Government in the Market -- A Recipe for Disaster

Government in the Market -- A Recipe for Disaster
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Producer A markets one pen of cattle a year. The quality is excellent and the marketing weight is 1,300 lbs.. Producer B markets a pen of similar cattle each week year around. Producer B enters into a marketing agreement with a local processor. Producer B earns a $1 cwt. premium to the market under the marketing agreement. Is Producer A entitled to the same price?

The question of equity in markets is as old as the markets themselves. The question is not only should every animal of similar quality be compelled by government to bring the same price, but also the broader question of rights of parties to engage in contracts binding the parties to various and diverse price arrangements.

An attempt by government to mandate price for all cattle of similar quality sold at a similar time is a form of price control. Any cattle feeder with memories of Nixon's price freeze in the 1970s will understand the meaning of government control of pricing. It is a recipe for disaster and will result in the opposite of free markets and open price discovery.

Banning packer feeding, formula contracts, or forward contracting is the first step to eliminating the freedom of choice that guides commerce creating efficiency and lowering food cost for all consumers. There will be no competition for best price if every best price is matched by a government order awarding the same price to all producers. If a producer is able to convince a processor of a benefit from a certain group of cattle, and the packer awards a premium, it doesn't even matter if the benefit is real or perceived.

Flipping the equation over, there is little motivation for processors to pay formula contractors a higher price than cattle might bring in the open marketplace. This logically confirms the fact that any premiums are earned and deliver added value.

Packers and Stockyards have recently issued a new directive intended to deliver more equitable pricing to producers. This is a comment period and it is important for the cattle industry to hold on to the existing price discovery mechanisms. Turning fair pricing over to the government is bad for everyone and has been proven time and time again.