Crazy world we live in. The riot that happened at the Capitol last week was atrocious and captured the attention of every U.S. citizen. The world is going after President Donald Trump and will punish him. And they already have with another impeachment. He’s the kind of person who won’t be quiet and I don’t think he will fade into the sunset. Trump was friendly to agriculture and other natural resource industries, but that party may be over.
The changing of the administration will be drastic with both Senate and House committees being run by the majority, the Democrats. We will most certainly see a new push on climate change and agriculture must tell a good story. For the cattle industry it will be the upcycling of cellulose into nutrient-rich beef and sequestering carbon. We may see the carbon tax come around again and we might have to deal with Waters of the U.S. and the Endangered Species Act and NEPA. We will see new policies almost overnight.
My friends in D.C. are telling me that the city is almost under martial law with 20,000 soldiers from the National Guard and police force on hand for the inauguration this week. There are more solders in D.C. than there are in Iraq and Afghanistan. The Capitol Police got caught with their pants down and the feds aren’t taking any chances on more protests or worse.
Back to the beef business, NCBA’s cash trade price discovery plan is on—the 75 percent plan, which would ask feeders and packers to participate. The target is to achieve no less than 75 percent of the weekly negotiated trade volume that current academic literature indicates is necessary for “robust” price discovery in a specific region. The plan is to achieve a trade threshold no less than 75 percent of the weeks in a quarter. And achieve no less than 75 percent of the weekly packer participation in each region. Sounds complicated to me.
I was told that NCBA has almost convinced the packing industry to participate in the plan so we can have price transparency; it may not be price discovery, but we’ll see.
Last week negotiated cash trade was slow; only 80,000 head traded on the cash market. Southern Plains feeders sold around 16 percent of their cattle on the cash market or 7,239 head. The academic literature says that 13,000 head need to sell negotiated cash in Texas for them to have robust price discovery, but they also topped the market at $112.
Meanwhile, a new program has been started by Consolidated Beef Producers in Texas. They are asking their members to consign cattle into the “Texas Cash Pool.” A feeder consigns cattle for a Tuesday cash trade, packers bid on the cattle and one price takes them all. Last week I understand that all packers bid on those cattle and they were bought for $111.03. Average trade so far this week was $109.88 but formula cattle were priced at $180.67.
The Fed Cattle Exchange is still struggling to get going but, they did sell some cattle this week at $110.25. They have a minimum bid marked, so it is an auction with a floor. I would expect to see the platform used more often soon.
Southern Plains feeders are making an effort to trade more negotiated cash cattle. Nobody wants to see legislation forcing anyone how to trade cattle and do business—especially if there is an $8 formula premium out there. But price discovery on fed cattle is still an issue. You can’t blame these formula trade feedlots for getting more revenue.
But the whole system must work with quality cattle and for the most part the industry is producing more quality. Last week 73.6 percent was Choice and 9.7 percent was Prime. But somebody must process that 15 percent of cattle that are Select and Standard.
Still supply and demand are the crux of price discovery. Right now, we still have too many cattle on feed in relation to current demand. Even though demand has been good it would be much better if we had the hotel, restaurant, institutional trade back, which can account for at least 50 percent of beef consumed. We’ll get some leverage on the packers soon. Also, pray for snow and spring rains. — PETE CROW
