This provision benefits all cattle producers by preventing packers from consolidating the feedlot sector of our industry, which they are accomplishing by granting preferential treatment to select feedlots. Feedlots receiving preferential treatment can remain profitable while those who do not likely will go out of business. The effect of such preferential treatment (known as "sweetheart deals") is that preferred feedlots grow ever larger while the number of total feedlots decline, thus reducing the number of competitors for feeder cattle. All cattle producers benefit when all feedlots have access to the same prices and terms for similar quality cattle (a level playing field), which will ensure that all feedlots have the same opportunity to remain profitable, thus ensuring there will continue to be numerous buyers for feeder cattle.
3. The GIPSA rule requires packers to maintain records that justify why they paid different prices or offered different terms to different cattle feeders as well as records that explain the market-based reasons premiums and/or discounts were applied to the standard price of cattle.
This provision benefits all cattle producers because it requires packers to make their cattle procurement practices transparent, thus ending the secret deals that packers have with select feedlots that commit hundreds of thousands of cattle to a packer without any disclosure of price or terms. Such transparency will enable GIPSA to determine if the different prices paid and different terms offered to different cattle feeders are market-based (based on quality differences, for example) or if they are based on a packer's unlawful practice of granting preferential treatment to preferred feedlots or discriminating against other feedlots. Such transparency also is necessary to enable GIPSA to determine if a packer's use of premiums and discounts is based on legitimate market forces or if the packer is unlawfully giving more premiums and less discounts to preferred feedlots than are accorded to all other cattle feeders. All cattle producers benefit when the marketplace for fed cattle is sufficiently transparent to ensure that prices, marketing terms, and premiums and discounts are based on legitimate market forces, not on factors such as the granting of preferences or discrimination. Such a properly functioning fed cattle market is important to all producers because the present value of feeder cattle is tied to the expected future value of fed cattle.
4. The GIPSA rule requires packers to submit to GIPSA samples of each unique type of contract or agreement the packers uses to procure cattle (including forward contracts, formula contracts, production contracts or other marketing agreements). GIPSA would then post the sample contracts on its website.
This provision benefits all cattle producers because it improves market transparency by providing information regarding marketing terms and conditions offered by each packer and the type of cattle and the quality traits that each packer is seeking. This information can be used by cattle producers to determine which packer is seeking the type and quality of cattle he/she has to sell, or to make breeding and purchasing decisions so he/she is producing/purchasing the type and quality of cattle likely to be sought after by one or more packers. All cattle producers benefit when available marketing terms and conditions are disclosed and when the sought-after cattle types and quality traits are known long before cattle are ready to market.
5. The GIPSA rule prohibits a packer from selling cattle directly to another packer.
This provision benefits all cattle producers because it prevents packers from obtaining some of their weekly cattle supply needs from each other, thus enabling them to avoid making bids in the fed cattle market when they run short of supplies. Obviously, when packers purchase cattle from another packer (whom also has no desire to cause cattle prices to increase) they avoid creating a demand for cattle in the fed cattle market, which forces fed cattle prices lower and translates into lower prices for feeder cattle. All cattle producers benefit when a packers' only source for cattle is from cattle producers whose economic interest is to maximize the selling price of live cattle.
6. The GIPSA rule prohibits two or more packers from sharing one packer buyer.
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