Forward Contracting Ban Proposed in the House

December 7, 2005 — 

Legislation (HR 4257) has been introduced in the US House of Representatives that would prohibit the use of forward contracts and formula pricing of livestock.

The bill, sponsored by Rep. Earl Pomeroy (D-ND) and co-sponsored by Reps. Barbara Cubin (R-WY) and Stephanie Herseth (D-SD), would amend the Packers and Stockyards Act to outlaw the practices of "formula pricing" and "forward contracting" in the livestock sector.

According to the proposed bill, the term `formula price' means any price term that establishes a base from which a purchase price is calculated on the basis of a price that will not be determined or reported until a date after the day the forward price is established. The term `forward contract' means an oral or written contract for the purchase of livestock that provides for the delivery of the livestock to a packer at a date that is more than 7 days after the date on which the contract is entered into, without regard to whether the contract is for a specified lot of livestock; or a specified number of livestock over a certain period of time.

This bill could adversely impact producers and processors utilizing these practices to minimize market risks associated with livestock production and marketing.

Source: Meatingplace 11/11/05: http://www.meatingplace.com

H.R. 4257:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:h4257ih.txt.pdf