The first court test of a mandatory price reporting law, passed with the intent of helping livestock producers, resulted in a split decision.
U.S. District Court (Aberdeen, SD) Judge Charles Kornmann upheld price-reporting requirements in a law passed in South Dakota this past winter. But, Kornmann threw out sections of the law that require packers to pay the same price for equal-quality livestock.
Kornmann says the price-matching provisions are unconstitutional because they impose South Dakota law on deals made in other states. Kornmann also concluded that much of the language in the price-matching sections of the law would be unworkable in practice.
John Morrell and Co., the Smithfield Foods-owned packer which slaughters 15,000 hogs a day in Sioux Falls, SD, had joined in a suit with the American Meat Institute (AMI, a national group representing packers and processors) contesting the law that went into effect July 1. Prairieland Pork Producers, a marketing group that negotiates contracts for several Hutterite colonies and other producers, joined in as a supporter of Morrell and the AMI.
Saying they were concerned about provisions in the law that allowed producers to sue packers for triple damages if they could prove price discrimination, Morrell began buying hogs on a strict grade-and-yield basis only, with one base bid each day.
Claiming they wanted to avoid potential lawsuit problems, Morrell routed hogs bought under various contracted prices to its Sioux City, IA, plant. Morrell's Dave Poppen says slaughter was off about 13% at their Sioux Falls plant in the three weeks after the law took effect. With the market in turmoil, bids at the Sioux Falls livestock auction were off $1-3/cwt. from other Midwestern auction sites.
Other packers located outside of South Dakota also withdrew or altered bids to South Dakota producers. Pre-arranged forward pricing contracts were dropped in some cases. Premiums negotiated for volume were withheld in other instances.
South Dakota Attorney General Mark Barnett says there was a huge split in opinion on whether the moves in the market as of July 1 were the fault of the packers or the fault of the new law. He says packers may have turned the situation to their benefit.
"We didn't need a discounted market when it was discounted already," says Hurley, SD, producer Steve Schmeichel. He says the political stand-off between packers and South Dakota lawmakers unfortunately left producers caught in the middle.
Schmeichel, happy with the Judge's decision, adds: "We're not against price reporting but we don't need price fixing."
State Senator Frank Kloucek, a farmer from Scotland, SD, sponsored the bill last winter. Kloucek says the price discrimination issue will be taken up again during the next legislative session. He says future laws will be enacted that will clearly apply to South Dakota livestock purchases only.
Other states, including Iowa, Kansas, Minnesota, Missouri and Nebraska passed state laws regarding livestock pricing that are in various stages of being phased in. And, legislation continues pending at the federal level on price reporting.
Federal legislation could end up superceding all of the state laws but may take longer to make itsway through Congress than some had earlier hoped. As a result, many of these same battles fought in South Dakota may be repeated in the states that implement their new laws.