Price Discovery and Competition in Markets for Fed Cattle, 82519-82537 [2024-23528]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 89, Number 198 (Friday, October 11, 2024)]
[Proposed Rules]
[Pages 82519-82537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23528]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 89, No. 198 / Friday, October 11, 2024 / 
Proposed Rules

[[Page 82519]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-24-0013]
RIN 0581-AE30


Price Discovery and Competition in Markets for Fed Cattle

AGENCY: Agricultural Marketing Service, Department of Agriculture.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The United States Department of Agriculture's (USDA or 
Department) Agricultural Marketing Service (AMS or Agency) is seeking 
advance comment on a proposal to amend the regulations under the 
Packers and Stockyards Act (P&S Act or Act). The purpose of this 
advance notice of proposed rulemaking (ANPR) is to solicit feedback on 
an identified set of regulatory options that AMS could employ to 
address concerns regarding price discovery and fairness in fed cattle 
markets. Information from public comments would inform AMS's approach 
to this topic, including any future regulatory changes.

DATES: Electronic or written comments must be submitted by December 10, 
2024.

ADDRESSES: Comments can be submitted through the Federal e-rulemaking 
portal at https://www.regulations.gov and should reference the document 
number and the date and page number of this issue of the Federal 
Register. AMS strongly prefers comments be submitted electronically. 
However, written comments may be submitted (i.e., postmarked) via mail 
to Docket No. AMS-FTPP-24-0013, S. Brett Offutt, Chief Legal Officer, 
Packers and Stockyards Division, USDA, AMS, FTPP; Room 2097-S, Mail 
Stop 3601, 1400 Independence Ave. SW, Washington, DC 20250-3601. All 
comments submitted in response to this advance notice of proposed rule 
will be included in the record and will be made available to the 
public. Please be advised that the identity of individuals or entities 
submitting comments will be made public on the internet at the address 
provided above. Parties who wish to comment anonymously may do so by 
entering ``N/A'' in the fields that would identify the commenter. A 
plain-language summary of this advance notice of proposed rule is 
available at https://www.regulations.gov in the docket for this 
rulemaking.

FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Chief Legal Officer/
Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade 
Practices Program, 1400 Independence Ave. SW, Washington, DC 20250; 
phone: (202) 690-4355; or email: [email protected].

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    AMS seeks input from stakeholders about ways to improve price 
discovery and fair and competitive trading environments in fed cattle 
markets, many of which are concentrated markets. Those concentrated 
markets may have played a role in packers imposing fed cattle 
purchasing agreements on producers, commonly known as alternative 
marketing arrangements (AMAs), that use some method of calculating 
prices other than cash negotiated or ``spot'' pricing. Fed cattle AMAs 
have achieved a well-established position in the cattle industry, 
accounting for the majority of cattle traded. The vast majority of AMAs 
are formula pricing agreements that use an external benchmark price to 
establish a base price in the contract when determining the price a 
seller will receive. In formula contracts, which this ANPR focuses on, 
the base price is not known when the contract is signed, and it 
fluctuates in accordance with the benchmark. Aspects of the design of 
formula contracts have some adverse consequences--directly or in 
conjunction with certain trading practices--for producers and the 
markets in which they operate, and potentially for other packers 
seeking to compete for fed cattle in the market. It is possible that 
some of these adverse consequences could give rise to a violation of 
the Act or other antitrust laws.
    This ANPR seeks comment on a range of options designed to ensure 
that base prices in formula pricing agreements are broadly 
representative of fair market conditions and are not vulnerable to 
unfair, deceptive, manipulative, unduly preferential, or 
anticompetitive practices that could cause prices to shift. The 
targeted options also seek to address obstacles that market 
participants face when engaging in price discovery and contributing to 
transparent markets. These options are further intended to mitigate the 
market design, trading practices, or preferences that underlie the 
complaints AMS has received over the years relating to aspects of 
formula pricing agreements and their impact on producers and the cattle 
markets.
    AMS seeks comment on the experience of producers, packers, and 
other market participants in relation to the problems undergirding 
these complaints, as well as the effectiveness, workability, and 
economic impacts of several potential solutions identified. Relevant 
data, information, and opinions to explain those views are all welcome. 
This request for comment is principally focused on what could be done 
by AMS's Packers and Stockyards Division (PSD) under the authority of 
the Packers & Stockyards Act of 1921, as amended (7 U.S.C. 181 et 
seq.). AMS is also interested, however, in commenters' views on any 
other authorities that USDA could deploy. These could include efforts 
in connection with other authorities or offices of USDA--such as the 
Office of the Chief Economist (OCE)--which provide market-relevant 
information or analysis. Comments received in response to this ANPR 
will inform AMS's approach to regulating the Nation's fed cattle 
markets.

II. Background

A. Trading Practices in the Fed Cattle Industry

    The United States' fed cattle industry involves multistage 
ownership, regional variability, and a variety of different contracting 
and trading practices. Careful attention to this range of factors is 
essential to successfully promoting fairer, more competitive markets 
for all producers. In this ANPR, the term ``fed cattle'' refers to 
cattle raised and fed for slaughter as beef or beef by-products; the 
term ``packer'' refers to the entities

[[Page 82520]]

that purchase and then slaughter fed cattle for use as beef or other 
meat by-products. Currently, the fed cattle industry is characterized 
by a high degree of packer concentration and predominant use of formula 
pricing agreements to market fed cattle.
    In the first half of the 20th century, producers sold cattle to 
packers at terminal stockyards. Sellers consigned cattle with one of 
the commission firms operating at the stockyard, which then negotiated 
the sale and collected a commission from the seller. Stockyards also 
served to aggregate livestock from widely dispersed areas. This 
centralization allowed packers to purchase the quantities necessary to 
operate their plants from one location, where the presence of many 
buyers together in one place likely improved competition because 
producers could sell to multiple, competing packers.
    During the latter half of the 20th century, the cattle feeding 
industry emerged in the Plains states, near areas of feed production 
and weather conditions suitable for cattle feeding. Packing plants 
relocated to areas near the cattle feeders, and the industry shifted 
from terminal stockyards to decentralized marketing through local 
auctions \1\ or, more commonly, a ``bid and ask'' system of direct 
negotiations between packers and cattle feeders (in other words, cash 
negotiations for live animals). In this cash or ``spot'' market, the 
price for cattle is negotiated between a fed cattle producer and a 
packer at the time of sale, in other words, ``on the spot.'' \2\ In 
healthy trading markets with multiple buyers, packers must compete with 
one another to purchase cattle.
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    \1\ Although they served as an important outlet for marketing 
fed cattle as terminal markets declined, local auctions now 
primarily market feeder and cull cattle. A relatively small number 
of fed cattle continue to be sold through live and video auctions.
    \2\ The spot market technically refers to all transactions in 
the physical commodity, as opposed to transactions for a derivative 
thereof, such as a future. Cash negotiated transactions can also be 
on a dressed basis, where payment is made based on the carcass 
weight rather than live weight.
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    In the 1990s and early 2000s, the beef cattle industry began to 
move toward quality differentiation and ``value-based marketing,'' in 
which price premiums and discounts were applied for quality grade 
differences of harvested cattle using a ``grid'' matrix.\3\ Under these 
arrangements, packers offer a different price for each individual head, 
which is determined post-slaughter by offering a base price plus a 
premium or discount for a number of carcass attributes such as quality 
grade, yield grade, and weight. Some even offer price premiums for 
certain production practices such as antibiotic-free feeding. These 
arrangements contrast with traditional cash negotiations or auction 
sales, where the buyer would bid a single price per pound for an entire 
lot. Eventually, these new arrangements came to be known as Alternative 
Marketing Arrangements (AMAs). See Figure 1, which contains a graphic 
showing various types of fed cattle marketing arrangements.
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    \3\ See Peel, Derrell S. ``How We Got Here: A Historical 
Perspective on Cattle and Beef Markets,'' in The U.S. Beef Supply 
Chain: Issues and Challenges, Ed. by B.L. Fisher et al., Texas A&M 
University, June 3-4, 2021.
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BILLING CODE 6001-FR-P

[[Page 82521]]

[GRAPHIC] [TIFF OMITTED] TP11OC24.011

BILLING CODE 6001-FR-C
    Formula agreements are the most common AMAs. Formula prices are 
determined using a base or reference price, such as the reported live 
negotiated price from the cash or spot market for the week prior to 
delivery. Although not always made in writing, formula agreements 
commonly include an express or implied agreement to purchase all the 
producer's cattle. A ``grid'' of premiums and discounts is then applied 
to the base price.
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    \4\ Source: Muth, M.K., J. Del Roccili, M. Asher, J. Atwood, G. 
Brester, S.C. Cates, M.C. Coglati, S.A. Karns, S. Koontz, J. 
Lawrence, Y. Liu, J. Marsh, B. Martin, J. Schroeter, J. L. Taylor, 
and C. L. Viator. 2007. GIPSA Livestock and Meat Marketing Study, 
Volume 3: Fed Cattle and Beef Industries. Research Triangle Park, 
NC: RTI International for USDA Grain Inspection, Packers and 
Stockyards Administration. 1-16.
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    Over the past 20 years, the use of formula agreements has increased 
relative to negotiated cash agreements, and around 2010, formula 
agreements became the dominant method of sale. As shown in Figure 2, in 
2005, beef packers acquired roughly 55 percent of their cattle through 
cash negotiations and 30 percent through formula agreements. By March 
2021, the same analysis found cash negotiations accounted for about 20 
percent of cattle purchases, and formula agreements accounted for 65 
percent. These statistics reflect the state of cattle marketing 
nationally; however, in three out of the country's five USDA-designated 
cattle procurement regions, the cash negotiated share is significantly 
lower than 20 percent, reaching as low as 12.5 percent of total cattle 
sales in the Kansas (KS) region, 8.3 percent in the Colorado (CO) 
region, and 2.6 percent in the Texas-Oklahoma-New Mexico (TX-

[[Page 82522]]

OK-NM) region. In contrast, the Iowa-Minnesota (IA-MN) region has 
reliably maintained cash-market procurement of 50 percent or more of 
marketed cattle, in part reflecting the prevalence of smaller ``farmer-
feeders.'' Nebraska (NE) region's percentage has hovered between 30 and 
40 percent. The higher prevalence of cash market transactions in IA-MN 
and NE may reflect a range of reasons, including producer preference 
for cash negotiated transactions, the size and number of sellers, and 
smaller lot sizes limiting the bargaining power of those producers in 
securing more favorable terms through AMAs.\5\ These trends are 
discussed at greater length later in this ANPR, including in Figures 2 
and 3 below.
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    \5\ The size of feedlots, which constitute the vast majority of 
cattle sales to packers, differs considerably by state. In Texas and 
Kansas, the average number of head that a feedlot sold in 2022 was 
12,851 and 5,694, respectively. In contrast, the averages in Iowa 
and Minnesota were 441 and 237, respectively. National Agricultural 
Statistics Service, 2022 Census of Agriculture.
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    Producers' views on formula agreement AMAs (hereinafter, AMAs refer 
to formula agreement AMAs unless otherwise noted) can vary widely, and 
sometimes sharply. Producers that use AMAs commonly note they generally 
offer convenience, cost-savings, and certainty, which is valuable in 
securing financing.6 7 Other producers, especially smaller 
producers commonly referred to as independents, more strongly value 
attributes in the cash market, such as the ability to negotiate on 
price with multiple packers in real time during a given week and to 
lock in that price at the time of sale, rather than relying on the 
application of a grid after slaughter. Independent producers have also 
expressed concern that the use of AMAs allows packers to avoid 
competition and exploit their market power and therefore broadly 
suppresses cattle prices. Some assert that packers engage in strategic 
behavior to control or manipulate the cash market for fed cattle, 
including going in and out of cash markets or otherwise changing their 
bidding practices, owing to the linkage between the AMA's base price 
and the underlying cash market.\8\ Some also argue that the decline in 
demand for cash transactions reduces bidding in the cash market, which 
can adversely affect competition--a problem commonly referred to as 
``captive supply.'' \9\
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    \6\ Id.
    \7\ Kades Report at 24.
    \8\ See, for example, Giles Stockton, ``There is a Solution,'' 
2017, https://www.worc.org/cattle-market/; Western Organization of 
Resource Councils (WORC), Petition for Rulemaking, 62 FR 1845 
(1997); In addition, even packer leadership noted some of these 
concerns. See, e.g., C. Robert Taylor, ``Harvested Cattle, 
Slaughtered Markets?'' (April 27, 2022) Available at https://ssrn.com/abstract=4094924, pgs. 25, 29 (quoting and citing Bob 
Peterson, CEO of IBP), infra.
    \9\ See, e.g., Bill Bullard, ``Chronically Besieged: The U.S. 
Live Cattle Industry,'' Presented at Big Ag & Antitrust Conference, 
Thurman Arnold Project at Yale, Jan. 2021; U.S. Department of 
Justice & U.S. Department of Agriculture, Public Workshops Exploring 
Competition in Agriculture, Livestock Industry Agenda, August 27, 
2010, Fort Collins, Colorado, available at https://www.justice.gov/archives/atr/event/ag-workshops-livestock-industry-agenda (accessed 
7/18/2024); C. Robert Taylor and David A. Domina, ``Restoring 
Economic Health to Beef Markets,'' Aug. 25, 2010, available at 
https://www.dominalaw.com/documents/Restoring-Economic-Health-to-Beef-Markets.pdf.
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    A critical factor underlying producer concerns around AMAs is the 
continuing market concentration in meat packing, which, at the regional 
level, has been both high and persistent. The DOJ Consent Decree of 
1920, which secured a broad injunction enjoining dominant packers from 
consolidation and vertical integration, came to an end in 1981,\10\ 
thus permitting packers to merge. Some additional vertical integration 
occurred during the 1980s between packers and feedlots, in part owing 
to deregulation of the P&S Act. However, in the 2000s the largest 
packers divested their feedlot operations. The question of closer 
relations between packers and feedlots today largely centers around 
questions of preferences in contractual terms, such as financing, risk-
sharing, and profit-sharing. The AMS Cattle Contract Library (CCL) 
Pilot collects data on whether packers have financing, risk-sharing or 
profit-sharing terms.\11\ Whether the CCL Pilot discloses terms would 
depend upon a confidentiality analysis. However, no such terms have 
been reported to AMS under the CCL Pilot, either at inception in 
January 2023 or to date as confirmed again this year.
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    \10\ United States v. Swift & Co., No. 58 C 613, 1981 WL 2171, 
at *1 (N.D. Ill. Nov. 23, 1981); see also Aduddell, Robert M. and 
Louis P. Cain. ``Public Policy Toward `The Greatest Trust in the 
World'.'' Business History Review, vol. 55 (1981), pp. 217-42.
    \11\ Authorized by the Consolidated Appropriations Act of 2022 
(Pub. L. 117-103). Implementing rule, ``Cattle Contracts Library 
Pilot Program,'' 87 FR 74951 (December 7, 2022).
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    Between 1980 and 1995, the percentage of fed cattle slaughtered by 
the four largest packers (the four-firm concentration ratio or CR4) 
rose from 35.7% to 79.3%.\12\ In other words, by the mid-1990s the four 
largest packers in the fed cattle industry controlled of almost 80% of 
all fed cattle slaughtered in the U.S. Notably, national concentration 
levels mask the impacts at the regional level. While four packers may 
compete directly in national grocery chain markets, producers commonly 
have even fewer packers to transact with in their regional markets. 
Based on AMS's experience conducting investigations and monitoring 
markets, there are commonly only one or two buyers in some local 
geographic markets, and few sellers have the option of selling fed 
cattle to more than three or four packers. In Colorado, for example, 
AMS Market News cattle price reports are usually withheld because two 
packers account for most purchases and Market News guidelines require 
at least three packers to be active in the reporting period to disclose 
price data.
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    \12\ Azzedine M. Azzam & Dale G. Anderson, USDA, Grain 
Inspection Packers and Stockyards Administration, Packers and 
Stockyards Statistical Report: 1995 Reporting Year, GIPSA 97-1, 
1996, https://www.ers.usda.gov/webdocs/publications/47232/17820_tb1874h_1_.pdf?v=0 (accessed 7/3/24).
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    The Herfindahl-Hirschman Index (HHI) is a standard used to measure 
industry concentration,\13\ and current U.S. Department of Justice and 
Federal Trade Commission Merger Guidelines state that ``markets with an 
HHI greater than 1,800 are highly concentrated.'' \14\ At a national 
level, the HHI for fed cattle packing was 1,687 in 2021, but in some 
regional markets the HHI exceeded 3,000. Although the regional areas 
defined for Market News reporting do not perfectly define the extent of 
regional markets and may therefore overstate or understate 
concentration to some degree, these regional HHI measurements are 
nevertheless revealing of limited competition. Annual adjusted regional 
HHIs as of 2021 ranged between 2,200-2,400 in Kansas and Nebraska and 
over 3,200 in Texas-Oklahoma-New Mexico.\15\
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    \13\ The HHI is calculated by summing the squares of the 
individual firms' market shares. PSD calculates the HHI of market 
concentration for packers from the individual packer's market shares 
based on Annual Commercial Slaughter totals. See Agricultural 
Marketing Service, USDA, Packers and Stockyards Division: Annual 
Report 2021 & 2022, pg. 14, https://www.ams.usda.gov/sites/default/files/media/PackersandStockyards2021_2022ReporttoCongress.pdf.
    \14\ Antitrust Division, U.S. Department of Justice, 2023 Merger 
Guidelines, December 18, 2023, https://www.justice.gov/atr/2023-merger-guidelines (last accessed 7/17/2024).
    \15\ Agricultural Marketing Service, USDA, ``Agricultural 
Competition: A Plan in Support of Fair and Competitive Markets,'' 
May 2022, p. 4, available at https://www.ams.usda.gov/sites/default/files/media/USDAPlan_EO_COMPETITION.pdf.
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    In response to concerns that ongoing packer concentration and the 
rise of AMAs were negatively impacting transparency in the cash 
markets, Congress passed the Livestock Mandatory Reporting Act of 1999 
(Pub. L. 106-78, title IX).\16\ The law enhances

[[Page 82523]]

transparency and accuracy in reporting by requiring covered packers to 
report all livestock and meat transactions to AMS, which then must 
compile the reports and make them publicly available, subject to 
appropriate confidentiality protections.\17\ USDA implemented this 
statute by establishing the Livestock Mandatory Reporting (LMR) program 
(65 FR 75464, December 1, 2000; and 66 FR 8151, January 30, 2001 
(postponing the rule's effective date)).\18\ The LMR program provides 
weekly reports on ``livestock and meat price trends, contracting 
agreements, and supply and demand conditions.'' \19\ The Regulatory 
Impact Analysis Summary of Benefits of the LMR implementing rule 
described how mandatory price reports would serve as benchmark prices 
(also called base prices or reference prices) for formula agreements, 
and thus enhance price discovery in the face of declining negotiated 
cash transactions in the cattle industry.\20\
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    \16\ See, for example, Summary in Congressional Research 
Service, ``Reauthorization of the Livestock Mandatory Reporting 
(LMR) Act in the 114th Congress.'' November 20, 2015, https://crsreports.congress.gov/product/pdf/R/R44025/4, last accessed 8/14/
2024.
    \17\ The Secretary of Agriculture was directed to establish, 
among other things, a cattle marketing information program that 
would ``provide[s] information that can be readily understood by 
producers, packers and other market participants, including 
information with respect to the pricing, contracting for purchase, 
and supply and demand conditions for livestock, livestock 
production, and livestock products.'' (7 U.S.C. 1635 Purpose).
    \18\ The program is renewed periodically per statute. It was 
renewed most recently by the Consolidated Appropriations Act of 
2024, which extended LMR authority to September 30, 2024 (Pub. L. 
118-42).
    \19\ AMS Livestock Mandatory Reporting Background, https://
www.ams.usda.gov/rules-regulations/mmr/lmr/
background#:~:text=On%20April%202%2C%202001%2C%20the%20USDA%E2%80%99s
%20Agricultural%20Marketing,sales%20of%20livestock%20and%20livestock%
20products%20to%20AMS (accessed 7/3/24).
    \20\ 65 FR 75464, 75490 (December 1, 2000).
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    Following the implementation of LMR and the associated increase in 
price transparency, packers widely adopted LMR-based reference prices 
as base prices in AMAs due to the widespread trust in LMR-based price 
reports. However, as more cattle were purchased under AMAs, the 
percentage of cattle purchased on the spot market declined, leaving the 
regional cash markets heavily used as AMA base price benchmarks with 
fewer spot transactions to draw from. (Note, different LMR reports will 
cover different transactions; some focus on a regional cash trade, 
while others show AMA transactions with various degrees of aggregation 
or confidentiality. All transactions are reported in some way, 
including AMA purchases). LMR has greatly expanded transparency in fed 
cattle markets overall, which is critical for all producers, but its 
authorities are not designed to address the use of LMR reports by 
market participants in contracts and the competitive impacts on the 
broader markets from doing so.
    In the last two decades, the fed cattle market has become even more 
reliant on formula pricing agreements. In 2008, formula pricing 
agreements accounted for 34.4% of fed cattle purchases, while spot 
market transactions accounted for 50.5%.\21\ By 2021, formula pricing 
agreements accounted for 61% of fed cattle procurement, while spot 
market (i.e., cash negotiated live and dressed) transactions accounted 
for 19%.\22\ This shift to formula pricing agreements varies by region, 
with relatively low usage in the Northern Midwest (which is more 
commonly characterized by smaller ``farmer-feeder'' operations where 
cash negotiated transactions still account for 40-50% of sales) and 
very high usage in Texas and Kansas (where larger ``corporate'' 
feedlots are the norm and cash negotiated transactions are as low as 6-
10%). See Figure 2. Some regions, notably Texas and Kansas, saw the 
number of cattle transacted in the cash market approach zero in some 
weeks. See Figure 3.
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    \21\ 2012 Annual Report, Packers and Stockyards Program, pg. 39, 
https://www.ams.usda.gov/sites/default/files/media/2012_psp_annual_report.pdf (accessed 7/3/2024).
    \22\ Packers and Stockyards Division: Annual Report 2021 & 2022, 
p. 19, https://www.ams.usda.gov/sites/default/files/media/PackersandStockyards2021_2022ReporttoCongress.pdf.
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BILLING CODE P

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[GRAPHIC] [TIFF OMITTED] TP11OC24.013

BILLING CODE C
    Although it varies from plant to plant and region to region, the 
cash market can now be considered a residual market \23\ where packers 
fill in gaps in

[[Page 82526]]

their supply needs not otherwise served first by cattle purchased with 
AMAs. Thin markets--meaning those with few purchasers or limited 
trading volume or liquidity--have received attention from policymakers 
because of concerns that processing firms could depress farm-level 
prices below those that would prevail in a competitive market. Cash 
markets and, in particular, the regional cash negotiated live markets, 
continue to serve as the primary price discovery vehicle for all cattle 
traded. Data from USDA's CCL Pilot shows that more than 75% of 
contracts analyzed rely on an AMS Market News price report to determine 
the base price used in the contract.\24\ Moreover, the CCL Pilot 
revealed that more than 90% of those contracts use one of three 
regional cash markets--negotiated cash purchases in Nebraska, Kansas, 
or Texas-Oklahoma-New Mexico--to price their cattle. These AMA contract 
base prices almost always use the reported average from the previous 
week's cash trade.
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    \23\ Adjemian, Michael K., Tina L. Saitone, and Richard J. 
Sexton. 2016. ``A Framework to Analyze the Performance of Thinly 
Traded Agricultural Commodity Markets'' Amer. J. Agr. Econ. 98(2): 
581-596; and Koontz, Steven R. 2015. ``Marketing Method Use in Trade 
of Fed Cattle: Causes and Consequences of Thinning Cash Markets and 
Potential Solutions'' Invited Paper American Applied Economics 
Association and Western Agricultural Economics Association Joint 
Annual Meeting, June 2015.
    \24\ https://mymarketnews.ams.usda.gov/Cattle_Contract_Library 
(accessed 7/3/2024). The CCL Pilot presents these base prices as 
``options'' in the contract. About 11 percent small percent of 
contracts contain an CME Live Cattle Futures Market option for a 
base. Less than 10 percent have a negotiated option, while less than 
4 percent have a ``top of the market'' option. Some contacts may use 
more than one option: for example, a contract may set out that a 
negotiated option is to be utilized when one or more of the LMR-
reported base price region fails to hit a targeted volume of cash 
trade in the week.
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    Those trading in the negotiated cash market--who are, generally, 
smaller producers without AMAs--generally absorb weekly fluctuations in 
packer demand. Cash markets are commonly viewed as a residual market, 
as packers usually prioritize AMA purchases to fill plant needs first. 
The relationship of the variation week-to-week in numbers of cattle 
purchased through negotiated cash and formula methods differs between 
regions. Notably, the difference in measured variation between the two 
markets is markedly lower in Iowa and Nebraska, and markedly higher in 
Texas-Oklahoma-New Mexico and in Kansas.\25\ Figure 4 displays a ratio 
between the coefficients of variation (CV) calculated annually for 
number of cattle sold weekly through negotiated cash and formula 
purchase methods in each region as a measure of relative variability. A 
CV ratio equal to one indicates equal variability, and higher values of 
the ratio indicate greater variability of quantities purchased in the 
negotiated cash market relative to formulas. The figure shows that in 
recent years CV ratios have been consistently higher in the Kansas 
region and the Texas, Oklahoma, and New Mexico region where formula 
methods predominate. Although there could be reasons for the 
differences other than thin markets, the figure below is consistent 
with the idea that as regional negotiated cash markets become thinner, 
cash sellers in those markets face increasing volatility and 
uncertainty in marketing their cattle relative to those selling with a 
formula.
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    \25\ Taylor, C.R. ``Risk Shifting via Partial Vertical 
Integration: Beef Packers' Acquisition of Slaughter Cattle,'' 
November 2022, https://ssrn.com/abstract=4276805.
[GRAPHIC] [TIFF OMITTED] TP11OC24.014

    Additionally, AMA base prices established using cash negotiated 
market price reports simply reflect the quality or specification of 
cattle that were traded during the week in the reporting area. Most AMA 
formulas use prices that weight the average weekly prices by number of 
head but do not standardize or weight the cattle to a particular 
quality grade (for example, USDA Choice--Yield Grade 3, etc.). That is 
to say, the base price simply reflects the numerical average of the 
prices of whatever qualities of cattle appear in the market that week;

[[Page 82527]]

however, the value of cattle--and thus the prices--can vary greatly 
depending on quality.\26\ The benchmarks, therefore, are vulnerable to 
fluctuation based on the different types of cattle sold in the market. 
It is commonly understood that different states reflect different 
qualities of quality, and that producers will seek to use base prices 
for regions that reflect their own cattle trading strategy. Yet the 
benchmark remains inherently vulnerable to changes in the quality that 
appear during a given week.
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    \26\ Note, previous academic studies have highlighted the 
potential value of augmenting the amount of information reported and 
collected on fed cattle premiums and discounts. Ted C. Schroeder, 
Brian K. Coffey, and Glynn T. Tonsor, ``Hedonic Modeling to 
Facilitate Price Reporting and Fed Cattle Market Transparency,'' 
Applied Economic Perspectives and Policy vol 45(3), Jan. 2022, p. 
1716.
    Sheppard G. Rogers, Ted C. Schroeder, Glynn T. Tonsor, and Brian 
K. Coffey, ``Describing Variation in Formula Base Prices for U.S. 
Fed Cattle: A Hedonic Approach,'' Journal of Agricultural and 
Applied Economics vol 55(1), Feb. 2023 p. 117.
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    Tying the price of AMA cattle to the cash negotiated market price 
without a quality specification also creates unusual incentives that 
may distort cattle trading. The packer, for example, may seek to avoid 
cattle with higher quality specifications that would raise the price of 
its AMA formula cattle, or to underpay for such cattle. AMS has heard 
reports that packers may find other ways to trade that keep 
transactions out of the relevant region's cash market (and hence not 
affect the relevant AMA base price) for similar reasons.\27\ These AMA 
base price benchmark practices contrast with the Chicago Mercantile 
Exchange's (CME's) Live Cattle Futures, which is tied to particular 
specifications for a lot of cattle. Cattle of all range of quality and 
type may still trade in the spot market at whatever value or premium 
that packers and producers agree upon, but the futures market is 
grounded in a clear, transparent basket of cattle for valuation and 
transparency purposes. AMS understands that packers will internally 
weight or standardize all purchases to a particular quality grade, 
usually USDA Choice--Yield Grade 3, so that the packer can measure its 
procurement efficiency even while permitting cattle quality to vary.
---------------------------------------------------------------------------

    \27\ Types of transactions that are not included in Livestock 
Mandatory Reporting (LMR) include those for which confidentiality is 
not met (such as frequently occurs in the Colorado region), or 
information is not required to be submitted (such as auction 
purchases). See Livestock Mandatory Reporting Excluded Transaction 
Summaries: https://www.ams.usda.gov/rules-regulations/mmr/lmr/excluded-transactions.
---------------------------------------------------------------------------

B. Longstanding Concerns and Market Shocks

    For over 20 years, a range of producers have complained about the 
unfairness of the prices they are paid for fed cattle arising out of 
the relationship between AMAs and the regional cash markets that form 
their base price. Producers have highlighted adverse impacts on trading 
behavior, fewer and commonly lower bids on cattle, difficulty 
attempting to negotiate with packers, increased pricing and sales risk 
in the cash market overall, and packer pickup problems, among other 
concerns. Some producers assert a predatory pricing strategy to lock up 
the industry among only favored players. They also fear the loss of 
independence and further vertical integration as has occurred in other 
protein species. However, the boldest reform attempts to date have not 
met with success.
    As early as 1996, the Western Organization of Resource Councils 
(WORC), a federation of grassroots organizations, submitted a petition 
to the Secretary of Agriculture to issue rules that would restrict the 
use of forward contracts and packer ownership of cattle, including a 
prohibition on the use of base prices that reference a future, as yet 
unknown, price.\28\ WORC put forth this petition out of concern that 
forward contracts using formulas for the base price encourage 
manipulation of cash fed cattle markets to lower formula base prices. 
Also, the petition asserted that higher quality cattle are sold on a 
formula basis, even as the base price for such sales are set on the 
negotiated cash market, where cattle are lower quality. The petition 
asserted that the combination of incentives leads to lower fed cattle 
prices on negotiated cash markets and to lower formula prices than 
would be the case if cattle purchasing was conducted in a more 
competitive, open manner.
---------------------------------------------------------------------------

    \28\ Petition submitted to USDA on October 8, 1996; published by 
USDA in the Federal Register, 62 FR 1845, January 14, 1997.
---------------------------------------------------------------------------

    Complaints about AMAs were central to many of the reforms that were 
considered during the 2008-2010 period, including both the 2008 Farm 
Bill's provision on ``undue preferences'' and subsequent efforts by 
USDA to write rules under the P&S Act in 2010.\29\ More recently, in 
2014, USDA's then Grain Inspection, Packers and Stockyards 
Administration (GIPSA) completed an investigation into complaints from 
cattle industry participants regarding possible anticompetitive 
behavior by the four largest packers, in part due to the packers' use 
of formula pricing agreements (which are referred to in the report as 
AMAs).\30\ Complainants asserted to USDA that packers are able to lower 
prices in the cash market and thus impact prices paid under AMAs by (1) 
buying fewer cattle on a cash basis, which results in thinner volumes; 
(2) making unreasonably low bids (or bidding less aggressively, making 
``take it or leave it'' short-term pressure bids); and (3) only 
offering market-based price bids once a lower market price is 
established. The investigation found that, ``on a week-to-week basis, 
higher levels of AMA procurement [as a percentage of slaughter 
capacity] were associated with lower negotiated cash prices.'' \31\ 
This suggests that cash or spot market prices are more likely to be 
depressed in weeks when packers rely more heavily on AMA procurement to 
fill slaughter needs. Yet the report focused on AMAs as a whole, rather 
than on base price selection, and found that AMAs ``have significant 
economic benefits,'' including for packers, consumers, and fed cattle 
producers.'' \32\ Reported benefits to packers included a reduction in 
transaction costs; benefits to consumers included improvement in beef 
quality, and benefits to cattle feeders, included a reduction in 
transaction costs, assurance of timely market access, and reduction in 
the price risk associated with raising and selling fed cattle. AMS does 
not, however, endorse cross-market balancing, as benefits and harms 
should only be considered within a market.
---------------------------------------------------------------------------

    \29\ See title XI of the Food, Conservation and Energy Act of 
2008 (2008 Farm Bill) (Pub. L. 110-246); see also, U.S. Department 
of Justice & U.S. Department of Agriculture, Public Workshops 
Exploring Competition in Agriculture, Livestock Industry Agenda, 
August 27, 2010, Fort Collins, Colorado, available at https://www.justice.gov/archives/atr/event/ag-workshops-livestock-industry-agenda (accessed 7/18/2024); see also 75 FR 35338, June 22, 2010; 
see also, e.g., C. Robert Taylor and David A. Domina, ``Restoring 
Economic Health to Beef Markets,'' Aug. 25, 2010, available at 
https://www.dominalaw.com/documents/Restoring-Economic-Health-to-Beef-Markets.pdf.
    \30\ USDA, GIPSA, Packers and Stockyards Program, Western 
Regional Office, Investigation of Beef Packers' Use of Alternative 
Marketing Arrangements, July 2014, https://www.r-calfusa.com/wp-content/uploads/2020/07/200721-2014-GIPSA-Investigation-of-Cattle-Market.pdf (accessed 7/3/2024).
    \31\ Id., pg. i.
    \32\ Id., pg. ii.
---------------------------------------------------------------------------

    Smaller producers selling in the negotiated cash market have 
complained to USDA for many years about unfair practices leading to 
lower prices in the cash markets and so-called ``sweetheart deals'' in 
the form of AMAs, where the AMA-receiving producer secured pricing 
better than that secured in cash negotiated markets

[[Page 82528]]

for the same quality cattle.\33\ Part of the concern from these 
producers is that they engage in the work of price discovery--the 
risks, the costs, the inability to place cattle, etc.--yet are not 
compensated for those costs and risks, as AMA formulas incorporate 
whatever the cash negotiated price is into the AMA.\34\ Moreover, as 
revealed by the CCL Pilot, AMA contracts commonly pay adjustments above 
the base price, although the ultimate economics of the agreement 
depends upon the premiums and discounts. To the extent that packers 
seek to lower their procurement costs by only purchasing lower quality 
cattle within relevant markets, or through exercising softer bidding or 
other trading practices, producers selling in cash markets would also 
experience harms compared to AMA holders, who receive upwards 
adjustments in the base price beyond the LMR prices \35\ along with 
quality bonuses based on the grid.
---------------------------------------------------------------------------

    \33\ See, e.g., Bill Bullard, ``Chronically Besieged: The U.S. 
Live Cattle Industry,'' Presented at Big Ag & Antitrust Conference, 
Thurman Arnold Project at Yale, Jan. 2021; Bill Bullard, ``Under 
Siege: The U.S. Live Cattle Industry,'' S. Dakota L. Rev., 2013; 
2010 GIPSA Hearings; Taylor, Legal and Economic Issues (supra).
    \34\ For more on the costs/risks and collective action problems 
associated with price discovery, see Darrell Peel, David Anderson, 
et al, ``Fed Cattle Price Discovery Issues and Considerations,'' 
Oklahoma State University Extension, (E-1053), Nov. 2020, available 
at https://extension.okstate.edu/fact-sheets/print-publications/e/fed-cattle-price-discovery-issues-and-considerations-e-1053.pdf and 
John D. Anderson, James L. Mitchell, and Andrew M. McKensie, 
``Analysis of the Cattle Price Discovery and Transparency Act of 
2021, University of Arkansas (FC-2022-001), Jan. 2022, available at 
https://wordpressua.uark.edu/fryar-center/files/2023/02/CPDTA-analysis-01.18.22.pdf.
    \35\ For the first half of 2024 34.2% of all contracts in the 
Cattle Contract Library Pilot dashboard received base price 
adjustments. During the same time frame, the average base price 
adjustment for contracts that used USDA Market News LMR data to 
determine a base price and applied quality premiums and discounts 
made an average base price adjustment of $1.10/cwt before quality 
premiums and discounts were applied.
---------------------------------------------------------------------------

    Concerns raised by producers regarding concentration and 
insufficient price discovery came to a head as a result of a series of 
market shocks in 2019 and 2020. The first arose following the closure 
of one processing plant, which, due to the plant's size, impacted the 
entire industry. On August 9, 2019, a beef packing plant in Holcomb, 
Kansas closed after extensive damage from a fire.\36\ The plant was 
responsible for 5 to 6% of the Nation's beef processing capacity.\37\ 
Though the plant's owner quickly transferred cattle to its other 
facilities,\38\ an AMS investigation found significant economic impacts 
resulted from the fire. With respect to pricing, for the week ending 
August 24, 2019, the spread (the difference between the average price 
packers paid to cattle producers for fed cattle and the average price 
paid by wholesale beef buyers for USDA Choice grade beef) was $67.17, 
representing a 143% increase from the average spread between 2016 and 
2018.\39\ Though this eventually stabilized, the spread remained above 
2016-2018 levels.\40\ With respect to trading, AMS found that in the 
aftermath of this crisis, sales in the spot market decreased while 
formula trading increased: in the week after the fire, spot market 
trading decreased by 27%, while formula trading increased by 15,000 
head of fed cattle.\41\ This is significant because, as noted above in 
this ANPR's overview of the fed cattle industry, more than 75% of 
formula pricing agreements base the price paid for cattle on prices 
paid in the spot market. Therefore, the nature of the trading that is 
conducted in the spot market--for example, the number of packers 
competing against one another to bid on the price paid for cattle, 
whether those trades are public, and the quality of information 
disclosed publicly--heavily impacts the amount paid for cattle under 
formula pricing agreements. As AMAs are commonly exclusive with an 
express or implied obligation that the packer will take all of the 
producer's cattle, market shocks such as this more heavily impact 
trading in spot markets, leaving those producers unable to timely sell 
their cattle.
---------------------------------------------------------------------------

    \36\ Michael Nepveux, American Farm Bureau Federation, ``Impacts 
of the Packing Plant Fire in Kansas,'' September 10, 2019, https://www.fb.org/market-intel/impacts-of-the-packing-plant-fire-in-kansas 
(accessed 7/5/2024).
    \37\ USDA, AMS, ``Boxed Beef & Fed Cattle Price Spread 
Investigation Report,'' July 22, 2020, https://www.ams.usda.gov/sites/default/files/media/CattleandBeefPriceMarginReport.pdf 
(accessed 7/5/2024).
    \38\ Nepveux, ``Impacts of the Packing Plant Fire in Kansas.''
    \39\ ``Boxed Beef & Fed Cattle Price Spread Investigation 
Report,'' pg. 3.
    \40\ Id. at pg. 5.
    \41\ Ibid.
---------------------------------------------------------------------------

    The COVID-19 pandemic also impacted pricing, trading, and the beef 
supply chain, but even more severely. By late March of 2020, slaughter 
rates fell as workers fell sick and plants closed, and consumer demand 
surged, shifting from restaurant demand to retail 
demand.42 43 44 Fed cattle purchases declined, as did fed 
cattle prices.\45\ An AMS investigation found that, ``[f]rom the 
beginning of April until the third week of May, the spread rose from 
approximately $66/cwt. to just over $279/cwt., an increase of 
approximately 323 percent . . . and the largest spread between the 
price of fed cattle and the price of boxed beef since the inception of 
Mandatory Price Reporting in 2001.'' \46\ The investigation found that, 
although the spread fell in subsequent months, it remained high by 
historical standards. A year later, cattle producers were still 
suffering economically while packers profited as COVID-19 kept plants 
at reduced capacity for an extended period: in its July 2021 
Congressional testimony, a cattle trade association reported that 
``gross packer margin . . . exceeded $1,000 per head'' while fed cattle 
producers across the nation ``struggled to break even.'' \47\ During 
this time, ``[o]n average, estimated returns for cattle producers were 
below cost of production.'' \48\
---------------------------------------------------------------------------

    \42\ Kate Vaiknoras, et. al., USDA, ERS, ``COVID-19 Working 
Paper: COVID-19 and the U.S. Meat and Poultry Supply Chains,'' 
February 2022, https://www.ers.usda.gov/webdocs/publications/103178/ap-098.pdf?v=8386.2 (accessed 7/5/2024).
    \43\ J.E. Hobbs, ``The Covid-19 pandemic and meat supply 
chains,'' Meat Sci, November 2021, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9761612/, (accessed 7/5/2024).
    \44\ ``Boxed Beef & Fed Cattle Price Spread Investigation 
Report,'' pg. 9.
    \45\ Ibid.
    \46\ Id., pg. 9.
    \47\ ``Beefing up Competition: Examining America's Food Supply 
Chain'': U.S. Senate Committee on the Judiciary (July 28, 2021) 
(Written Testimony of the Iowa Cattlemen's Association, https://www.judiciary.senate.gov/imo/media/doc/Schaben%20-%20Testimony.pdf 
(accessed 7/5/2024)).
    \48\ Ibid.
---------------------------------------------------------------------------

    Cattle inventories continued to contract at the national level 
after 2021, and widespread drought conditions contributed to the beef 
cow herd reaching its lowest level in more than 60 years. Concurrent 
with herd contraction, cattle prices had recovered, reaching record 
highs during 2023 and 2024 and leading to estimated returns above cost 
of production for producers.
    In response to the disruptions caused by COVID and the closed plant 
in Holcomb, Kansas, USDA has taken a wide range of measures to boost 
resiliency and competitiveness in the meat supply chain, including 
investing more than $1 billion into new local and regional meat 
processing capacity.\49\ Yet, given the interdependent nature of the 
fed cattle industry and the continuing level of concentration in the 
beef industry, future packer crises may still have far-reaching pricing 
and trading impacts. AMS believes that regulatory consideration of 
trading market structures and practices must be part of any effort to 
increase the resiliency and competitiveness, as well as fairness, of 
the cattle pricing system

[[Page 82529]]

that undergirds our nation's meat supply.
---------------------------------------------------------------------------

    \49\ AMS, ``Agricultural Competition,'' supra. See also 
www.usda.gov/meat (last accessed July 2024).
---------------------------------------------------------------------------

    An additional concern relates to when cattle sold on a liveweight 
basis are picked up. Feedlots typically sell their animals when they 
reach a weight that is considered ``finished,'' or ready for slaughter. 
In most cases, the packer schedules a subsequent time to pick up the 
purchased cattle, also known as ``calling for cattle.'' Feedlot sellers 
incur ongoing costs of feed, yardage, etc., for cattle from the time of 
sale until the buyer picks the animals up and takes them to the plant. 
Although a seven-day pickup window is often considered standard 
practice, sellers have reported packers waiting more than six weeks 
after purchase before picking up cattle.
    In major cattle feeding regions, a seven-day pick-up time has been 
the accepted industry practice. After seven days have elapsed, it is 
common practice for sellers to ``weigh-up'' cattle, which means 
weighing them before putting them back on feed and shifting 
responsibility for all future costs of feed, yardage, death loss, etc., 
to the packer. Weighing-up cattle helps clearly determine the value of 
cattle that have been sold on a negotiated cash live weight basis. The 
packer owes the seller an amount equal to the negotiated price 
multiplied by weight at the time of the weighing-up. From that point 
forward, the packer must pay all future costs for animal maintenance, 
while also accruing the benefit of any weight gain that occurs after 
the weigh-up.\50\ Notably, failure to pick up cattle in a timely manner 
adds, in the view of some producers, to the packer's ``captive supply'' 
of cattle that reduces demand for bidding in the cash market.
---------------------------------------------------------------------------

    \50\ In 2023, the National Cattlemen's Beef Association (NCBA) 
adopted a similar resolution in favor of adopting a 7-day standard 
for picking up cattle purchased on a negotiated cash basis, after 
which cattle would be weighed up and the buyer would be responsible 
for additional expenses. Policy handbook (p. 98) available at 
https://www.ncba.org/Media/NCBAorg/Docs/2024-ncba-policy-book.pdf 
(last accessed 7/18/2024).
---------------------------------------------------------------------------

C. Academic Review and Other Regulatory Models

    There exists a relatively large body of empirical research into 
AMAs in livestock markets and fed cattle markets specifically. The 
presentation of some research here is necessarily exemplary of the 
available research and is not intended to reflect AMS's endorsement of 
conclusions or even the relative balance of the presentation, be it 
perceived as favorable or unfavorable to certain aspects of AMAs.
    Early studies consistently found a small but significant negative 
correlation between fed cattle prices and the number of cattle 
purchased through AMAs from week to week. While these studies were 
unable to prove conclusively that this negative correlation was due to 
market power, the correlation has remained robust across 
time.51 52 A recent study found a continued statistically 
significant negative correlation between spot fed cattle prices and 
AMAs, and empirically demonstrates that increases in AMAs may have 
contributed to an increase in the observed spread between the prices 
that packers pay for cattle from feedlots and the value of the beef 
they sell to retailers.\53\
---------------------------------------------------------------------------

    \51\ Examples include among others Emmett Elam. 1992. ``Cash 
Forward Contracting versus Hedging of Fed Cattle, and the Impact of 
Cash Contracting on Cash Prices'' Journal of Agricultural and 
Resource Economics, 17(1): 205-217.
    Clement E. Ward, Stephen R. Koontz, and Ted C. Schroeder. 1998. 
``Impacts from Captive Supplies on Fed Cattle Transaction Prices'' 
Journal of Agricultural and Resource Economics 23(2):494-514. 
Schroeter John R. and Azzeddine Azzam. 1999. ``Econometric analysis 
of fed cattle procurement in the Texas Panhandle'' Report to USDA, 
Grain Inspection Packers and Stockyards Administration. Ji, In Bae 
and Chanjin Chung. 2012. ``Causality Between Captive Supplies and 
Cash Market Prices in the U.S. Cattle Procurement Market'' 
Agricultural and Resource Economics Review, 41/3 (Dec. 2012) 340-
350.
    \52\ See, e.g., Garrido, F.G. and M. Kim, N.H. Miller, and M.C. 
Weinberg. ``Buyer Power in the Beef Packing Industry: An Update on 
Research in Progress,'' Report prepared for Washington Center for 
Equitable Growth, March 30, 2022; C. Robert Taylor, ``Harvested 
Cattle, Slaughtered Markets''; USDA, GIPSA, Packers and Stockyards 
Program, Western Regional Office, Investigation of Beef Packers' Use 
of Alternative Marketing Arrangements, July 2014, https://www.r-calfusa.com/wp-content/uploads/2020/07/200721-2014-GIPSA-Investigation-of-Cattle-Market.pdf (accessed 7/3/2024).
    \53\ Garrido, F., M. Kim, N.H. Miller, and M.C. Weinberg. 
``Buyer Power in the Beef Packing Industry,'' January 2024, https://www.nathanhmiller.org/cattlemarkets.pdf (accessed 9/25/2024).
---------------------------------------------------------------------------

    A range of studies have explored the benefits of AMAs, almost 
always looking at them holistically. McDonald and McBride and several 
others have documented efficiency gains from contracting in livestock 
markets. In the 2007 GIPSA Meat and Livestock Marketing Study, Muth et 
al., found benefits to packers, cattle producers, and consumers. 
Benefits to cattle producers were larger than any potential decrease in 
prices to producers, whether due to market power or otherwise. AMAs 
enable packers and feeders to make better use of their capacity, 
further reducing costs, and reducing risk for producers as they know 
they have a buyer for their cattle well in advance. AMS does not 
endorse the type of cross-market balancing that would seek to justify 
harms to smaller producers with benefits to larger producers. AMS does 
not express an opinion in this ANPR regarding whether the conclusions 
from these studies would still hold given significant market shifts 
over the last 17 years, even if attempting to balance harms and 
benefits to producers. Nor does AMS express an opinion on whether it 
would utilize the same methodology used in earlier studies.
    Researchers have also explored how AMAs and grid pricing have 
changed risk and pricing signals between packers to producers.\54\ AMAs 
use the grid to link pay premiums and discounts that are added to or 
subtracted from base prices directly to valued characteristics of fed 
beef cattle such as degree of marbling and yield of sellable meat.\55\ 
AMAs are also used to encourage production of some process-verified 
cattle characteristics (including natural, organic, non-hormone 
treated, grass-fed, or age and source verification) that require 
increased coordination between beef producers and packer buyers. These 
pricing incentives are clearly laid out for producers in contracts and 
evaluated post-slaughter.\56\ That is, in contrast to a simple live 
cash price paid before harvest as a single per pound rate for a group 
of cattle ``on the hoof,'' AMAs typically link payment to carcass 
performance after harvest (e.g., yield and quality grade) and other 
value-added characteristics, including process verification. 
Accordingly, the risks that the packer bears in cash markets through 
its buyer agents' ability to identify and signal to producers the 
importance of particular quality characteristics are borne by producers 
in AMAs. In doing so, AMAs have been found to be more effective at 
passing price signals from consumers--as identified by the packer--up 
to

[[Page 82530]]

producers.\57\ Negotiated grid transactions, in which a firm base price 
is negotiated between buyer and seller, also apply quality premiums and 
discounts to the prices paid for fed cattle based on actual carcass 
performance, but lack the vertical coordination aspect of AMAs and thus 
do not provide price incentives for process-verified characteristics 
such as organic or all natural that feeders need to know they will 
receive prior to feeding.
---------------------------------------------------------------------------

    \54\ Schroeder, T.C., B.K. Coffey, and G.T. Tonsor. ``Enhancing 
Supply Chain Coordination through Marketing Agreements: Incentives, 
Impacts, and Implications,'' in The U.S. Beef Supply Chain: Issues 
and Challenges: Proceedings of a Workshop on Cattle Markets, ed. by 
Fisher, B.L, J.L. Outlaw, and D.P. Anderson, Agricultural and Food 
Policy Center Texas A&M University, June 3-4, 2021, p. 81.
    \55\ See, for example, Ward, C.E., T.C. Schroeder, and D.M. 
Feuz, ``Grid Pricing of Fed Cattle: Base Prices and Premiums-
Discounts,'' Oklahoma Cooperative Extension Service, AGEC-560, 
available at: https://extension.okstate.edu/fact-sheets/print-publications/agec/grid-pricing-of-fed-cattle-base-prices-and-premiums-discounts-agec-560.pdf.
    \56\ Some standard pricing incentives used in fed cattle 
contracts are reported in the Cattle Contract Library Pilot Program. 
For more information, please see USDA AMS LPGMN Cattle Contracts 
Library--Explanatory Notes: https://www.ams.usda.gov/sites/default/files/media/CCL_ExplanatoryNotes.pdf.
    \57\ See, for example, Doumit, K.M. and T.C Schroeder, ``Fed 
Cattle and Beef Premiums and Discounts: Trends and Implications,'' 
Kansas State University Department of Agricultural Economics 
Extension Publication, 8/28/2023. Available at: https://agmanager.info/livestock-meat/marketing-extension-bulletins/marketing-strategies-and-livestock-pricing/fed-cattle-0 (last 
accessed 10/1/2024).
---------------------------------------------------------------------------

    The above line of argument remains contested, however. Indeed, most 
lower quality cattle have historically been purchased through AMAs in 
the southern feeding regions, while in the northern feeding regions a 
larger proportion of cattle are higher quality and are much more likely 
to be purchased using negotiated methods.\58\ Packer buyers are highly 
skilled at predicting how live cattle will grade out after slaughter as 
their job depends on it. They also are skilled at communicating to 
sellers what they are looking for in a pen of cattle. Moreover, 
negotiated grid transactions preserve the benefits of the grid while 
also retaining the advantages of a negotiated base price, although they 
lack the buyer commitment dimension of AMAs.
---------------------------------------------------------------------------

    \58\ See, e.g., Thayer, A.W., Benavidez, J.R., and Anderson 
D.P., ``Exploring the Impact of Fed Cattle Grade on Transaction 
Type,'' ASFMRA 2024 Journal, available at https://higherlogicdownload.s3.amazonaws.com/ASFMRA/aeb240ec-5d8f-447f-80ff-3c90f13db621/UploadedImages/Journal/2024/Impact_of_Fed_Cattle_Grade.pdf; Taylor, C.R. (2022) Harvested 
cattle, slaughtered markets? Available at: https://dx.doi.org/10.2139/ssrn.4094924.
---------------------------------------------------------------------------

    Nevertheless, as the number of cattle that packers purchased with 
AMAs became considerably larger than the spot negotiated market, 
academic focus shifted to the issue of thin negotiated markets. Market 
stakeholders also began to question whether spot market prices are 
representative of the value of fed cattle on the market, and thus cast 
doubt on the merits of using them as base prices in AMAs.\59\ 
Carstensen (2022) and others have argued that the full extent of how 
buyer power influences the use of AMAs remains underappreciated in 
mainstream agricultural economic analysis.\60\
---------------------------------------------------------------------------

    \59\ Fischer, B.L., and J.L. Outlaw. 2021. ``Introduction.'' The 
U.S. Beef Supply Chain: Issues and Challenges. B.L. Fischer, J.L. 
Outlaw, and D.P. Anderson, eds. College Station, TX: Agricultural 
and Food Policy Center, Texas A&M University.
    \60\ Carstensen, P.C., ``Dr. Pangloss as an Agricultural 
Economist: The Analytic Failures of `The U.S. Beef Supply Chain: 
Issues and Challenges,' '' (2022), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4049230.
---------------------------------------------------------------------------

    Economic research into price discovery in thin markets has, 
however, generally been skeptical of interventions that would set a 
floor number or percentage of fed cattle to be traded in spot markets 
each week. Koontz examined the role that different regions play in 
leading price discovery, as well as the relative thinness and thickness 
of the regional markets.\61\ He also estimated high costs to the 
industry from proposed interventions that would impose a limit on AMA 
usage in fed cattle markets.\62\ Peel et al. (2020) added that such 
steps to mandate negotiated trade could have the unintended effect of 
undermining the reliability of market price reporting by creating 
incentives for misrepresenting transaction types.\63\ Adjemian et al. 
also suggested a floor percentage would not be beneficial. They also 
pointed out that thin markets tended to benefit large firms, so 
programs to aid small producers might be a good focus for regulatory 
agencies.\64\ Dennis and Lubben (2022) surface potential factors and 
tradeoffs around the effectiveness of regional-based minimums.\65\
---------------------------------------------------------------------------

    \61\ Koontz, Stephen R. 2016, ``Price Discovery Research 
Project--Objective Measures Findings Summary,'' Colorado State 
University, 10, available at https://webdoc.agsci.colostate.edu/koontz/thinmarkets/Price%20Discovery%20Objective%20Measures%20Report%202016-06.pdf.
    \62\ Koontz, Stephen R. 2021. ``Another Look at Alternative 
Marketing Arrangement Use by the Cattle and Beef Industry.'' The 
U.S. Beef Supply Chain: Issues and Challenges. B.L. Fischer, J.L. 
Outlaw, and D.P. Anderson, eds. College Station, TX: Agricultural 
and Food Policy Center, Texas A&M University.
    \63\ Op Cit.
    \64\ Adjemian, M.K., W. Brorsen, W. Hahn, T. Saitone, and R. 
Sexton. 2016. ``Thinning Markets in U.S. Agriculture: What Are the 
Implications for Producers and Processors?'' ERS EIB number 148.
    \65\ Dennis, E.J. and Lubben, B.D., ``Regional Minimums in the 
U.S. Beef Complex,'' (2022), available at https://cap.unl.edu/livestock/new-report-regional-minimums-us-beef-complex.
---------------------------------------------------------------------------

    There is less available research on how benchmarks are used as base 
prices in marketing agreements. Cattle markets are not the only markets 
that employ benchmarked prices with manipulation concerns. Oil and 
financial markets are two examples of markets that rely on benchmarks, 
and both have seen large manipulation schemes.\66\ In a game theory 
model, Hatfield and Lowery found that pegging prices in formula pricing 
agreements to spot market prices can facilitate collusion among packers 
and facilitate monopsonistic pricing. The authors suggest that these 
advantages could explain why packers have shifted toward the use of 
what they call spot-contracting (i.e., the use of variable spot-market 
prices in formula pricing agreements).\67\ Earlier theoretical work by 
Xia and Sexton and Davis found that use of ``top-of-the-market 
pricing'' (TOMP) arrangements in particular bears similarities to 
``most-favored'' nation (MFN) clauses and that their use exhibits 
similar potential to facilitate coordination between competitors, as 
well as dampen competition and prices.\68\ The structure of TOMP 
purchasing arrangements reduces packer incentives to buy cattle in the 
spot market. A more recent study by Garrido et al. also suggests more 
generally that referencing reported prices in marketing agreements 
distorts packer's incentives, reducing a packer's incentive to increase 
bids to procure more cattle.\69\
---------------------------------------------------------------------------

    \66\ Gina-Gail S. Fletcher, ``Benchmark Regulation,'' 102 Iowa 
Law Review 1929-1982 (2017), available at: https://scholarship.law.duke.edu/faculty_scholarship/4014
    \67\ Hatfield, J.W. and R. Lowery. ``Facilitating Collusion with 
Spot-Price Contracting,'' University of Texas--Austin: McCombs 
School of Business, August 2, 2023. https://ssrn.com/abstract=4529677 (accessed 7/5/2024).
    \68\ See, Davis, D. ``Does Top of the Market Pricing Facilitate 
Oligopsony Coordination?'' South Dakota State University Discussion 
Paper, August 9, 2000; see also Xia, T. and R.J. Sexton. ``The 
Competitive Implications of Top-of-the-Market and Related Contract-
Pricing Clauses,'' American Journal of Agricultural Economics 92(4): 
1181-1194, April 2010.
    \69\ Garrido, F., M. Kim, N.H. Miller, and M.C. Weinberg. 
``Buyer Power in the Beef Packing Industry,'' January 2024, https://www.nathanhmiller.org/cattlemarkets.pdf (accessed 9/25/2024); 
Garrido, F. G and M. Kim, N.H. Miller, and M.C. Weinberg. ``Buyer 
Power in the Beef Packing Industry: An Update on Research in 
Progress,'' Report prepared for Washington Center for Equitable 
Growth, March 30, 2022.
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    Policy discussions following from this research have tended to 
frame the problem as a zero-sum debate between the use of formula 
contracts and cash negotiated transactions.\70\ Legislative proposals 
for mandatory minimum cash trading and voluntary industry proposals to 
address concerns around price discovery commonly focus on the numerical 
volume of spot, negotiated grid, or otherwise qualified trading.\71\ 
However, it may be that it's not an either/or question, but rather how 
formula contracts are developed, and

[[Page 82531]]

thus in turn how they affect the cash negotiated market. The question, 
then, is whether the incentive structure can be appropriately shifted 
such that formula pricing arrangements facilitate rather than restrict 
price discovery and fair competition.
---------------------------------------------------------------------------

    \70\ See, e.g. TAMU, https://afpc.tamu.edu/research/publications/710/cattle.pdf.
    \71\ See, e.g., S. 4030 (117th Cong., 2021-2021); Letter from 
Marty Smith, President, National Cattlemen's Beef Association, to 
Fellow Cattle Producers, Oct. 15, 2020, available at https://cdn.farmjournal.com/s3fs-public/inline-files/Letter%20from%20Marty%20to%20NCBA%20Membership%20-%20FINAL.pdf.
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    In financial and commodity trading markets, increasing attention 
has been paid in recent years to the regulation of benchmarks to ensure 
reliability and prevent manipulation of the benchmark or other forms of 
unfair or deceptive trading in relation to the benchmark.\72\ The 
extraordinary manipulation of the London Interbank Offer Rate (LIBOR), 
which was the reference price for interest rates cases from 2015 and 
affected trillions of dollars of financial instruments, drove 
widespread interest in regulating benchmarks.\73\ Among the reforms 
adopted by various regulators include changing which benchmarks are 
available for use in contracts.\74\ Another tool deployed by financial 
regulators has been enhanced transparency in the underlying benchmark 
market, which in turn has enhanced the opportunity for standardization 
and improved price discovery in certain previously-thought bespoke and 
difficult to regulate markets. The most notable of these is the bond 
market, where the Financial Industry Regulatory Association (FINRA)'s 
Trade Reporting and Compliance Engine (TRACE) system immediately 
reports a handful of key characteristics for bond transactions, which 
allows investors and market participants to normalize pricing across 
diverse bond trading and, in effect, compare apples to oranges. In 
doing so, it dramatically reduced the fees that dealer banks could 
charge through opaque pricing, and improved trading efficiency and 
fairness for investors.\75\ FINRA also confidentially reports 
scorecards to broker-dealers providing them information about their 
performance relative to peers, which has reduced markups that investors 
pay. Regulators have also long paid attention to trading incentives, 
pricing differences, and fairness concerns that may arise from the 
transparency differences between ``lit'' (reported) and ``dark'' 
(unreported) markets.\76\
---------------------------------------------------------------------------

    \72\ Gina-Gail S. Fletcher, ``Benchmark Regulation,'' 102 Iowa 
Law Review 1929-1982 (2017), available at: https://scholarship.law.duke.edu/faculty_scholarship/4014; Andrew Verstein, 
Benchmark Manipulation, 56 Boston College Law Review 215 (2015), 
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2482021.
    \73\ See, e.g., Deutsche Bank's London Subsidiary Agrees to 
Plead Guilty in Connection with Long-Running Manipulation of 
LIBOR,'' available at https://www.justice.gov/opa/pr/deutsche-banks-london-subsidiary-agrees-plead-guilty-connection-long-running-manipulation.
    \74\ See, generally, Federal Reserve Board and Federal Reserve 
Bank of New York, ``Transition from LIBOR,'' available at https://www.newyorkfed.org/arrc/sofr-transition; Alternative Reference Rates 
Committee, ``ARRC Closing Report: Final Reflections on the 
Transition from LIBOR,'' Nov. 2023, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2023/ARRC-Closing-Report.pdf.
    \75\ Kumar Venkataraman, ``Market Transparency, Liquidity 
Externalities, and Institutional Trading Costs in Corporate Bonds,'' 
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=827984. Also on FINRA's TRACE: https://www.finra.org/filing-reporting/trace/trace-independent-academic-studies.
    \76\ See, e.g., Chair Gary Gensler, U.S. Securities and Exchange 
Commission, ``Market Structure and the Retail Investor:'' Remarks 
Before the Piper Sandler Global Exchange Conference,'' June 8, 2022, 
available at https://www.sec.gov/newsroom/speeches-statements/gensler-remarks-piper-sandler-global-exchange-conference-060822; 
Commissioner Kara M. Stein, U.S. Securities and Exchange Commission, 
``Market Structure in the 21st Century: Bringing Light to the 
Dark,'' Sept. 30, 2015, available at https://www.sec.gov/newsroom/speeches-statements/stein-market-structure; Commissioner Michael S. 
Piwowar, U.S. Securities and Exchange Commission, ``The Benefit of 
Hindsight and the Promise of Foresight: A Proposal for A 
Comprehensive Review of Equity Market Structure,'' Dec. 9, 2013, 
available at https://www.sec.gov/newsroom/speeches-statements/2013-spch12013msp.
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    Other industries have developed solutions to address complex 
pricing challenges, some of which may have the potential to inform 
development of new market price information and reporting products that 
would provide additional options and could be adopted as alternative 
benchmarks in the cattle industry. Levin and Milgrom (2010) discuss 
several ways in which concepts of ``standardization'' and 
``conflation'' have been applied in the context of pricing a variety of 
diverse goods that include wheat, diamonds, radio spectrum, and 
internet advertising.\77\
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    \77\ Jonathan Levin and Paul Milgrom, ``Online Advertising: 
Heterogeneity and Conflation in Market Design,'' American Economic 
Review vol. 100(2), May 2010, p. 603, available at https://
web.stanford.edu/~jdlevin/Papers/OnlineAds.pdf last accessed 7/18/
2024.
---------------------------------------------------------------------------

    In light of identified concerns about existing cattle industry 
benchmarks, application of ideas from other industries could prove 
useful. USDA, through a range of programs, regularly provides a wide 
array of useful market information and could continue to explore 
possibilities for developing additional price reports that provide 
valuable price discovery information to the industry. Expanded price 
discovery information from newly developed reports could create 
additional options that market participants could potentially use as 
benchmarks that improve price discovery and make the market more 
transparent. Other possibilities might include the production of 
reports that could function more similarly to the TRACE system, which 
immediately reports a handful of specific identified characteristics 
for every transaction on a national, anonymous basis.
    This ANPR focuses on which benchmarks are appropriate for use as 
base prices in formula agreements, along with related trading practices 
and implications arising from the use of those benchmarks. As discussed 
below, the purpose of this ANPR is to solicit useful information that 
can be used to inform future rulemaking that could either change base 
price choices or otherwise regulate packer trading connected with the 
use of base prices.

III. Potential Options To Remove Barriers to Price Discovery and 
Improve the Fair Trading in Relation to Cattle Price Benchmarks

    AMS seeks to identify regulatory changes for ``covered packers'' 
with respect to base price formation in formula contracts and related 
trading practices, transparency in price reporting, and information 
collection/market monitoring that could ameliorate these problems with 
minimal adverse consequences for industry stakeholders. ``Covered 
packer,'' means every packer slaughtering fed steers and heifers as 
defined in 7 U.S.C. 191(a) that has slaughtered five percent or more of 
the total fed cattle that were slaughtered nationally in the past five 
years. There are no covered packers that would be defined as small 
businesses by the Small Business Administration because all covered 
packers to which the ANPR applies have more than 1,150 employees. 
Through this ANPR, AMS seeks feedback on whether the following proposed 
interventions could mitigate the adverse consequences of AMAs without 
losing their benefits to covered packers.

A. General Regulatory Options

    AMS is first requesting comment on several broader-based regulatory 
options that would each regulate covered packers' purchases of fed 
cattle from fed cattle producers. The general regulatory options can be 
considered individually or in combination with each other. The options 
may also have associated written documentation requirements (which are 
discussed in section III.D.). Commenters are invited to comment on 
whether one or more of the options would help remove barriers to price 
discovery or market transparency, improve the fair-trading environment 
in relation to cattle price benchmarks, or otherwise address concerns 
that producers and market participants may

[[Page 82532]]

have with respect to fairness, preferences, competition, or other 
aspects of the markets, as well as the costs and benefits, obstacles, 
or other aspects of these options.
    1. Fair Trading in Relation to a Benchmark. AMS is considering two 
options (options 1.a. and 1.b.) to address potentially problematic 
trading practices in relation to the use of a reported cattle benchmark 
in a base price formula (i.e., when the covered packer uses a reported 
price as a base price in an AMA). The first option (1.a.) would provide 
broader, more flexible coverage, and enforcement would heavily depend 
upon AMS's ability to identify challenges based on the potential 
documentation requirements set forth in section III.D. below. In the 
second option (1.b.) described below, AMS would identify more specific 
practices of concern, thus providing less flexibility but also 
potentially enhancing enforceability.
    Option 1.a. In the first option, AMS would require covered packers 
that utilize a benchmark in their base price to design and operate 
their cattle buying operations in such a way that ensures a fair-
trading environment in spot cattle markets affected by the benchmark 
price used in formula pricing agreements. In determining whether 
regulated entities are in compliance, the Secretary would consider:
    i. The extent to which the markets on which a formula pricing 
agreement is based are robustly competitive.
    ii. The reliability of base prices in formula pricing agreements to 
reflect the competitive market value of fed cattle, their sensitivity 
to other factors, and the risks of manipulation.
    iii. The extent to which the packer has identified and mitigated 
any risks stemming from the use of the base price in a formula pricing 
agreement to fair trading practices in relevant fed cattle markets.
    Option 1.b. In the second option, AMS would prohibit covered 
packers from manipulating cattle benchmark prices through one of the 
following specifically defined means. AMS notes that enforcement of 
these options present significant evidentiary challenges, but includes 
them for the purposes of eliciting public comment around their value, 
workability, and alternatives:
    i. Targeting its bidding in the cash market toward lower-value 
specifications of cattle and avoiding higher-value specifications of 
cattle, as a practice and pattern without a reasonable business 
justification. Such a practice may be used to distort base prices used 
in formula pricing agreements as most purchases in the cash market 
would, likely, be for lower-value specifications of cattle within the 
given market, leading to lower benchmark prices in AMAs than would be 
the case in a fully competitive market. Targeting would be identified 
through enhanced monitoring of markets, complaints, and investigations.
    ii. Structuring a transaction with the purpose of it being included 
or excluded from a benchmark price in an AMA, thus preventing that 
transaction's price from influencing the ordinary supply and demand in 
the benchmark market.
    iii. Holding out or failing to purchase cattle in specific 
reporting areas for the purpose of reducing or otherwise changing a 
reported benchmark price.\78\
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    \78\ A small number of packers account for most fed cattle 
negotiated cash transactions, and spot market prices have a 
significant impact on formula pricing agreements. Given these facts, 
strategic behavior by covered packers has the potential to impact 
fed cattle prices for both negotiated cash transactions and AMA 
transactions.
---------------------------------------------------------------------------

    iv. Using top-of-the-market pricing (TOMP) formulas in which a 
formula contract base price in a formula pricing agreement is based on 
the top price reported in the negotiated cash market.\79\
---------------------------------------------------------------------------

    \79\ TOMP links the price paid under the formula contract 
directly to the highest price paid on a one-to-one basis, which has 
been shown to create adverse market incentives and put downward 
pressure on market prices. See Xia and Sexton, op. cit.
---------------------------------------------------------------------------

    v. Manipulating internal records in any way that affects a price, 
standard, or threshold referenced in a pricing agreement for cattle or 
beef.
    2. Exclusivity. AMS is considering a provision that would 
discourage a covered packer from requiring exclusivity of a producer in 
an AMA when it utilizes a spot price cattle benchmark. Whether crafted 
as a prohibition, a presumption, or through an incentive structure, the 
packer could not threaten to withdraw an AMA or otherwise prevent a 
producer in an AMA from selling or seeking to sell a substantial amount 
of cattle to another packer outside of the AMA, such as through 
utilizing competitive price discovery tools like cattle exchanges or 
auctions. The purpose would be to limit both express or implied 
contractual requirements for exclusivity, as well as informal 
exclusivity such as threatening or refusing to buy cattle or offering a 
lower price. The approach could include a requirement for contractual 
disclosure of the minimum number of cattle that the AMA-holding 
producer can, of right, market or sell to another packer in the 
benchmark market. A presumption of compliance could also encourage 
certain practices; for example, 20 percent for general cash negotiated 
trade or 15 percent if a competitive price discovery tool such as a 
cattle exchange or auction were selected. The producer would not be 
required to exercise the option, or could opt to take a hybrid 
approach, for example, by utilizing exchange trading to set a base 
price but maintaining access to a producer's specialized AMA grid with 
a packer through exchange trading options available today. AMS notes 
that producer participation in exchange trading could depend upon 
support for the exchange's costs, such as through a market-making fee.
    AMS is also considering other tools to reduce exclusivity as a 
barrier to competition between packers bidding on cattle. P&S Act non-
discrimination principles may suggest that any producer be offered an 
AMA or pricing available under an AMA when the producer is able to meet 
the AMA's terms and conditions, absent a legitimate business 
justification. Such an approach could potentially be paired with a 
compliance presumption where the packer engaged in competitive and open 
exchange trading for a certain portion of their AMA cattle.
    3. Relative Variation Among Cash and Formula Purchases. AMS is 
considering prohibiting covered packers from engaging in a pattern of 
cattle trading in the negotiated benchmark market such that the 
percentage variation in week-to-week purchases in the benchmark cash 
market is substantially greater rate than the percentage variation in 
quantity purchased week-to-week under the formula pricing agreement, 
absent legitimate business justification--for example, if the packer 
certified the lack of availability in the benchmark market of the 
cattle at a given quality level or specification. Such an approach 
should make AMA contracts bear more of the risk of quantity volatility 
when relying on the cash market for price discovery purposes. This 
prohibition could be paired with a presumptively permissible minimum 
use of a cattle exchange or auction.
    4. Packer Pick-up and Captive Supply. AMS is considering a 
provision requiring covered packers to fully compensate sellers for all 
maintenance costs of the cattle if they fail to pick up cattle 
purchased in a negotiated transaction during the time period negotiated 
with the seller or within seven days if not specified in negotiations.

[[Page 82533]]

B. Specific Base Price Regulatory Options

    AMS is concerned that competitive market conditions within USDA 
reporting regions may cause certain regional negotiated cash fed cattle 
prices to be unreliable benchmarks for formula contracts, and that the 
design of certain AMS reports are not appropriate for use as benchmarks 
in formula pricing arrangements. As noted above in section II., some 
regional cash markets are thinly traded with high levels of local 
packer concentration. Additionally, the use of benchmarks that do not 
have quality specifications may leave those markets vulnerable to 
gaming or create obstacles for producers seeking to sell higher quality 
cattle. To the extent that the use of different benchmarks in formulas 
(such as the use of quality-specific reports) and different approaches 
to trading (such as exchanges) can ``thicken'' the market (i.e., make 
it more competitive and comparable across different cattle types), the 
robustness of price discovery would be enhanced.
    AMS is requesting comment on several options for regulating the use 
of regionally reported prices as base prices in formula pricing 
agreements. Regional prices could only account for more than 50 percent 
of the value of any formula if one of four conditions is met (options 
1, 2, 3, or 4 below). The purpose of the provision would be to utilize 
benchmark options that offer incrementally greater market thickness and 
resiliency to external shocks which could otherwise undermine the 
reliability of using the existing regional average negotiated cash 
prices as a benchmark.
    One way that regional price information could be incorporated as 
the predominant value in formulas would be if new price series or 
indices could be developed which were deemed suitable for that purpose. 
USDA seeks comment on the feasibility and value to the industry of 
developing and publishing additional market price information made 
available by publishing new reports under its existing authority. To 
the extent that industry stakeholders would find this information 
useful, and that it would mitigate fairness concerns, new price 
reporting could provide additional options for industry benchmarks.
    The specific base price interventions listed below can be 
considered individually or in combination with each other. The 
interventions may also have associated written documentation 
requirements (which are discussed in section III.D. below). Commenters 
are invited to comment on the costs and benefits, obstacles, or other 
aspects of these options. Note that section III.C. below provides a 
list of benchmarks that may mitigate fairness concerns. Comment is also 
requested on the list of benchmarks. The following approaches could be 
utilized to offer incremental improvements to regional price 
benchmarking:
    1. The regional benchmark could reflect all cattle sold on a 
negotiated cash basis in the relevant market as standardized to a 
single quality specification. The standardized benchmark would 
represent a ``par lot.'' For example, a benchmark could report all fed 
cattle sales transactions in a given regional market adjusted to a par 
lot defined as live weight basis, steers, 70 percent choice, Yield 
Grade 3. Individual sales would continue to transact at whatever value 
the parties agree given the attributes (quality, yield, other premiums/
discounts, etc.) of the particular cattle transacted. Only the 
benchmark would mathematically translate those actual prices into 
prices as if the transactions were the par lot, for the purposes of 
thickening the market for the standard par lot. Again, cattle trade at 
their own negotiated price. Only the reporting adjusts it so that there 
is more robust price discovery on an apples-to-apples basis.
    This mathematical adjustment could via be a third-party developed 
reference price, a USDA-developed reference price, or it could be based 
on publicly available information that the packer utilizes to construct 
its base price formula. The development of the standardized regional 
benchmark price may require USDA to collect information from packers 
that it does not currently collect, and this may require changes to 
USDA information collection forms or separate rulemaking. AMS 
acknowledges concerns may still exist regarding price discovery and 
manipulation risks and invites comment on whether there is a minimum 
level of trade that should serve as a floor in the market before the 
region could be used as a benchmark even under this approach.
    2. The regional benchmark could be a comprehensive fed cattle 
reported price, which if reported would include negotiated spot 
transactions comprised of reported negotiated cash live, negotiated 
cash dressed, and negotiated grid net transactions. This is not 
currently reported on a regional basis, but AMS Market News is 
currently looking into whether it has sufficient information to begin 
reporting regional comprehensive reports in the near future. AMS 
recognizes that this approach offers less benefits to price discovery 
than option 1. above but seeks comment on it given the greater 
feasibility of operationalizing it.
    3. The benchmark could be the five-area regional average reported 
by AMS Market News at a particular quality grade specification, such as 
within five or ten percentage point range for Choice grade. AMS 
recognizes that this approach offers less benefits to price discovery 
than option 1. above and that packers may retain an ability to place 
downward pressure on the cash market given that the five-area regional 
average reflects a composite of local market trading practices. 
However, AMS seeks comment on this option given the greater feasibility 
of operationalizing it over other options.
    4. Regional cattle prices from a cattle exchange or auction would 
be standardized to a particular quality grade specification and meet 
sufficient standards of oversight and competitive trading.

C. Presumptively Permissible Base Price Options

    Under any of the specific regulatory options described in section 
III.B. above, a range of benchmarks would still be presumptively 
permissible to determine the predominant value of the base price in a 
formula price agreement. A first set of possible alternative benchmarks 
could consist of existing market price reports or indices that may be 
less vulnerable to manipulation or strategic trading choices that have 
unintended adverse consequences on other producers due in part to the 
``thickness'' of the markets and/or the specificity of the market. 
These alternative benchmarks include super-regional USDA-reported 
negotiated cash prices (i.e., the 5-Area Average or National Report) 
that are ``thicker'' market indices because they aggregate reported 
transactions from multiple regions.
    Possible benchmark alternatives could also include several proxies 
for negotiated cash prices. Live cattle futures contracts are 
derivatives for which fed cattle are the underlying asset, and economic 
research has consistently shown a connection and flow of information 
between fed cattle prices and live cattle futures. Moreover, the live 
cattle futures contract contains specifications relating to the cattle 
which ground the value of trading in the contract. AMS acknowledges 
concerns from some producers relating to the potential influence of 
packers in the futures market. AMS invites comment on whether there are 
ways to mitigate those concerns, such as with a condition relating to 
stricter position limits. AMS

[[Page 82534]]

also acknowledges that futures contracts are likely to converge with 
cash prices as delivery approaches, and accordingly, they could suffer 
from the same substantive manipulation and/or pay suppression as 
formulary contracts. AMS invites comment on potential solutions to 
mitigate these concerns.
    Other possible benchmarks include indices based on fed cattle input 
costs (e.g., corn or other inputs) or on downstream output prices for 
boxed beef. Commenters are invited to comment on the costs and 
benefits, unintended consequences, risks of manipulation, or other 
aspects of these options. USDA also seeks comment on how additional 
existing publicly available market information may also be useful for 
developing reliable and robust alternative fed cattle contracting 
benchmarks.
    A covered packer could be permitted to use any of the following 
indices to comprise 50% or more of the base price in a pricing 
agreement:
    1. Regional benchmarks reflecting all cattle purchases on a 
negotiated basis standardized to a single benchmark quality.
    2. AMS Regional Comprehensive fed cattle reported price.
    3. 5-Area Average Reported Cattle Prices at a particular quality 
grade specification (such as within 5 or 10 percentage point range for 
Choice grade).
    4. Boxed Beef Prices.
    5. Live Cattle Prices (including live cattle futures prices imputed 
to different quality specifications).
    6. Corn or Other Input Prices.
    7. Cattle prices from cattle exchange or auction that meet 
sufficient standards of oversight and competitive trading.

D. Written Documentation Options

    AMS is requesting comment on several potential written 
documentation requirements for covered packers to allow AMS to 
determine compliance with the above ANPR options. Commenters can 
consider the options individually or in combination with each other. 
Commenters are invited to comment on the costs and benefits, obstacles, 
or other aspects of these options.
    1. Packer Market Fairness, Price Discovery, and Access Plan. 
Covered packers could be required to develop, maintain, and execute a 
written plan describing their approach to fed cattle price discovery 
and market access for all sellers, particularly small and mid-sized 
feeders and producers, in any market which serves as a benchmark in a 
pricing agreement of the packer or in any market which materially 
influences or is materially affected by price discovery in the 
benchmark market (the Covered Markets). The plans for each calendar 
year would be provided confidentially to AMS-PSD on an annual basis by 
the end of January of that year (e.g., a 2025 plan must be submitted by 
January 31, 2025). Under this option, plans would have to include 
written processes for:
    a. Price Discovery. How the covered packer structures market 
participation and procurement methods in a manner that contributes to 
price discovery in the Covered Markets. In particular, the plan should 
describe how the packer strives to facilitate and encourage price 
discovery in markets where benchmark prices are determined for fed 
cattle pricing agreements by the packer. The packer's plan for 
contributing to price discovery might also include voluntarily 
reporting of additional market pricing information (beyond existing 
mandatory price reporting requirements) that contributes to price 
discovery. Such participation could include, but is not limited to, 
cash negotiated trade, negotiated grid trade, exchange and auction 
trade, and market-making contributions to a relevant institution such 
as a cattle exchange in lieu of price discovery. The covered packer 
would have to explain its analysis relating to Covered Markets.
    b. Market Access. Describe purchasing strategies and actions to be 
taken by the covered packer for the purpose of ensuring reasonable 
market access for sellers. This could include plans for purchasing fed 
cattle from small feeders, engaging in price discovery mechanisms such 
as exchange trading, or paying market making contributions to support 
exchange trading by others. Such strategies and actions should be 
reasonably designed to mitigate excessive risk of non-placement of 
cattle or sales below full value by market participants in the 
benchmark markets used in pricing agreements (i.e., who are taking/
absorbing the risk/cost of price discovery).
    c. Base Prices. For each fed cattle pricing agreement involving a 
reported market price or any other reference to a value that is 
expected to change during the term of the agreement, report the pricing 
agreement describing how the packer will determine final payment for 
cattle. The report should clearly identify all prices and values in 
sufficient detail to reproduce the amount paid.
    d. Market Participation.
    i. Describe purchasing strategies and actions to be taken by the 
covered packer for the purpose of ensuring reasonably consistent and 
non-manipulative participation in benchmark markets used in the 
packer's pricing agreements with respect to quantity and quality 
purchased of fed cattle.
    ii. Provide a target and range for relative coefficients of 
variation (CV) on weekly quantities of fed cattle procured using spot 
and formula methods in the benchmark markets of pricing agreements as a 
measure of risk transfer (specifics of calculations to follow). If 
those targets were not hit, explain the business justification for why 
not. AMS also invites comment on the relative value of the CV, and 
whether other metrics would be more appropriate to identify changes or 
differences in market access risk.
    e. Fed Cattle Supply and Demand Disruptions. Explain how the 
covered packer will maintain adequate price discovery and market 
participation in benchmark markets used in pricing agreements during 
periods of significant market disruptions in the supply and/or demand 
for fed cattle (would include human pandemics, drought, animal disease 
outbreaks, emergent animal health issues, lengthy plant shutdowns, 
labor strikes, other beef packing and supply disruptions, events that 
trigger force majeure in contracts, etc.).
    f. Pickup Practices.
    i. Covered packers would need to describe all policies and 
procedures for circumstances in which pickup or delivery of negotiated 
cattle extends beyond seven days or the scheduled (negotiated) number 
of days after the cattle are traded.
    ii. The policies and procedures would need to include when 
ownership of the cattle will be transferred to the packer and how the 
packer determines timing, amount, and payment for assuming all expenses 
of the cattle, including feed, yardage, and death loss.
    iii. Policies and procedures would need to describe how the packer 
will fully compensate fed cattle sellers when pickup exceeds seven days 
or the time period (number of days) that was negotiated. This should 
include separate policies and procedures for cattle that are sold on a 
live weight basis or on a carcass weight basis.
    2. Packer Compliance Report. Covered packers would be required to 
confidentially report on an annual basis to AMS:
    a. The actions the covered packer undertook to fulfill each 
component of their Packer Market Fairness, Price Discovery, and Access 
Plan. The report would be due to AMS by the end of January for the 
previous year (e.g., a report on compliance for 2025 must be submitted 
by January 31, 2026). The compliance report would be required

[[Page 82535]]

beginning with the calendar year after the rule implementing the 
requirement for the plan becomes effective.
    b. Each purchase transaction for which cattle were not picked up 
within seven calendar days or the scheduled (negotiated) number of days 
and the reason for delayed pickup, measures taken to shorten the pickup 
time, and how the packer compensated the seller for the delay in 
pickup.
    3. Internal Review. The covered packer's CEO would need to review 
and certify approval of each annual plan and compliance report.

IV. Request for Public Comments

    AMS seeks comment on the proposals discussed in this ANPR. 
Commenters are invited to comment on whether any or all of the 
proposals would address concerns about the fair functioning of the 
cattle markets, as well as the costs and benefits, obstacles, and other 
options commenters want AMS to consider. Commenters may consider each 
section individually or may consider the ideas together. In addition to 
inviting general comments, AMS has prepared a list of specific 
questions. Commenters may answer all, some, or none of these questions 
as they see fit.

A. General Regulatory Options

    1. In what ways does the use of regional price reports as 
benchmarks in formula contracts influence those regional markets, 
including the manner or extent of buyer (packer) participation or 
cattle procurement in the negotiated or spot markets within those same 
reporting regions?
    2. Does the use of regional negotiated price reports as formula 
contract benchmarks adversely affect buyer demand in negotiated 
markets? If yes, how? Are these adverse effects stronger for cattle of 
any particular grade, class, type, etc., or in any specific regions? 
What could be preferred alternative prices to use as formula contract 
benchmarks? How should AMS determine whether prices used as benchmarks 
are competitive or reliable?
    3. To what extent would the general regulatory options described in 
section III.A. above--addressing practices related to fair trading in 
relation to a benchmark, exclusivity, relative variation among cash and 
formula purchases, and packer pickup--be useful for clarifying the most 
problematic purchasing activities that are known or believed to 
adversely affect fed cattle markets and sellers?
    4. Are there other problematic purchasing activities or conduct 
that are known or believed to adversely affect fed cattle markets and 
sellers that are not addressed by the regulatory options described 
above? If so, what regulatory options are needed to address such 
issues?
    5. Please provide feedback regarding the prevalence of practices 
addressed in this ANPR or any other related practices as observed by 
market participants. What actions, specifically, would be most 
appropriate and effective for AMS to address concerns about potential 
manipulation or distortion of market prices?
    6. Please comment on the effect of market power and industry 
concentration on producers in regional fed cattle markets. What, if 
any, relationship does increasing packer concentration have on the use 
of particular fed cattle pricing methods and prices paid to packers? 
How has concentration affected the resilience of the regional markets 
and their ability to respond to market shocks?
    7. The DOJ Consent Decree expired in 1981. Were there specific 
protections or prohibitions in the Consent Decree that would have 
particular value in today's market? If so, which ones?
    8. Top of the Market Pricing (TOMP) refers to pricing agreements 
that set a formula contract base price based on the top price reported 
in the negotiated cash market. Please comment about any effects of TOMP 
on sellers or buyer behavior. Should TOMP be prohibited as a method of 
base price determination?
    9. Formula agreement AMAs may include a wide variety of written, 
verbal, or implied agreements or expectations between fed cattle buyers 
and sellers which can differ in the degree to which they limit the 
seller's (feeders or producers) marketing options. Please provide 
comment about the extent to which these AMAs constrain marketing 
options for sellers. Do these AMAs commonly require sellers to deliver 
all cattle they produce to a single packer (exclusivity)? Are sellers 
under these AMAs prevented from using other selling methods for some 
cattle, including cattle exchanges, auctions, or negotiations with 
other packers?
    10. When cattle are purchased through negotiated transactions, 
there is often some agreement between the parties regarding the time 
period (number of days) within which the buyer will pick up the cattle 
and/or compensate the seller for maintenance costs. AMS seeks comment 
and information about the frequency with which buyers fail to pick up 
cattle within an agreed-upon time frame. In such cases, are buyers 
adequately compensated? What is the extent of the problem, and should 
AMS consider additional regulation to address it? What would be an 
appropriate requirement for prompt buyer pickup and seller 
reimbursement?
    11. Do large changes in the numbers of fed cattle that packers 
purchase each week in the negotiated spot market create undue risk for 
sellers in those markets? If yes, what percentage change from the 
previous week do you consider large? Does widespread procurement of 
cattle through formula pricing agreements cause negotiated markets to 
be more volatile?
    12. What would be an appropriate minimum level of use of a cattle 
exchange or auction by a packer buyer to qualify for a safe harbor 
provision in a prohibition against relative variation in quantity 
purchased week-to-week in the benchmark market changing at a 
substantially greater rate than the relative variation in quantity 
purchased week-to-week under the pricing agreement?
    13. What motivates sellers to market cattle in the negotiated (cash 
or spot) market rather than through a formula pricing agreement or 
other type of AMA?
    14. To what extent are formula pricing agreements or other AMAs 
available to small and medium-sized feedlot sellers and what are their 
reasons for choosing whether or not to use them? What rules could AMS 
develop to ensure non-discriminatory access?
    15. How do those producer motivations differ by relative size and 
region, and to what extent to prices in one region follow (or otherwise 
affect) trading the occurs in another region?
    16. How, specifically, do sellers and buyers determine the method 
by which base prices are determined for formula pricing agreements? To 
what extent does the buyer and the seller influence the choice of base 
price? What base price sources (e.g., USDA regional price reports, live 
cattle futures, etc.) do sellers and buyers prefer? What specific 
factors and considerations are important to sellers and buyers when 
choosing a base price?
    17. Please describe views that AMS should consider relating to 
compliance burdens with any of the options presented, generally above 
or specifically below. Is the definition of ``covered packer'', which 
limits certain interventions to larger packers, an appropriate approach 
to limiting compliance burdens on the industry?
    18. To what extent, if at all, would these general regulatory 
options address other pervasive avenues for manipulation of cattle 
prices and how

[[Page 82536]]

should USDA address any alternative forms of manipulation?
    19. Is it necessary and effective for AMS to restrict the 
proportional use of formula pricing agreements relative to cash 
trading? If so, under what conditions, and what proportion is necessary 
and effective and why? Should the level of market concentration be 
considered in this determination, and why?
    20. Does the timing of price setting (after contract formation but 
on a future price) increases the risk of manipulation of cash markets 
or other harms?
    21. Do specific types of AMAs create more problems than others and 
should AMS limit the use of some types of contractual provisions in 
AMAs?

B. Specific Base Price Regulatory Options

    1. Please comment about the use of USDA regional price reports (for 
example, weekly negotiated live or dressed cash steer price for a 
particular region) as benchmarks (also called base prices or reference 
prices) in fed cattle formulas. To what extent do available prices 
accurately reflect competitive market conditions in time periods (i.e., 
each week) and in regions? Do buyers or sellers have any concerns or 
evidence that low weekly trading volumes (i.e., few cattle and/or 
transactions) or small numbers of market participants distort 
benchmarks based on regional price reports that are used as base prices 
in formula contracts? If yes, what weekly trading volumes (number of 
transactions or number of cattle) and/or number of market participants 
do you consider low?
    2. Please comment on the value of using USDA prices based on 
specific reporting regions rather than more aggregated reports (i.e., 
5-Area Average or National Report) as the basis for formula contract 
benchmarks. Is a prohibition on using more than 50% of a regional price 
for a base price in a formula agreement appropriate? If not, is there 
level of partial use that would be appropriate?
    3. What problems would buyers and/or sellers encounter if regional 
prices were no longer available for use as benchmarks to establish base 
prices in formula contracts? Would no longer using regional benchmarks 
mitigate some of the market power dynamics between increasingly 
consolidated packers and producers?
    4. Should a contract benchmark be based on a reported price for 
cattle with specific characteristics (e.g., steers 65-80% choice or 55% 
prime) or for more general categories (e.g., total of all classes and 
all grades)?
    5. AMS has historically published a National Weekly Fed Cattle 
Comprehensive report that reports composite net prices paid for cattle 
purchased using all purchasing methods. Recently, AMS expanded this to 
include a new Regional Weekly Comprehensive Purchase Type report that 
provides a composite price for all beef type cattle purchased 
(including live and dressed basis, FOB and delivered, steers, heifers, 
and mixed, etc.) for negotiated methods only (negotiated cash and 
negotiated grid net) and for combined negotiated and formula methods. 
Please comment on the value of this additional regional market 
information. Could these Comprehensive regional price series provide a 
useful alternative formula contract benchmark if currently used 
regional negotiated cash prices were no longer available?
    6. Could alternative compensation structures restore competition 
and negotiation in cattle payment structures while maintaining the 
benefits of AMAs? For example, could negotiated grid sales, where the 
value of the cattle is assessed after slaughter and feeder compensated 
based on the actual quality of cattle sold, adequately take into 
account certification and grading?
    7. To what extent does benchmarking with respect to live cattle 
futures solve the problem of suppressed benchmark inputs? How can such 
a futures benchmark be regulated to prevent manipulation? For example, 
should a future rulemaking forbid purchasing cattle after the close of 
mandatory reporting or the exchange day on Friday afternoon, to end the 
practice of paying certain feedlots a higher price without contribution 
to the week's average price or to futures prices to which formula and 
forward contracts are tied?
    8. To what extent does pegging benchmarks to inputs (e.g., feed) or 
outputs (e.g., wholesale boxed beef) mitigate fairness concerns related 
to packer spread and manipulation of benchmarks?
    9. What would be the challenge of requiring that all formula 
contracts contain a firm negotiated base price that can be equated to a 
specific dollar amount when the contract is entered into? How could 
such a contract implement quality adjustments or otherwise contain the 
efficiency benefits of AMAs without reliance on spot benchmark?
    10. Please comment on how information disclosures might address the 
concerns identified herein.
    11. To what extent could nondiscrimination principles be applied to 
mitigate exclusivity that obstructed price discovery, competition, and 
market access?
    12. Should AMS incentivize exchange trading as a mechanism to 
enhance price discovery? If so, how should this be done?
    13. Formula cattle selling arrangements enable packers to 
effectively secure a ``captive supply'' of cattle by establishing 
future commitments for future delivery and thereby reduce the need to 
purchase cattle on the cash market. Please comment on whether and how 
such arrangements might harm competition or distort fed cattle markets.
    14. To what extent would the policy options outlined in this ANPR 
solve problems related to market power and lack of sufficient price 
discovery? If there are still gaps, what additional reforms would be 
necessary to ensure a fair-trading environment for all cattle 
producers?

C. Presumptively Permissible Base Price Options

    1. Is the potential prohibition of regional negotiated cash price 
benchmarks based on the predominant use (largest component of value, 
presumptively 50 percent) appropriate? If not, what approach would be 
most effective and why? Are there additional conditions that would help 
ensure regionally negotiated cash price benchmarks are sufficiently 
thick, based on competitive conditions, and not prone to packer 
manipulation?
    2. What criteria, specifically, would be appropriate for AMS to 
consider when evaluating whether a fed cattle benchmark would serve the 
needs of industry stakeholders and could function effectively as a 
means of establishing base prices for formula contracts?
    3. What criteria should be applied when evaluating whether reported 
prices from, for example, a cattle exchange, auction, or negotiated 
market could appropriately be used as formula contract benchmarks 
(i.e., to set base prices)? Should it be based on market thickness with 
consideration for numbers of cattle or transactions? What other factors 
should be considered?
    4. AMS is seeking comment from industry stakeholders about the 
desirability and feasibility of undertaking proactive efforts to 
develop new price information and market reporting which, if useful to 
the industry, could provide additional options for adoption as fed 
cattle benchmark alternatives. These efforts would seek to develop 
robust benchmark alternatives that are designed with the realities and

[[Page 82537]]

challenges of thinning markets in mind, especially at the regional 
level. Development could use certain advanced modeling techniques for 
aggregating and reporting market information. Such models may have the 
potential to incorporate valuable information related to premiums and 
discounts paid for fed cattle characteristics. Or, tailored alternative 
benchmark reports could be designed to enable market participants to 
develop their own models based on certain consistent widely reported 
transaction-specific information, as is the case under the FINRA's 
TRACE System for bonds.
    5. What risks might exist during any transition away from the use 
of existing benchmarks, and in what ways could they be mitigated? Are 
certain external regulatory regimes valuable for USDA to learn from in 
this regard, such as how financial regulators handled the transition 
away from LIBOR, how FINRA implemented the TRACE System, or other 
models from financial or commodity trading markets?

D. Written Documentation Options

    1. Should AMS require covered packers to submit annual 
documentation to AMS describing how the packer plans to conduct market 
activities in a fair manner, participate in price discovery for fed 
cattle, and ensure market access for small and medium-sized feeders?
    2. Please comment on how packers should plan to structure market 
participation and procurement methods to contribute to market price 
discovery. Provide specific details about actions packers should take 
to achieve these goals and any market information or data that could be 
provided to the industry on a voluntary basis to improve market 
transparency.
    3. What role should exchange trading play in considerations of 
price discovery? For example, for a covered packer to count as 
contributing to price discovery, would it be useful to establish a 
presumptive requirement that no less than a certain percentage (e.g., 
15% or 30%) of cattle be either exchanged or auction purchased or paid 
as a market-making fee to the exchange or auction to cover the risks 
and costs of other producers in those transparent, competitive pricing 
venues?
    4. Please discuss specific problems that feedlot sellers experience 
with market access and actions that packers could take to improve 
market access, especially for small and medium-sized producers. For 
example, would enhanced access to exchange trading be effective in 
supporting market access, and could a market-making fee system that 
supported smaller producers be helpful--for example, from packers that 
chose to make contributing to such fee one part of their contribution 
to price discovery under their plan?
    5. Please comment about specific concerns related to packer 
purchasing behavior during periods of supply and demand disruption 
(i.e., pandemics, disease outbreaks, production disruptions, etc.). 
What are the important elements of packer plans for maintaining 
adequate price discovery and market participation during these times?
    6. Were AMS to require packers to report to PSD all pricing 
agreements that describe how base prices are determined for all cattle 
procured by the packer, describe any specific information or data that 
should be required for this documentation or otherwise associated to 
make this documentation more useful for AMS to monitor the market. 
Should AMS consider any other appropriate documentation requirements of 
covered packers?
    7. In what ways could it be appropriate and useful for AMS to make 
aspects of the information from these documentation reports available 
to the public, subject to confidentiality protections? Which ones and 
why? Would a firm-specific approach, as opposed to an aggregated 
approach, ever be appropriate for public disclosure?
    8. Would it be appropriate and useful for AMS to score or rank 
covered packers based on their contribution to price discovery, 
potentially similarly to how FINRA scores broker-dealers on certain 
metrics? \80\ If so, what metrics would be appropriate for the scoring: 
cash trade and exchange trading purchases, purchases from smaller 
producers, or other factors? Should any deductions be taken, such as 
the use of TOMP contracts or delayed packer pickup? Should scoring be 
dynamic, such that improvements from year to year are recognized? Would 
any scoring or ranking be most appropriate and useful if provided 
confidentially to covered packers, or should any ranking be made 
available publicly?
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    \80\ See, e.g., FINRA, ``Firm Summary Scorecard,'' available at 
https://www.finra.org/compliance-tools/report-center/equity/firm-summary-scorecard (last accessed Aug. 2024); ``TRACE Quality of 
Market Report Cards--Treasuries,'' available at https://www.finra.org/compliance-tools/report-center/trace/quality-of-markets-treasuries (last accessed Aug. 2024).
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V. Conclusions and Next Steps

    Given the background, key regulatory challenges, and options for 
consideration outlined in this ANPR, AMS is seeking comment on 
potential and preferred paths forward. Comments received in response to 
this ANPR will inform AMS's approach to regulating the Nation's fed 
cattle markets. Substantive, well-reasoned, constructive comments, 
including comments that provide data to support views (for example, are 
based on industry surveys), will assist in identifying if there are 
unforeseen challenges or viable alternatives before the Agency moves 
forward. Comments generally in support or opposition to options 
identified in this ANPR will assist AMS in identifying the 
acceptability of the presented options in the absence of other 
alternatives.

Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2024-23528 Filed 10-10-24; 8:45 am]
BILLING CODE P