[Congressional Record Volume 155, Number 78 (Wednesday, May 20, 2009)]
[Senate]
[Pages S5702-S5703]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ENZI (for himself, Mr. Dorgan, Mr. Johnson, and Mr. 
        Grassley):
  S. 1086. A bill to amend the Packers and Stockyards Act, 1921, to 
prohibit the use of certain anti-competitive forward contracts; to the 
Committee on Agriculture, Nutrition, and Forestry.
  Mr. ENZI. President, I rise to speak on the introduction of the 
Livestock Marketing Fairness Act. I want to also acknowledge that I am 
joined in introducing this legislation by Senators Dorgan, Grassley, 
and Johnson. The Packers and Stockyards Act of 1921 was enacted at a 
time when there was significant concentration in the livestock and 
poultry industry. That law has since provided livestock producers, the 
family farmers and ranchers of our country, with a remedy to protect 
themselves against manipulative and anti-competitive practices in the 
marketplace. However, since the early 1920s our domestic livestock 
industry has changed significantly and so too have the ways in which 
producers market their livestock. Gone are the days when a simple 
handshake between buyer and seller was all you needed. Changes in 
marketing have introduced new ways for bad actors to manipulate prices 
and this legislation is designed to strengthen the laws originally 
enacted in the Packers and Stockyards Act.
  It is no secret that the packing industry in the U.S. has again 
become increasingly consolidated. In 1985, the four largest packers 
accounted for 39 percent of all cattle slaughtered in the U.S. Twenty 
years later, the top four firms controlled over 69 percent of the 
domestic cattle slaughter and this statistic does not even include the 
acquisitions that have taken place in the industry since 2007. Being 
big in agriculture is not bad, but it does present opportunities for a 
select few to manipulate the market for their own gain. The Livestock 
Marketing Fairness Act strikes at the heart of one particular anti-
competitive practice. Over the years, livestock producers, feeders, and 
packers have been given a number of new marketing tools for price 
discovery and hedging risk. One of those tools is the forward contract 
where a buyer and seller agree to a transaction at a specified point of 
time in the future. However, certain types of forward contracting 
agreements have become ripe for price manipulation. This is because a 
growing number of packing operations own their own livestock or control 
them through marketing agreements. These firms then can buy from 
themselves when prices are high and buy from others when prices are 
low. Captive supplies are animals that packers own and control prior to 
slaughter. The Livestock Marketing Fairness Act prohibits certain 
arrangements that provide packers with the opportunity use their 
captive supplies to manipulate local market prices. First, the 
legislation requires that forward contracts contain a ``firm base 
price'' which is derived from an external source. Though not outlined 
in the legislation, commonly used external sources of price include the 
live cattle futures market or wholesale beef market. This ensures that 
both buyers and sellers have a basis for how pricing in a contract will 
be derived at the time

[[Page S5703]]

the contract is agreed upon. Second, the bill requires that forward 
contracts be traded in open, public markets. This guarantees that 
multiple buyers and sellers can witness bids as well as offer their 
own. The Livestock Marketing Fairness Act also ensures that trading of 
contracts be done in a manner that provides both small and large buyers 
and sellers access to the market. Contracts are to be traded in sizes 
approximate to the common number of cattle or pigs transported in a 
trailer, but the law does not prohibit trading from occurring in 
multiples of those contracts for larger livestock orders.
  I travel to Wyoming nearly every weekend and have heard the same 
concerns from many of our ranchers. They want to be competitive in the 
market and sell the best animals possible so that they can continue the 
work that so many in their family have done for so many years. However, 
this problem is not isolated to Wyoming. Livestock producers from coast 
to coast are finding that with consolidation there are fewer and fewer 
buyers for their animals and their options for marketing too are being 
lost. This legislation not only increases openness in forward 
contracting but preserves the right for ranchers to choose the best 
methods for selling their animals without worry that their agreements 
will be subject to manipulation. The bill does not apply to producer 
cooperatives who often own their processing facility. The legislation 
also carefully targets the problem--large packers owning captive 
supplies--by also exempting packers that only own one facility and 
those that do not report for mandatory price reporting. The Livestock 
Marketing Fairness Act does not apply to agreements based on quality 
grading nor does it affect a producer's ability to negotiate contracts 
one-on-one with buyers. Therefore, sellers can still choose from a 
variety of methods including the spot market, futures market, or other 
alternative marketing arrangements.
  This bill is common sense and ensures that our ranchers have access 
to a competitive market in these difficult economic times. Ranchers 
aren't asking for a handout. What I am asking for is a level-playing 
field and an equal opportunity for our ranchers to succeed. I am 
pleased to say that I am joined by my colleagues on both sides of the 
aisle in working to address this problem. I encourage my other 
colleagues to support the Livestock Marketing Fairness Act and to join 
me in giving ranchers an honest chance to make a living.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1086

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Livestock Marketing Fairness 
     Act''.

     SEC. 2. PURPOSE.

       The purpose of the amendments made by this Act is to 
     prohibit the use of certain anti-competitive forward 
     contracts--
       (1) to require a firm base price in forward contracts and 
     marketing agreements; and
       (2) to require that forward contracts be traded in open, 
     public markets.

     SEC. 3. LIMITATION ON USE OF ANTI-COMPETITIVE FORWARD 
                   CONTRACTS.

       (a) In General.--Section 202 of the Packers and Stockyards 
     Act, 1921 (7 U.S.C. 192), is amended--
       (1) by striking ``Sec. 202. It shall be'' and inserting the 
     following:

     ``SEC. 202. UNLAWFUL PRACTICES.

       ``(a) In General.--It shall be'';
       (2) by striking ``to:'' and inserting ``to--'';
       (3) by redesignating subsections (a), (b), (c), (d), (e), 
     (f), and (g) as paragraphs (1), (2), (3), (4), (5), (7), and 
     (8), respectively, and indenting appropriately;
       (4) in paragraph (7) (as redesignated by paragraph (3)), by 
     designating paragraphs (1), (2), and (3) as subparagraphs 
     (A), (B), and (C), respectively, and indenting appropriately;
       (5) in paragraph (8) (as redesignated by paragraph (3)), by 
     striking ``subdivision (a), (b), (c), (d), or (e)'' and 
     inserting ``paragraph (1), (2), (3), (4), (5), or (6)'';
       (6) in each of paragraphs (1), (2), (3), (4), (5), (7), and 
     (8) (as redesignated by paragraph (3)), by striking the first 
     capital letter of the first word in the paragraph and 
     inserting the same letter in the lower case;
       (7) in each of paragraphs (1) through (5) (as redesignated 
     by paragraph (3)), by striking ``or'' at the end;
       (8) by inserting after paragraph (5) (as redesignated by 
     paragraph (3)) the following:
       ``(6) except as provided in subsection (c), use, in 
     effectuating any sale of livestock, a forward contract that--
       ``(A) does not contain a firm base price that may be 
     equated to a fixed dollar amount on the day on which the 
     forward contract is entered into;
       ``(B) is not offered for bid in an open, public manner 
     under which--
       ``(i) buyers and sellers have the opportunity to 
     participate in the bid; and
       ``(ii) buyers and sellers may witness bids that are made 
     and accepted;
       ``(C) is based on a formula price; or
       ``(D) subject to subsection (b), provides for the sale of 
     livestock in a quantity in excess of--
       ``(i) in the case of cattle, 40 cattle;
       ``(ii) in the case of swine, 30 swine; and
       ``(iii) in the case of other types of livestock, a 
     comparable quantity of the type of livestock determined by 
     the Secretary.''; and
       (9) by adding at the end the following:
       ``(b) Adjustments.--The Secretary may adjust the maximum 
     quantity of livestock described in subsection (a)(6)(D) to 
     reflect advances in marketing and transportation capabilities 
     if the adjusted quantity provides reasonable market access 
     for all buyers and sellers.
       ``(c) Exemption for Cooperatives.--Subsection (a)(6) shall 
     not apply to--
       ``(1) a cooperative or entity owned by a cooperative, if a 
     majority of the ownership interest in the cooperative is held 
     by active cooperative members that--
       ``(A) own, feed, or control livestock; and
       ``(B) provide the livestock to the cooperative for 
     slaughter;
       ``(2) a packer that is not required to report to the 
     Secretary on each reporting day (as defined in section 212 of 
     the Agricultural Marketing Act of 1946 (7 U.S.C. 1635a)) 
     information on the price and quantity of livestock purchased 
     by the packer; or
       ``(3) a packer that owns 1 livestock processing plant.''.
       (b) Definitions.--Section 2(a) of the Packers and 
     Stockyards Act, 1921 (7 U.S.C. 182(a)) is amended by adding 
     at the end the following:
       ``(15) Firm base price.--The term `firm base price' means a 
     transaction using a reference price from an external source.
       ``(16) Formula price.--
       ``(A) In general.--The term `formula price' means any price 
     term that establishes a base from which a purchase price is 
     calculated on the basis of a price that will not be 
     determined or reported until a date after the day the forward 
     price is established.
       ``(B) Exclusion.--The term `formula price' does not 
     include--
       ``(i) any price term that establishes a base from which a 
     purchase price is calculated on the basis of a futures market 
     price; or
       ``(ii) any adjustment to the base for quality, grade, or 
     other factors relating to the value of livestock or livestock 
     products that are readily verifiable market factors and are 
     outside the control of the packer.
       ``(17) Forward contract.--The term `forward contract' means 
     an oral or written contract for the purchase of livestock 
     that provides for the delivery of the livestock to a packer 
     at a date that is more than 7 days after the date on which 
     the contract is entered into, without regard to whether the 
     contract is for--
       ``(A) a specified lot of livestock; or
       ``(B) a specified number of livestock over a certain period 
     of time.''.
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