If the headline sounds as logical as
spending more than you earn in order to grow your savings,
you’re exactly right.
Yet that’s the logic behind the most recent legislative attempt
to level the playing field, in the name of Mom, country and
apple pie, by limiting the ability of cattle producers to
compete in the marketplace.
The newest bill, paradoxically dubbed the Livestock Marketing
Fairness Act (LMFA), claims just the opposite, of course.
In a statement introducing the LMFA, the bill’s sponsor, U.S.
Senator Mike Enzi (R-WY) opines, “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…”
Actually, the level of so-called captive supplies has remained
static or declined, depending on whose numbers you reference and
when. The number of cattle owned by packers has never amounted
to much—5%-10% at most according to credible industry estimates.
And that was before JBS-Swift got out of the cattle feeding
business (see JBS Shifts Ownership of Five Rivers Cattle).
“The Livestock Marketing Fairness Act prohibits certain
arrangements that provide packers with the opportunity use their
captive supplies to manipulate local market prices,” says Enzi.
Aside from begging the question, the consensus of valid,
third-party research indicates that Alternative Marketing
Agreements (AMAs), including the tools attacked by Enzi’s bill,
provide opportunity without harming competition.
Consider the Livestock and Meat Marketing Study (LMMS) a couple
of years ago. It was commissioned by the Grain Inspection,
Packers and Stockyards Administration (GIPSA). The $4.5 million
analysis was conducted by USDA in cooperation with the
Department of Justice, the Federal Trade Commission and the
Commodity Futures Trading Commission. It examined the extent to
which AMA’s are used, the impact they have on price, cost, and
other implications such as consumer demand.
“The report states that the leading reasons ranchers participate
in AMAs are the ability to buy or sell higher quality cattle,
improve supply chain management, and obtain better prices,” said
John Queen, who was president of the National Cattlemen’s Beef
Association (NCBA) at the time. “The study concludes that
restrictions on AMAs would cause a decrease in the supply of
cattle, quality of beef, and feeder cattle prices.”
Here’s the Hen House, Mr. Fox
Ironically, the newly appointed GIPSA Administrator, J. Dudley
Butler, is a founding member of the Organization for Competitive
Markets (OCM), according to the website for his Mississippi law
firm. In fact, Butler includes a letter from OCM on that same
website, thanking him for his legislative advocacy.
If you’re unfamiliar with the organization, OCM has a long
history of railing against corporate mergers and captive
supplies in the cattle business, as well as in other industries.
Yikes.
Objectivity is possible, given such a relationship. Typically,
though, there isn’t much in-between when a referee is calling
his kid’s game: either the parent in the zebra suit is so
worried about accusations of nepotism that the child’s team is
overly penalized, giving an unfair advantage to the other team,
or the parent is so wrapped up in the child’s success that the
whistle blows the other direction, unfairly giving an advantage
to the home team.
Shame on Your Success
Back to the newest non-sequitur rule-making: “First, the
legislation requires that forward contracts contain a ‘firm base
price’ which is derived from an external source,” Enzi explains.
“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.”
Makes you wonder if Enzi and his minions have ever heard of a
basis contract, a grid formula or a price slide.
Plus, you’d have to be an idiot to agree to sell without
understanding and agreeing to the terms up front, including
determination of the price. If folks are getting stuck by such
lunacy they need more help than any legislation can offer, not
to mention a healthy dose of common sense.
“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,” says Enzi.
Many forward contracts are already traded publicly; they’re
called video auction sales. They’re also called futures
contracts that allow a producer to estimate basis locally and
negotiate accordingly. Though not contracts, producers also have
access to public records of cattle trading every day, both at
auction and direct, as well as grid premiums and discounts for
fed cattle.
At least for now there is no such thing as mandatory buying and
selling, but this legislation would mandate terms of a voluntary
transaction.
Oh, and get this.
“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,” says Enzi.
How discriminating against one group adds equality and
competitiveness is anyone’s guess.
In his statement introducing the legislation Enzi concluded,
“This bill is common sense and ensures that our ranchers have
access to a competitive market in these difficult economic
times. Ranchers aren’t asking for a handout. What I’m asking for
is a level-playing field and an equal opportunity for our
ranchers to succeed.”
What he and the bill’s supporters are asking for is a mandate to
make some segments of the industry less competitive in order
that others presumably have the chance to be more competitive.
Rather than gain, however, such interference would make the
entire industry less competitive, not to mention trouncing upon
personal liberty.
NCBA issued a statement following introduction of the LMFA,
saying in part: “…The so-called “Livestock Marketing Fairness
Act” (S. 1086) would impose dangerous government intrusion on
the livestock industry, potentially destroying the value-added
marketing alliances that the U.S. cattle industry, like so many
other American industries, has worked hard to establish…
“The Packers and Stockyards Act (P&SA) has been successful in
combating anti-trust, collusion, price fixing, and other illegal
activities that damage the viability of the market and interfere
with market signals. At the same time, it preserves producers’
rights to market their cattle in a way that ensures the highest
quality product to meet the current consumer demand. The
Livestock Marketing Fairness Act would take away that right by
amending the P&SA so that it limits producers’ opportunities to
participate in alternative marketing arrangements—such as
forward contracting—and negotiate private business transactions.
Producers would thus lose the ability to compete in the
free-market system which is fundamental to U.S.
entrepreneurship.”
There are lots of competitive advantages. Some must be forged
along the way, like deciding if new technology offers net
opportunity. Other advantages, like it or not, just happen to be
a Blessing. For instance, folks whose families have figured out
a way to remain engaged in the same business—any business—for
multiple generations should have an advantage over those engaged
in business for less time. It’s called experience.
Rotten luck, lousy timing or the wrong gamble can take anyone
down, though. That’s the price of admission. Having the chance
to win requires accepting the risk of failure. Dilute that
chance and you rob the opportunity.
|
