There are many implications of the recent changes to the Mandatory Livestock Reporting Services by USDA. First and foremost, it means USDA can respond to changing needs of the industry and correct past reporting errors.
Reporting cattle prices is never easy. It is based on individual judgments about cattle quality and in the case of auction barns, the fill or weighing condition. It also requires those creating the rules and structure understand trading from a practical, not academic, background. Add to that the challenge of keeping up with market participants who are always trying to game the system to a particular advantage by studying the reporting rules and while following the rules, distort the information.
Reporting cattle prices is not a static process—it is dynamic and everchanging. Setting up rules for mandatory price reporting with the expectation that they will remain in place unchanged is doomed to failure.
Reporting prices accurately will require constant tweaking in order to comport trades to a common currency and maintain regional differences and new trade protocols that will always be developing. Important to the process is maintaining common terminology with the industry. Spot sales should always be purchases this week for next week delivery. Sales in forward weeks should be reported by week up to a month as either flat prices or basis trades. Dairy should always be reported separately.
USDA is, without knowing it, creating a hosted Blockchain. Each transaction can be linked in a timed chain to create a live dynamic market moving up and down in real time. CME will be studying the new reports as will all industry participants to judge their effectiveness in following and reporting the market. The objective for the CME will be to move the futures market from an obsolete delivery contract to a cash settled contract that will encourage much larger trade volumes and less volatility.
A robust futures market in cattle will encourage more transactions to occur basis the futures. Futures could be an excellent pricing mechanism for negotiated and formula trades similar to the dominance of basis trades in the corn futures market. The current wild fluctuations in futures prices seems like a lottery for all participants to select an entry or exit point. A more stable futures market translates into more stability on the financial side of all businesses.
Monitoring the effectiveness and usefulness of the changes by USDA will take time. It also will be interesting to see formula cattle converted to a common price and matched to the appropriate sale week. Cash trades this week for next week delivery are reported this week. Formula trades can’t be discovered for price until next week then must be moved back a week for proper comparisons. The objective of all reporting is disclosure of time sensitive trades as close as possible to real time and matching up the form—ie., live vs. dressed vs. grid vs. formula. — AgCenter
