It’s ironic that a new live cattle marketing program to test the cash market was announced just days after NCBA’s live cattle marketing meeting. Out comes a new, but old concept. The Live Cattle Exchange has been around since 2016 and was developed by Superior Livestock Auction.
The intention was to create a more transparent market for cash sales of fed cattle. Exactly the problem the entire cattle industry wants: more negotiated fed cattle cash trade. After a few years, Superior didn’t care to operate it any longer and sold it to Jordan Levi. Mr. Levi ran it for a year and recently sold it to a new marketing outfit, Central Stockyards, which is a virtual stockyard—no pens, no coffee shop.
The NCBA marketing committee passed a resolution to require all fed cattle participants to take shared responsibility to contribute to the regionally sufficient levels of negotiated trade in all cattle feeding regions to achieve robust price discovery. That includes triggers to be determined by a working group of NCBA producer leaders by Oct. 1.
So, NCBA gave themselves 60 days to come up with a plan to enhance negotiated cash trade in all feeding regions, which is five areas and doesn’t include markets west of the mountains. All I can see is that the major feeding companies will self-direct certain volumes of cattle to be only sold on the negotiated cash market. How do you suppose that will work?
I guess timing is everything, but at the end of July it was announced that the Live Cattle Exchange was sold and is open for business. They held their first sale last Wednesday, they sold 1,400 head, and only 74 head didn’t sell; cattle sold for a $1 more than the prior week. The Exchange usually has 3,000-4,000 head and struggles to sell 500-600 head.
Forrest Roberts is the CEO of Central Stockyards, which is the overlord of the new Fed Cattle Exchange. Roberts was formerly CEO of the NCBA. Mr. Roberts said that they are modifying the program to “bid the grid,” which is where the premiums or discounts come from. All the cattle on the Exchange have been live cattle sales and it appears that they will arrive at the producer’s ultimate price after the cattle are dressed. Their initial grid will be the CME contract specifications…which isn’t much.
Then, in time, he says they will be applying other grids for “program cattle,” which are third party-verified cattle, all natural, NHTC, Top Dollar Angus premiums. Ironically, all the industry wants is more live cash sales for which they can apply grids and formulas to. Frankly, I need to see this new platform operate before I hold any strong opinion.
This “bid the grid” has been bandied about for several months and I have yet to hear a clear definition of what it is other than negotiate a base value, which we then see what the cattle are worth on the rail. They hope to be offering tens of thousands of head of finished fed cattle for sale each week sometime in the fourth quarter of this year.
In the past there hasn’t been much packer interest in the Fed Cattle Exchange. And I’m not sure what’s going to change. They claim they haven’t had any direct conversations asking packers to buy at this auction.
The best way I see this thing working is by selling quality. Quality products always sell well. So, they will need to pack the offering with cattle that will have the proper carcass weights, yield and quality grades and offer lots of them, so packers have no choice to use this auction marketing program.
They also want users to have skin in the game and have some ownership in the market, kind of like U.S. Premium Beef from several years ago. It was a group of cattlemen who bought an interest in National Beef Packers and marketed nothing but quality cattle. When they divested, they did very well.
Ironically, the NCBA appears to be going in another direction, which may go along the lines of committed purchasing pool. Five Rivers, Cactus and some of the other major feeders would self-impose a certain number of cattle to the cash market to reach the proper threshold.
NCBA hasn’t had much time to come up with a solution to fix the cash market, and really the only region that’s a problem is in the Southern Plains where 5 percent cash trades in a week is not uncommon. I hope these guys are successful with their new internet cattle auction marketing program. New marketing options are always welcome in this business where we are constantly trying to find value. PETE CROW
