Stop me if you've heard this before: “Certain types of forward contracting agreements have become ripe for price manipulation. This is because a growing number of packing operations own their own livestock or control them through marketing agreements.”

That's how Sen. Mike Enzi (R-WY) introduced a proposed law he calls, presumably with a straight face, the Livestock Market Fairness Act.

Never mind credible studies verifying that prices are not being manipulated by packers or anyone else. If packers truly could do so, as this and similar proposed laws suggest, why would they continue to bleed so much money in this pennies-margin business? Come on.

You'd also have to be more naïve than a newborn calf at a busy sale barn to ignore the reality that either party in a given transaction will have an advantage at various times. That's business.

Moreover, claiming that captive supplies are growing is ignoring the facts. According to the most recent annual report from the Grain Inspection, Packers and Stockyards Administration, packer procurement by marketing agreements, forward contracting and packer-feeding was less in 2007 (~44%) than in 2002 (~45%). It was less than that in 2003-2006 (~39-41%).

Enzi's proposed law “would require that forward contracts contain a firm, fixed base price from an external source. Though not outlined in the legislation, commonly used external sources of price include the live-cattle futures market or wholesale beef market.” According to Enzi, “this ensures that both buyers and sellers have a basis for how pricing in a contract will be derived at the time the contract is agreed upon.”

No kidding. Apparently he overlooked currently used tools, like basis contracts and grid pricing. As for anyone apparently willing to trade without agreeing to the pricing mechanism, I've never met him.

Next, Enzi explained, “the bill requires that forward contracts be traded in open, public markets. This guarantees that multiple buyers and sellers can witness bids as well as offer their own.”

That sounds a lot like the publicly traded forward contracts we have today, such as video auction sales for later delivery and futures contracts on commodities that enable producers to calculate local basis and negotiate accordingly.

At least Enzi doesn't want the proposed law to apply to everyone. As he said, “The legislation also carefully targets the problem — large packers owning captive supplies — by also exempting packers that only own one facility and those that do not report for mandatory price reporting.” Apparently discrimination is swell, just as long as you're discriminating against the right folks.

Apparently Enzi hasn't considered that consolidation and concentration have allowed the beef industry to remain more economically viable than it could have, compared to the bucolic cadre of mom-and-pop packing houses he must envision.

“The so-called Livestock Marketing Fairness Act (S. 1086) would impose dangerous government intrusion on the livestock industry, potentially destroying the value-added marketing alliances that the U.S. cattle industry, like so many other American industries, has worked hard to establish.” That's part of the statement made by the National Cattlemen's Beef Association in response.

The statement continues: “The Packers and Stockyards Act (P&SA) has been successful in combating anti-trust, collusion, price fixing and other illegal activities that damage the viability of the market and interfere with market signals. At the same time, it preserves producers' rights to market their cattle in a way that ensures the highest quality product to meet the current consumer demand.

“The Livestock Marketing Fairness Act would take away that right by amending the P&SA so that it limits producers' opportunities to participate in alternative marketing arrangements — such as forward contracting — and negotiate private business transactions. Producers would thus lose the ability to compete in the free-market system which is fundamental to U.S. entrepreneurship.” Amen.