Cattle markets are a subject that are cussed and discussed all over the country by farmers and ranchers. This topic is covered weekly in the Western Livestock Journal and analyzed by our editorial staff and Publisher Pete Crow. Here in Montana, it is top of mind this time of year. Many ranchers are marketing their calves right now. Whether it is fulfilling the delivery on a summer contract from a video auction, or hauling calves to the sale barn, conversations seem to center around what the cattle prices are.
Visiting with ranchers about their 2020 marketings, most seem somewhat disappointed with the market, but agree that calf prices are better than the worst-case scenario they were preparing for. They say they are glad to have this year behind them and will live to fight another day; then the discussion almost always progresses to their belief that the packers are getting an unfair piece of the pie. Their points are valid—with many cow-calf producers receiving near break-even levels for their calf crop this year, feedlots operating in the red for most of the year, and packer margins being calculated at historic profits.
There have been numerous efforts this year alone to try and address this issue and drive some share of the profits from beef sales back down the line. Ideas ranging from regulatory fixes, such as the 30/14 or 50/14 rules, to voluntary ideas like the “bid-the-grid” have been proposed. Talk starting at the social media level all the way up to an ongoing Department of Justice investigation have created a lot of buzz this year. Regardless of the idea, a common theme around these discussions is that there needs to be more price discovery at the fed cattle and packer level.
At the Summer Business Meeting of the National Cattlemen’s Beef Association (NCBA) a lengthy discussion took place in the Live Cattle and Marketing Committee to address this issue. It was evident NCBA was going to need to step up and try and find a solution for this issue. Consequently, a seven-member group of producers was formed to tackle the challenging issue of creating a plan to promote a voluntary price discovery framework while trying to avoid regulation to enforce it.
On Oct. 15, after months of anticipation from the industry, NCBA released the recommendations from this working group. The report, called A Voluntary Framework to Achieve Price Discovery in the Fed Cattle Market spells out guidelines that are meant to increase negotiated cash trade and incentivize packer participation. There is also a series of triggers, dubbed the 75% Plan, which will be analyzed each quarter and if these triggers are “tripped” in any two out of four rolling quarters then it will be recommended that NCBA pursue legislative or regulatory solutions to fix the price discovery.
NCBA’s trigger points are based on academic literature, which I can appreciate. Other discussions for solutions have been presented using ideas and experience, which I do not mean to discredit, but I do find difficult to defend when there is little to no science or research to justify solutions. I am not sure how NCBA determined the 75 percent threshold to set off these triggers and the letter does mention there will be allowances for flexibility in this plan if events disrupt normal flow. It seems to me, though, that this discussion has been spurred on by two events that disrupted the market. The Holcomb, KS, plant fire and the unforeseen impact of COVID-19 both brought to light issues with the fed cattle market. It seems this plan is providing an out for packers around market events such as these, which are the very reason for these actions. Make sure to read this week’s cover story on the subject to learn more.
I am a strong believer that the less government interaction and regulation we have in business, the better. I do not like the idea of bringing in the government to save us and/or to provide a sense of reliance on government officials. Because of this I support the voluntary efforts being promoted by the industry. That being said, even Marty Smith, president of NCBA, admits in his letter this is “not a silver-bullet solution.” I hope these efforts are truly and fairly enacted and taken seriously by all segments of the industry. It is better for us to work together rather than to tear each other apart. I am anxious to see how this plan will be enforced and to see if it will significantly impact or change the way we are currently doing business. — DEVIN MURNIN