Making cattle markets work properly has been the quest of cattlemen’s groups lately. Every group has a solution that they believe is the fix-all to price discovery.
The recent events of Tyson’s Holcomb, KS, fire and the onset of the COVID-19 pandemic have both produced serious market jolts. That hurt cattle feeders perhaps the most. Cow-calf and yearling operators had a bit more time, but finished fed cattle had to go to town for processing.
The National Cattlemen’s Beef Association (NCBA) has had a live cattle marketing special task force working on ways to improve price discovery for many months, and meeting weekly throughout. And right up to last Wednesday’s meeting, they had no concrete ideas that everyone could live with. I understand there was a series of five roll call votes attempting to fine tune a policy resolution.
“The policy we passed today is the result of every state cattlemen’s association coming together to work through their differences and finding solutions that meet the needs of their members, all of whom agree that our industry needs more robust price discovery. This policy provides all players in the industry the opportunity to achieve that goal without seeking government mandates,” said NCBA President Marty Smith. “Everyone who took the time to participate in this process over the past several months and throughout this week’s meetings is to be commended.”
I’m going to let you all read the final resolution:
“Whereas, a competitive fed-cattle market, based on multiple price discovery points, is necessary to achieve robust price discovery that sends proper price signals throughout the supply chain; and
whereas, robust price discovery is vital for all cattle market participants; and
whereas, properly functioning cash and futures markets require transparent distribution of market information and regionally sufficient negotiated trade to achieve robust price discovery; and whereas, Livestock Mandatory Reporting defines negotiated trade as a cash or spot market purchase of cattle by a packer or negotiation of a base price, from which premiums are added and discounts are subtracted; and whereas, the bid-and-offer cash fed cattle trade remains the primary base factor for fed cattle value determination on a nationwide basis, including those transacted on alternative marketing mechanisms; and whereas, all fed cattle market participants have a shared responsibility to contribute to regionally sufficient levels of negotiated trade in all cattle feeding regions to achieve robust price discovery;
Therefore be it resolved, NCBA supports a voluntary approach that:
• Increases frequent and transparent negotiated trade to regionally sufficient level, to achieve robust price discovery determined by NCBA funded and directed research in all major cattle feeding regions; and
•Includes triggers to be determined by a working group of NCBA producer leaders by October 1, 2020.
Be it further resolved, if the voluntary approach does not achieve robust price discovery as determined by NCBA funded and directed research, and meet the established triggers that increase frequent and transparent negotiated trade to a regionally sufficient level, and triggers are activated, NCBA will pursue a legislative or regulatory solution determined by the membership.
Be it further resolved, NCBA support a three-year review/sunset provision on any negotiated trade solutions implemented to allow for a thorough cost benefit analysis to be conducted.”
So, there you have it, and there are quite a few “what ifs” in this resolution.
Bottom line, a group of cattle feeders and packers will have to utilize cash negotiated cattle buying to establish regional cash markets. Most Southern Plains feedlots prefer to use the formula grid or other alternative marketing agreements. Producing more negotiated cash trade in this region can be done. The threat of a legislative mandate should be enough motivation to force cash trade on those packers.
If producers can’t, make that happen, then we will see legislation promulgated to fix the cash trade volume.
So, unless you want to see a 50/14 law created, the industry will have to take turns supporting a negotiated cash market. But, just how much cash trade is required for proper price discovery?
Then there are the futures markets’ role in price discovery. PETE CROW