Iowa cattle growers ask Congress to address a beef over market rules

Several members of Iowa’s congressional delegation want to rewrite the rules governing cattle sales in an effort to help Iowa farmers who fear big meat processing companies are increasingly shutting them out of cattle markets.

The rules that Iowa lawmakers are proposing would force cattle producers in places like Texas and Nebraska – where cattle-raising operations are much bigger – to do things a lot more like their counterparts in Iowa and the upper Midwest. 

“In this country, we have to start looking at fair marketplaces for everybody,” said U.S. Rep. Cindy Axne, a Democrat who represents Des Moines and southwest Iowa and who is the primary sponsor of the U.S. House measure. “This is to give (Iowa producers) a fighting chance, because it’s not a fair process right now.”

Iowa’s U.S. senators, Chuck Grassley and Joni Ernst, are sponsoring a similar bill in the upper chamber. 

At the center of the dispute is how cattle producers sell their animals. 

More than half of sales in Iowa are done using cash transactions. Under that arrangement, sellers present their livestock to a potential buyer, who looks over the animals and offers a price. Whether through an auction or negotiation, the buyer and seller end up with an agreed price and make the sale. That sale price is reported publicly.

The other system, which is more common in Southern states where livestock operations can be massive, relies on long-term contracts. In exchange for a steady stream of animals, the buyer guarantees to the seller that he will buy those cattle. The price the buyer pays, though, often is a set mark-up over the current cash rate for cattle, although the exact price remains private. 

In other words, the amount that cattle producers in Texas receive depends on how much cattle producers in Iowa negotiate. But the Texas producers almost always get more.

On top of that, meat processors have put the big cattle producers at the front of the line when unexpected events reduce the processor’s ability to run at full capacity. That happened last year, when a major beef processing plant in Holcomb, Kansas, caught on fire. And it is happening again this year, with the industry-wide slowdowns to reduce the risk of workers catching COVID-19.

“What happens to the smaller feeders is that they’re the leftovers,” said Katie Olthoff, a spokesperson for the Iowa Cattlemen’s Association. “If I’m a packer, I have my bulk order of cattle, and I know where I’m getting those from. I’m only going to go to those guys in the upper Midwest if I have room for some more. If I don’t have room, I’m probably just not going to call them.”

Axne’s legislation would require all processors to have a minimum of 50% of their weekly slaughter purchased from cash market sales. As recently as 2005, about 52% of all cattle were purchased through those spot sales, but that share has dropped significantly in the years since. In 2015, only 22% of cattle sales were made using spot sales. 

There are huge regional disparities in the methods of sale. While cash sales make up more than half of sales in Iowa, they make up as little as 3% in the Texas-Oklahoma-New Mexico region.

U.S. Reps. Abby Finkenauer and David Loebsack, both Iowa Democrats, are cosponsoring Axne’s bill. In the Senate, Grassley and Ernst, both Republicans, have gathered the support of five other cosponsors for their bill, both Democrats and Republicans. The cosponsors hail mainly from the upper Midwest, representing Minnesota, Mississippi, Montana and South Dakota.

When Grassley introduced the measure in May, he noted that the slaughter capacity at the country’s packing plants decreased by 40% over the previous month, and beef prices had doubled. Fast-food chains and grocery stores experienced beef shortages. 

“If that is not bad enough, at the same time, livestock producers with livestock that is ready to sell have been turned away by meat processors. Even if producers are lucky enough to sell, the prices they are getting are well below the cost of production, and they are losing money on every animal they sell,” Grassley said at the time.

Grassley tried several times in the early 2000s to mandate more cash transactions, but those attempts never gained traction. Even this current attempt has run into resistance; Grassley has told reporters that U.S. Sen. Pat Roberts, a Kansas Republican who chairs the Senate’s agriculture committee, opposes his bill.

But Grassley said both the public and members of Congress are becoming more aware of the issue, because of the recent disruptions in the supply chain for beef. 

“It looks like more of a problem when farmers are losing a lot of money when they sell their cattle and the price for the consumer goes up at the supermarket,” he said. “Lawmakers have begun to realize that in order to have a sustainable supply of meat in our country, we need to restore transparency in the marketplace and protect the market from collapsing when there is a supply chain disruption.”

 Both the House and Senate bills also specify that processors have to take delivery of the cattle they buy within 14 days of the sale, so that the sellers won’t be on the hook for feeding and caring costs long after the sale is completed.

Even if neither piece of legislation moves on its own, they could be incorporated into other legislation to renew a law governing the mandatory reporting of livestock transaction data. That law expires at the end of September.  

The shift from spot sales to contract sales has followed major consolidation in the meat processing industry. Four companies — Tyson Foods, JBS, Cargill and National Beef — process about 85% of all cattle in the United States. They have consolidated their operations to about two dozen major beef processing facilities in the country. That means that disruptions at any of those facilities can have ripple effects throughout the industry.

While much of the industry has been consolidating, farmers in Iowa and the upper Midwest have resisted that trend. Large-scale operations and feedlots may make sense on the dry plains of Texas and Kansas, but they don’t make as much sense in Iowa, where fertile farmland can sell for more than $10,000 an acre. 

Iowa farmers tend to be more diversified, raising both row crops and livestock. Many are farmer-feeders, who feed the corn they grow to their livestock. Those farmers can set aside hillier terrain as pasture for their cattle, too. Either way, Iowa growers say their approach produces higher-quality cattle than the bigger operations.

“There are a lot of benefits,” Axne said. “It helps with our land, it helps with our sustainability and it should help us in regular times weather down markets.”

But Iowa farmers are under pressure on several different fronts, she said, something she blames primarily on the Trump administration. A trade war with China has drastically reduced demand for soybeans. The Environmental Protection Agency has issued dozens of waivers for small refineries to allow them to avoid renewable fuel standards that would help Iowa corn growers. 

“We’ve been hit so hard with multiple changes in policy or direction that it’s really tough for those farmers to survive,” Axne said.

Olthoff from the Iowa Cattlemen’s Association said Iowa’s rural character depends on changes in the cattle market. 

“This is really about preserving a heritage here in Iowa,” she said. “These independent farmers have kids who get up every day and help feed the cattle before they go to school. Then they become farmers themselves. They stay in their rural communities. Being able to raise livestock at a fair price that can provide a living for families is so important to our social fabric.”