LITTLE ROCK — Senate members added language to the farm bill this week that restricts how long beef packers such as Springdale-based Tyson Foods Inc. can own and manage cattle before slaughter.
The amendment, added by the Senate Agriculture Committee on Wednesday, changes section 202 of the Packers and Stockyards Act of 1921, and prohibits packers from owning cattle for more than two weeks before slaughter.
The step drew criticism from the large packers, who have endured negative profit margins in the beef segment since late summer.
But critics of those companies contend that packer ownership of livestock and other so-called "captive supply" tactics open cattle prices to manipulation, allowing the largest buyers to opt out of the open market in bad times.
The Senate amendment makes it unlawful for packers to have any "operational, managerial or supervisory control" over livestock for 14 days before slaughter. That limits how many cows the packers can hold, and forces them to buy more from the cash markets.
"We have historically opposed such legislation, because it limits the freedom of livestock producers to market animals the way they want," Tyson spokesman Gary Mickelson said Thursday. "It also restricts the meat processor's ability to ensure a steady supply of livestock for their plants, which is obviously needed to operate efficiently."
Many cattle producers ne-gotiate marketing arrangements with the packers, which frees up resources for other business activities. The packers like the deals because they know where the livestock is coming from.
Still, producer advocates are concerned that the big buyers - such as Tyson, Cargill Inc. and JBS-Swift - are able to wield excessive power over the cattle market without government oversight and drive cattle prices down.
A January report from the U.S. Department of Agriculture concluded that while "alternative marketing agreements" led to lower prices, other market efficiencies made up the difference.
The USDA report showed just 5 percent of U.S. cattle are owned by packers. About 62 percent are sold in the spot or cash market, 29 percent are sold through marketing agreements between packer and producer, and 4.5 percent are sold on forward contracts.
Fred Stokes, executive director of the Organization for Competitive Markets based in Lincoln, Neb., said he was "heartened" by the agriculture committee's inclusion of the packer ownership ban. Earlier this month, his organization said "captive supply" agreements cost U.S. producers $5.7 billion in 2006.
"The market power is all on the buyer's side," Stokes said. "They've got the clout."
Other legislators are also seeking to limit how packers can obtain cattle and other livestock.
Sen. Mike Enzi, R-Wyo., has introduced S. 1017, also known as the "Captive Supply Reform Act." It would amend the Packers and Stockyards Act and require that forward contracts have firm base prices. Currently the price can be established at the time of settlement on many contracts.
These proposals come at a time that Tyson and other beef packers are reeling from high cattle costs and low wholesale beef prices.
In the past month, Tyson Foods slowed production of beef to hedge against low profit margins, and company officials advised analysts in September that fourth-quarter earnings would be affected by beef margins.
Bob Wilson, an analyst at Hedgersedge.com, a marketing research firm in Denver, called margins "disastrous," with packers losing $48.80 per head Thursday.
The Senate has passed two bills to prohibit packer ownership of cattle in the past, but those bills didn't make it through the House of Representatives.
Currently, the House version of the farm bill has no restrictive packer provisions, though the final bill could include the restrictions if the two sides of Congress agree to include them.
The agriculture committee's session on the farm bill ended Thursday. The bill will now go to the floor of the Senate, but committee staff were unsure when that would happen.
Business, Pages 35, 40 on 10/26/2007