Industry considers more negotiated trade

by | Mar 6, 2020 | 0 comments

Livestock market analyst Corbitt Wall brought up an idea on a recent market report that has some caused some buzz in the industry.

“I think the thing that we need to do is we need to set a minimum requirement for these big packers to buy negotiated cash cattle,” said the Canyon, Texas, man on his Feb. 24, 2020, Feeder Flash market report, which immediately followed the U.S. Cattlemen’s Association “Winter Thaw,” a cattlemen’s gathering in Billings, Montana.

“It looks like the one thing we could get together with,” he said, mentioning all of the major cattle and beef organizations, as well as state groups.

The cattle market remains strained, despite the approval of several international trade agreements in recent months. The news of coronavirus across the globe is being blamed for the most recent downturn of live (fed) cattle.

Wall told TSLN that with less than 20 percent of finished cattle selling in a negotiated cash or “bid and buy” situation, there are not enough representative sales to truly establish the value for cattle on any given week. Wall said 25-30 percent might be a reasonable minimum goal.

Family feeders and farmer feeders, which are usually the only “cash sellers” have no leverage. “It’s gotten to where basis jumpers (feeders who make selling decisions based on their hedge position rather than the market value) are setting the markets early in the trade session. Once someone gives in, the rest of them are forced to take that price because they are afraid they will get left out.”

Many of the cattle that are sold via cash trades are lower quality cattle, which then set the price for the week for the 80+ percent of cattle sold on formula agreements, that are tied to the week’s cash price he said.

“It’s the odds, the junk, and a lot of lower quality cattle being sold on the cash market. It’s not the best way to do it,” he said.

Wall proposes requiring the bigger packing plants to buy a certain percent of cattle on the cash market. This would include Cargill’s, Tyson’s, JBS’s, National Beef’s, Greater Omaha’s, Nebraska Beef’s, and other larger company’s plants. Wall believes the smaller “niche market” plans should be exempt.

Both Wall and NCBA’s market policy associate, Darryl Blakely refers to research conducted by Colorado State University’s Dr. Koontz.

Blakely said NCBA “does see some of the concerns with the decrease in negotiated trade and its overall impact on marketing strategies.”

Dr. Koontz’s research will help NCBA determine what policy they would support on this front, he said.

“Whatever we do, we want to be sure it is sound on market data and not just something that would sound good,” he said, adding that his group is hesitant to support a government mandate.

NCBA set up a working group recently to determine what changes they want to recommend during the reauthorization of mandatory price reporting.

“We want to make sure we don’t mess up someone’s market because it would be good for another market,” he said.

Wall said Koontz studied what how few head of cattle can sell via cash cattle trade, while maintaining robust price discovery. “Robust is where we were six to eight years ago,” said Wall.

Wall said bigger feeders who are selling all of their cattle via formula contracts will likely support the concept. “They want price discovery. They love this industry, too,” he said.

R-CALF USA’s Bill Bullard said his group supports the idea and has tried for 13 years to achieve some kind of spot market requirements.

“Yes, this is a good proposal that we have supported for a long, long time. We worked with Sen. Chuck Grassley to introduce his spot market protection bill in 2007. We tried to get it into the 2008 Farm Bill but … others succeeded in keeping it out.” The group also worked with Senator Cory Booker to add the policy to his comprehensive cattle market reform bill. Ultimately R-CALF wasn’t able to support Booker’s bill, however, because of the CAFO restrictions.

US Cattlemen’s Association supports the idea of a compelled minimum negotiated trade, said spokesman Jess Peterson.

Wall believes the change can be done via the USDA Livestock Mandatory Reporting (mandatory price reporting) rule revision scheduled for this year.

“I would say LMR could enforce this through updates to their confidentiality requirements. If they can’t, then maybe it’s time to get rid of mandatory price reporting, it’s not helping the market.”

In previous interviews with TSLN, Wall has explained that because of LMR’s confidentiality rules, a significant number of cash trades are never reported, and are not available to help determine the current market.

While the Packers and Stockyards administration seems the likely candidate to enforce such rules, Wall doesn’t believe that would be successful.

“P and S is worthless as teats on a boar hog. They quit enforcing when trade left the terminal markets like Omaha, Chicago and Denver, and we’ve been going downhill ever since,” said Wall.

“We’re looking at packers having a complete monopoly of the industry and it’s only fair that they participate in something like this. It’s not a wild idea. My fear is that if we don’t do something quick, we are losing our independent feeder guys. Every round we lost a few more, another one or two say ‘I’m never doing that again.’”

Without a policy change, corporate feedyards and formula traders will soon be the only potential destination for feeder cattle, Wall sad.

“It won’t be long until they get their heads together, the same way the packers have gotten their heads together, and there goes feeder cattle demand.”

  Article originally published in Tri-State Livestock News, March 6, 2020

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