Senators say USDA update allows livestock premiums

* Senators say USDA fair-play rule allows premiums

* Senators ask USDA for speedy action on final rule

* Packers, some farm groups skeptical of impact

WASHINGTON, Aug 13 (Reuters) - Meatpackers will be able to pay premiums to livestock producers under marketing rules proposed by the Agriculture Department, said 21 U.S. senators, rebutting a prime objection to the proposal.

Some farm groups say the June 18 proposal could bar farmers from earning additional pay for their livestock by meeting meat quality or production targets. A large portion of U.S. hogs, cattle and poultry are produced under contract or agreements.

In a letter to Agriculture Secretary Tom Vilsack, the senators said while the rule "is designed to clarify and improve producer protections ... it should also maintain opportunities for marketing premiums and mutually beneficial contract arrangements, which it appears to do."

USDA will allow comment on the proposal through Nov 22. the senators asked Vilsack to issue a final rule as expeditiously as possible. [ID:nN26217615]

The rule would bar meatpackers from offering better prices to large feeders than smaller operators without good reason and give poultry producers more leverage with processors. It also would allow growers to show a practice is unfair without having to prove anti-competitive intent [ID:nN18176405].

The National Cattlemen's Beef Association and the National Pork Council say the proposals could overturn long-standing sales methods and encourage meatpackers to own livestock rather than buy them from producers. Smaller and activist farm groups say the rules are aimed at fair play.

Donnie Smith, chief executive of Tyson Foods Inc (TSN.N), said the marketing rules now in use reward innovative and efficient farmers while the USDA proposal would favor less progressive operators. ([ID:nN10152280])

When it allowed additional time for comment on the rule, USDA said, "There is no provision in the proposed rule that would limit or eliminate the ability of companies to provide premiums to reward producers for providing certain quantity or quality of livestock."

Major packers besides Tyson are JBS SA (JBSS3.SA), Smithfield Foods (SFD.N), Cargill Inc, National Beef Packing Co, and Hormel Foods Corp (HRL.N).

Signing the letter were chairmen Pat Leahy of the Judiciary Committee, Tom Harkin of the Health Committee, Max Baucus of the Finance Committee, Jay Rockefeller of the Commerce Committee, Mary Landrieu of the Small Business Committee, Kent Conrad of the Budget Committee and Herb Kohl of the Aging Committee.

Also signing the letter were Charles Grassley of Iowa, Tim Johnson of South Dakota, Byron Dorgan of North Dakota, Russell Feingold of Wisconsin, Roland Burris of Illinois, Jon Tester of Montana, Claire McCaskill of Missouri, Ted Kaufman of Delaware, Al Franken of Minnesota, Sherrod Brown of Ohio, Ron Wyden of Oregon, Bernie Sanders of Vermont and Michael Bennet and Mark Udall of Colorado. (Reporting by Charles Abbott; editing by Sofina Mirza-Reid)