A year and a week ago today, the Fed Cattle Exchange started up its regular weekly fed cattle auctions. It sought to bring the successful structure of online auctions realized in the feeder cattle market to fed cattle.
Everything started out with a bang. In the first three months, almost 90,000 head of fed cattle had been offered for sale with some weeks seeing over 12,000 head. Most of the sales had 75-95 percent sale rates.
However, in recent months, consignment volumes and sales rates have declined noticeably. In the last three months for example, not even 24,000 head have sold, and most sales have seen sale rates under 20 percent. Some sales have even gone entirely unsold. One cattle market economist last week described the auction’s significance as having “waned drastically.”
WLJ talked to Danny Jones, president of Superior Livestock Auction which runs the Fed Cattle Exchange, about the change.
“There’s several factors that contribute,” he said when asked about the decline in consignments. “When we were in an increasing market, the price discovery function of the fed cattle exchange was more active. There was more price discovery going on with bids as prices were strong.”
He opined that in a market with optimistic sellers there is a greater drive to participate. When the market is pessimistic, however, the reverse is true.
“It seems that people are more willing to put their offering out there for public bidding and public scrutiny to watch if they feel good that there might be a run-up around the corner rather than hoping that the price holds and doesn’t go down.”
“I think, even with the lower consignment numbers and the lower sales rates, the Exchange is still providing a very valuable function in that we’re offering cattle and we’re finding out what packers are willing to bid and whether the buyers are willing to take that,” he added, highlighting that price discovery runs in both directions.
“Price discovery is still alive and well in the Exchange and it’s happening midweek rather than in the late week we used to have. I think it has been a good indication as to the pulse of what the packers are willing to do and what the sellers are willing to take. I feel like the information provided by the Exchange, even in what looks like a stalemate in several weeks lately, is still good, valuable information.”
Market moves
If Jones’ speculation about seller pessimism affecting consignment is accurate, the current uncertainty over whether we’ve hit the seasonal low could be a factor.
Jim Robb, director of the Livestock Marketing Information Center, described a holding pattern resulting from this uncertainty.
“Everbody’s sort of waiting. Even on the traders’ side, everybody’s kind of waiting for last year to repeat or the year before to repeat. Is it a repeat? When’s the bottom going to come? Was it last week? Was it this week? Or is it next week?”
He pointed out that there’s concern there may be a brief rally followed by renewed declines in October.
“That is fairly unusual, but it happened the last two years. There’s a tendency for all of us to remember most recently the last year or two, and that’s especially clear in the futures market. But that’s human nature.”
Robb was unaware of statistical support of the idea that cattle feeders avoid negotiated sales during down markets. He did note another area of human nature, however; cattle feeders delay marketings when they don’t like the price.
“We get into problems when we do that,” he noted, citing the market declines of 2015 that saw most of their roots in an overabundance of overfed cattle.
“I think there’s a bit of a trend in that direction. You don’t have to delay very long at 3 pounds a day to make a significant mark,” he added with a tone of caution.
Another area of uncertainty stems from market fundamentals. Packers now have a large per-head margin—strong motivation to keep buying cattle cheap—and ample supplies.
“The packers have been trying to step back, there are lots of cattle surrounding the market. The tug and pull may catch the Exchange in the middle of that pull in each direction. It’s hard to tell whether there’s not enough people listing or the people aren’t listing because they don’t think there will be any buyers,” Robb noted.
New things to come
Despite current issues, Jones looked optimistically to the future.
“We’re hoping for more consignments. I believe we will see higher consignments in a more positive market and with more positive outlooks,” he said.
Jones told WLJ the Fed Cattle Exchange is thinking about strategies to help encourage consignments independent of the market, however. One of those possibilities is adding some anonymity to the lot listings.
“There might be a stigma to putting your name out there, so we’re thinking about giving all the information that the market needs like saying “a southwest Kansas feedlot” rather than a name. Maybe people will be a little more willing to consign when the whole world isn’t watching the decision they’re making.”
He pointed out that it is not official, and just one of the options being considered, but it is a possibility they are investigating.
“We’re making sure there’s no other concerns about that, but I think it’s a valid idea that might promote more consignment.”
Jones added that they hope the added anonymity might spur some of the smaller feeders to participate. The more groups that take part, the more anonymous regional descriptions of cattle’s origins would become.
“What we’d like to see is actually more participation from the smaller operations on both sides; you know, regional packers and small feeders,” he said, saying that smaller participants are important to negotiated prices.
“The market is so starved for information that small deals can have a magnified, amplified impact on price discovery.” — Kerry Halladay, WLJ editor
