Fed cattle trade the first quarter of 2021 was a boring situation. The fed cattle market was stuck on $114 for eight weeks. Finally, we’re seeing some cash trade up to $124 this last week, however nearby corn futures jumped over $6 a bushel—its highest since 2014.
The National Cattlemen’s Beef Association came out with their analysis of their 75% Plan to invigorate the cash fed cattle markets, and realized that two cattle feeding regions were not able to reach their cash trade targets.
The NCBA’s marketing committee reported that of the five major cattle feeding regions, Iowa and Minnesota and Colorado and Nebraska regions exceeded their cash trade levels over the 13-week period. Texas, Oklahoma New Mexico and Kansas fell short of their cash trade targets, which were 75 percent of what, in Dr. Stephen Koontz’s opinion, robust cash trade is. For instance, in Texas and Oklahoma 13,000 head per week would be considered robust cash trade and they needed to sell 75 percent of that or 9,750 head per week to reach their target and not pull a trigger. They actually hit the trigger level five times.
The total number of cattle traded on the cash market during the first quarter was 1.2 million head, a 12.5 percent increase over last year’s 950,000 head. They also mentioned that one of these trigger events was during the major Winter Storm Uri, and another was when one plant conducted mandatory maintenance and was shut down longer than expected. They referred to these as “force majeure” moments.
Cattle feeders in the problem areas are well organized and we have been monitoring their efforts and found that they were offering more cash cattle, even when they knew the formula was better or they had a favorable basis on futures contracts. In other words, they left money on the table to trade cash. I believe Southern Plains cattle feeders are making an honest effort to improve cash sales.
Packers, on the other hand, have been reluctant to participate in their portion of the 75% Plan. Packers are to agree to buy enough cattle on the cash market that would represent their market share in each region, which would represent their portion of maintaining robust cash trade. For instance, let’s say that Cargill has 35 percent of the market share in the Southern Plains. They would need to buy 35 percent of the robust cash trade of 9,750, which would be 3,400 head a week. NCBA tells me that they are very close to having the packer portion worked out.
This 75% Plan NCBA members developed is a complicated program. They have given themselves a short rope to work with. If they trip triggers in two consecutive quarters, they have agreed to look at a legislative, regulatory fix. Nobody in the working group wants to see cattle markets regulated. NCBA has painted themselves into a corner on this market endeavor.
They have no idea what that legislative fix is, but they oppose the 50/14 Plan, which would force packers to buy 50 percent of their cattle on the cash market for delivery inside of 14 days, and a portion of the Cattle Market Transparency Act, which has a similar plan.
They have also made a rigid guideline for themselves based on regional markets and what Dr. Koontz considers robust cash trade. First quarter cash trade can’t be the same in the third quarter of the year, when more cattle generally come to market. Regional inventories aren’t static. Sometimes Texas is selling cattle at a premium over the Northern Plains and vice versa. It’s like trying to catch hummingbirds; markets move too fast and there are always extenuating circumstances.
Markets are abstract and hard to understand—a lot of elements factor in like $6.50 corn, supply of finished cattle and demand. Today packers are only capable of processing 660,000 head a week. COVID-19 has changed that industry. One processing hiccup and fed cattle start backing up. We have found ourselves in a very fragile situation.
There has been more negotiated cash trade since this effort began last year. So, I assume that is better than before. But it doesn’t look like we’re getting any real price discovery benefits. Have we figured out how to value cattle any better? The market will change as it always does. Demand for beef is good but the cost to deliver it to consumers is going higher and the economics are more difficult. Change is in the wind. Meanwhile, let’s keep praying for more spring rain. — PETE CROW