The Colorado Livestock Association voted during its November board meeting to oppose federal legislation (Senate Bill 1738, currently in the Senate Agriculture Committee), which would eliminate packer ownership-control of livestock.
If enacted, this legislation would eliminate value based pricing, significantly reduce risk management options, make financing more difficult and eliminate a significant number of buyers of livestock in Colorado.
"We believe this legislation is not needed and would be, if passed, most detrimental to the cow-calf producer," said Kent Bamford, Haxtun, one of CLA's Legislative Committee co-chairman and a feedlot owner. "We have outlined the reasons CLA is opposed, and one of the top reasons is the potential loss of risk management tools equating to a loss in dollars to spend on feeder calves."
Equally concerned are CLA's pig producer members. According to members of CLA's Pig Producer Council, the pork industry has studied this legislation and sees potentially disastrous problems related to financial stability.
Following are the points CLA outlined as opposition to the legislation.
--This issue of packer ownership-control often is presented as being the majority of the problem with marketing of livestock. According to U.S. Department of Agriculture and Cattle-Fax estimates, only 2 to 5% of fed cattle are packer-owned. Research in the pork industry revealed it is possible for accurate price discovery to occur with as little as 5% uncommitted supply, provided sufficient information is available to all parties involved.
--The reduction of risk management options by eliminating forward contracting of fed cattle is one of the association's major concerns with this legislation. The association believes the cow-calf segment will feel the greatest impact of this legislation. In a highly volatile business, such as cattle feeding, it is important too have as many tools available to manage risk as possible. If the tool of formula pricing or pricing on a grid is eliminated, feeders will pay less for cattle, because there is no value incentive.
--Lending institutions would be less likely to provide financing if contracting is eliminated from cattle and pork industries, because a major tool for risk management would be eliminated.
--By eliminating the value based pricing structure provided by packers, the beef and pork industries will be undoing progress made in changing from commodity-based industries to industries doing business in a brand name world. It appears this legislation would eliminate alliances, another tool for doing business. By eliminating alliances, important information, which currently goes to the cow-calf producer regarding the end product, would be less available.
--The livestock industry has made progress in supplying a more consistent product. By eliminating the packer's ability to purchase or control livestock more than 14 days before delivery, the packing industry stands to be in the position of not being able to maintain an adequate supply of a consistent, quality product.
--The recent hardships in the pork industry have given rise to more contractual relationships between producers and integrators and producers and packers. Use of these contracting tools allows many producers to weather the downturns in the market. The proposed legislation would eliminate these options for allocating risk.
The Colorado Livestock Association plans to present a resolution for consideration at the National Cattlemen's Beef Association Convention, in Phoenix, the end of January.
CLA is the professional association "informing, representing and advancing Colorado's livestock industry."