Cash fed cattle markets are stronger again this week. They have been gaining a couple dollars a week for the last three weeks. And the remarkable thing is that all five of the major cattle-feeding regions are working at increasing negotiated cash trade volume.
Negotiated cash trade has been an issue for the NCBA marketing committee for a while. Essentially, Southern Plains feeders prefer to market cattle through alternative marketing agreements (AMAs), also known as formula trading. Northern feeders use the cash market more often.
The idea that NCBA and their affiliates have is to create a cash selling pool. Southern feeders tend to be large corporate feeders while in the North they are more farmer feeders. One group has been pitted against the other over how to fix the markets and price discovery.
Over the past few weeks, we have been following the weekly direct steer and heifer slaughter cattle summary and some remarkable things are happening. Southern Plains feeders would normally sell 10 percent of their weekly sales or less on the negotiated cash market. Kansas was about the same. Over the past several weeks we have seen those regions bump their cash sales up to 22 percent in Texas, Oklahoma and New Mexico. Kansas cash trade was a little better at 23 percent.
The reason they are doing this is because no one wants to see any legislative mandates controlling the cattle market. NCBA, at their summer meeting, passed a resolution that the marketing committee would come up with a solution to encourage more cash trade by Oct. 1. If they couldn’t, they would be forced to seek legislative solutions.
Nobody wanted to see Sen. Chuck Grassley’s (R-IA) 50/14 proposal become a law. The 50/14 proposal means that each packing plant would be required to buy 50 percent of their slaughter cattle needs on the negotiated cash market and be delivered in 14 days.
Well, it’s Oct. 1. They tell me they have a plan, but they are not ready to show it to the rest of us. I expect to see a fed cattle cash marketing alliance formed very soon. It appears it is already formed and working. I would think that if Texas and Kansas feeders consistently sell 20 percent of their cattle on the negotiated cash market it would satisfy the needs of the cash base price of any formula contract. Nationally, 32.6 percent of cattle are currently sold on cash markets. In Iowa and Minnesota, they sell about 65 percent cash and Nebraska sells about 40 percent of their cattle on the cash market.
I would like to see the details of this plan, and I think we will in a week or two. But how is it going to work? Will each of the major Southern feeders consign a specific number of cattle to the cash trade? Will they take turns doing it? Then, who’s going to enforce it? Last week Texas sold 65,000 head, and Kansas sold 107,000 head through all the marketing channels.
The fear of legislation and law made this group of livestock marketers figure a way to satisfy the price discovery mechanism, which is the cash market. Let’s hope it works because there is a lot of pending legislation in the works to try and affect cattle markets.
We have Grassley and Sen. Jon Tester (D-MT) pushing the 50/14 bill. Then you have several groups pushing for a new country-of-origin labeling bill and just last week Sen. Deb Fischer (R-NE) proposed another bill that would mandate some level of cash trade and report just how many cattle are to be delivered to packers each day for the next 14 days. Apparently this provision is already required in the hog industry.
It’s an election year and everyone is proposing legislation to keep their constituents happy. It’s pretty normal politics. But it’s just that—politics—and when the election season is over, and the cattle market is in better shape, everyone will forget about it.
Price discovery has always been a paramount issue for the cattle business and will always be. In the last 10 years we’ve seen just how high the markets can go and just how low they can go. And unfortunately, we’ve seen what processing interruptions can do to the markets. But, it’s all supply- and demand-related.
I know we don’t want markets to be legislated, but we want them to be fair and open to producing better products. So, stay tuned and well see what the folks at NCBA come up with. — PETE CROW