Open Letter: Questions from The Brand About the 50-14 Legislation

Open Letter

Questions From The Brand About the 50-14 Legislation

Fellow Beef Industry Stakeholders:

To suggest U.S. beef producers are facing difficult times egregiously understates the extent of challenges thrust upon cattlemen during the past year. Yet, times like these often are the catalyst for ideas and innovations that bring meaningful improvements for a more sustainable future.

While it has been a topic of keen discussion for decades, the call for change in fed-cattle marketing and price discovery rarely, if ever, has been louder than it is today. The idea of creating more robust price discovery and competition in the marketplace is easy to support and can create obvious shared benefits for stakeholders.

Cattlemen widely agree that growth in beef demand means more dollars transferred back to the production sector. Yet, history proves it’s difficult to find agreement among cattlemen on how this is best accomplished. The debate around how producers share in the financial benefits of growing beef demand often focuses on the ratio of cattle sold in the negotiated spot (a.k.a. cash) market versus alternative marketing arrangements. To this point, Senator Chuck Grassley’s recently proposed 50-14 legislation centers on mandating an adjustment to an imbalance, requiring multiplant packers to purchase at least 50 percent of their cattle needs for each plant in the negotiated spot market.

Owned by the American Angus Association and its Angus farmer and rancher members—whose opinions vary on the proposed 50-14 legislation—the Certified Angus Beef® brand exists to create demand for the high-quality beef sold under our label and therefore the Angus genetics and cattle that supply it. The brand is not a political or policy-driven organization but still very much vested in where the beef industry migrates on fed-cattle marketing and how such mechanisms influence the flow of economic signals from consumers to producers.

While there are still obvious challenges in the beef industry, arguably, the business is responding far better than ever to the demands of the consumer, clearly demonstrated by the significant growth of high-quality beef demand since 2010. The economic signals drove this improvement and the emergence of grid premiums have been essential to recent gains in quality and helped producers reap rewards for responding to those signals.

Annually, cattlemen earn more than $92 million in Certified Angus Beef® brand grid premiums for cattle accepted for our brand alone. Based on what we understand today about the 50-14 legislation, eliminating the Certified Angus Beef® grid premiums currently paid on a large portion of cattle would muffle the consumer-driven signal the industry has benefitted from and could limit a producer’s ability to maximize carcass value and economic return.

There are advantages and imperfections to any fed-cattle marketing system. Arguably, more negotiation could potentially enhance cattle values as determined through grids given the influence on base price determination or premium/discount structure. That’s why the Certified Angus Beef® brand is not for or against any single marketing method over another. We simply want producers to have the incentive and opportunity to be paid what their cattle are worth, not having to take an average price where the better cattle subsidize the rest.

To that end, we have questions regarding specific language in the 50-14 legislation. We have listed them below with the goal of gaining a wider understanding of the requested changes and potential outcomes. As a stakeholder engaged in this discussion, we hope you can help us do so or merely give these questions some additional thought as you engage the industry in this conversation. ❚ How will negotiated grids be handled under the proposed requirements: considered part of the negotiated spot market given prices can be negotiated weekly without a written or implied contract with a packer or excluded from the spot market due to their grid structure? ❚ Why are dairy and dairy crossbred cattle, cattle over 30 months of age and foreign-born cattle excluded from the proposed 50 percent spot market purchase requirement and how do these excluded populations factor into the 50 percent spot market purchase calculation for a plant? ❚ What will the impact be on value-added programs such as age-and-source verified, GAP-certified, NHTC, etc., and associated feeder calf prices, if a feeder’s ability to secure a fed-cattle market is not assured prior to placing the cattle on feed?

We are confident there will be much more discussion on this topic in the months ahead. Independent of what is ultimately decided in Congress and across the industry, our team at the Certified Angus Beef® brand will continue to focus on building consumer beef demand more than political and policy matters outside our area of expertise. Yet, we remain interested because the brand will be impacted, regardless. We feel it better to ask questions now for the sake of expanding perspectives for our brand and the industry of which we are a part.

We appreciate the opportunity to share our perspective and your consideration of our questions. If you care to visit about this topic in more detail, please feel free to call or email using the contact information provided below.

Thank you and take care.

Sincerely,

John F. Stika

President, Certified Angus Beef LLC

Bruce Cobb

Executive Vice President, Production, Certified Angus Beef LLC

John Grimes

Chairman, Board of Directors, Certified Angus Beef LLC ▫