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Legislation aims at market transparency
Dr. Victor Martin

After several weeks of adequate soil moisture for almost all of the state, as of July 13 much of the central part of Kansas is rated as abnormally dry. This includes all of Barton County except for the southwest corner of the county. Pawnee County was still okay but most of Stafford County is also abnormally dry. This doesn’t include the rains from Wednesday and Thursday. The six to ten-day outlook (July 20 to 24) indicates below normal temperatures and precipitation for our area. Decent, as corn is pollinating and kernels are starting to develop. The eight to 14-day outlook (July 22 to July 28) indicates above normal temperatures and below normal precipitation.

The last two columns focused on the cattle markets, how they are ideally supposed to work and the concerns of the cattle industry with the packing industry brought to a head during the pandemic. Today, what is the proposed, bipartisan legislation the industry wants supposed to do?

One last piece of before we discuss the proposed legislation, how beef cattle are sold. There are four primary ways finished cattle are sold:

1. Negotiated purchases - are purchases where the price is determined through buyer and seller interaction on the day of sale. 

2. Forward contract purchases are agreements for the purchase of cattle executed in advance of slaughter; the base price is established in the agreement. 

3. With negotiated grid purchases, the base price is negotiated between buyer and seller and is known at the time the agreement is made but the final price is determined by applying a series of premiums and discounts based on carcass performance after slaughter. 

4. Formula purchases are the advance commitments of cattle for slaughter by any means other than negotiated, negotiated grid or forward contract. Importantly, formula pricing uses a pricing mechanism in which the price is often not known until a future date after cattle are slaughtered.

Negotiated purchases are what we normally think of. A packer offers a price and the producer buys and sells. The kind of reports you hear throughout the day on local ag reports. While it varies from state to state, overall, the market has shifted from a place where well over half of purchases are negotiated purchases to where they have decreased to around 20% and formula pricing has increased overall to around 60%.

The goal of the Market Transparency legislation is to increase the percentage of negotiated sales while factoring in regional differences. The idea through transparency and reporting is to establish a minimum or floor for prices to protect producers. There are new reporting requirements that the USDA will collect including a library of marketing contracts and other slaughter information for producers. Those selling finished cattle would have the necessary information to obtain the best price for their cattle. And the Secretary of Ag would have to provide regular reports to congress, regularly review the data, etc. This is essentially the legislation desired by industry groups. To summarize the idea is to prevent packers from “colluding” to “price fix” and make available actual numbers of cattle and prices to prevent them from taking advantage of producers.

Dr. Victor L. Martin is the agriculture instructor/coordinator for Barton Community College. He can be reached at 620-792-9207, ext. 207, or