 25 percent of a packer’s daily kill to come from the spot, or cash, market to improve accuracy and transparency of data reported through Mandatory Price Reporting (MPR). In addition, the bill intended to give independent producers competitive opportunity as packers would have been required to participate in the cash market.
The newest version of the bill, co-sponsored by Sen. Jon Tester, D-Mont. and Sen. Joni Ernst, mandates a minimum of 50 percent cash trade and a 14-day delivery period. This bill closely resembles ICA’s official policy and advocacy efforts.
Earlier this spring, the association’s Feedlot Council and Board of Directors assumed policy supporting a mandate on cash trade because of the lack of long-term changes necessary to provide price transparency and competition amongst cattle feeders who market cattle though traditional cash means. Since that time, leaders and staff have worked to inform Sens. Grassley and Ernst of the challenges faced by Iowa’s cattle producers, and encouraged their support of a mandate requiring at least 50 percent cash trade.
“After working diligently for nearly a decade, ICA has encouraged our industry and other organizations to trade more cash cattle to no avail,” says Dustin Purhmann, ICA’s Feedlot Council chair. “As a cow-calf producer and feedlot nutritionist, I can say that our group has examined and discussed many ways to remedy the uptrend in committed cattle to packers. Unfortunately, we feel that a mandate is the only way to make a lasting change our industry needs to regain some leverage, competitiveness, price discovery and transparency.”
Iowa’s cattle producers participate in the cash market with higher frequency than other regions of the United States, setting the base price for formula transactions that are much more commonplace in large feedyards in southern states like Texas. In most weeks, more than 50% of Iowa’s fed cattle are traded through cash negotiation, compared to about 5% in Texas.
Cattle traded through formula transactions bring $20-40 per head more than negotiated cash cattle, even though the cash cattle in the upper midwest generally grade much higher.
“Ultimately, cattle feeders in the south are rewarded for the quantity, not quality grade, of their cattle,” says Purhmann. “The current system makes it difficult for Iowa’s producers to capture a premium for our high grading fed cattle.”
Industry experts, livestock economists, the Chicago Mercantile Exchange and the Commodities Future Trading Commission have all advocated for increased price discovery across the United States.
“This problem has plagued our industry for years,” says Matt Deppe, CEO of the Iowa Cattlemen’s Association. “With the reauthorization of Livestock Mandatory Reporting scheduled for later this year, now is the time to take action.”
Iowa’s cattle producers have recently had to bear the brunt of the challenges caused by decreased packing capacity due to COVID-19. Formula cattle have filled nearly all available slaughter space, leaving Iowa’s market-ready cattle in the feedyards.