New Proposal Attempts to Improve Price Discovery in the Cattle Market

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As the crisis in the cattle industry continues and the situation for producers only becomes more dire each day, some groups are pushing for legislation to require packers to buy a certain amount of their cattle via the negotiated cash market. The U.S. Cattlemen’s Association (USCA) is circulating a proposal that would require each packing facility to purchase 30 percent of their cattle needs on a negotiated cash basis for delivery within 14 days.

Many of the challenges that the cattle industry is going through right now, predate the COVID-19 pandemic by more than a decade. Consolidation in the packing segment has resulted in less negotiated trade and reduced price transparency. Over 80 percent of feedlot cattle in the U.S. are slaughtered by four large meatpacking companies: Tyson Foods, JBS, Cargill and National Beef.

The U.S. Cattlemen’s Association says that because these companies control a large percent of slaughter and processing capacity in the U.S., they have the unique ability to unduly influence the price of live cattle through the employment of tactics like bottlenecking processing speeds, importing chilled foreign meat to decrease demand for domestic supply, collaborating on pricing mechanisms, utilizing private forward-formula contracts, and piling up meat in cold storage to delay the need to purchase live cattle.

Corbitt Wall is one of the leading advocates of the 30-14 proposal. Ranchers across the nation watch his daily Feeder Flash report online, where he provides his perspective on the current state of the cattle industry.

This week, Wall told Northern Ag Network that “Over the last 25 years, we’ve just seen our negotiated trade dwindle down to nearly nothing. Its damaged our marketing of finished cattle to the point that your cattle feeders don’t have any leverage at all to trade with.”

The packing segment has only seen their leverage position grow in recent years. That has caused a lot of frustration amongst cattle producers who’ve seen two major events in the last year greatly disrupt the markets. First with the Tyson Foods packing plant fire in Kansas last August and now the COVID-19 outbreak.

The country’s packing capacity has been greatly diminished by COVID-19. After several plants saw outbreaks of the virus in workers, many were forced to temporarily close or reduce capacity. That has led to record wholesale beef prices. From April 21st to April 30th, the choice boxed beef cutout increased 119 dollars or nearly 50%, setting new records for the last week.

Even if the cattle market and the overall economy can return to normal, many in the beef business say some long-term changes need to be in the industry. And U.S. Cattlemen’s has decided to start with negotiated cash fed cattle trade. Fewer and fewer cattle are sold on a negotiated cash basis, which they say reduces the ability for true price discovery in the cattle marketplace.

“The reason this was all brought on,” Wall says. “is the big corporate feeders that own many feedlots and feed hundreds of thousands of cattle, they started making arrangements about 25 years ago with these packing plants. The packing plants needed captive supplies, so they started giving these formula deals to some of these larger outfits. So now you’ve got over 75% of your cattle being traded on what less than 25% bring.”

With the reauthorization of the Livestock Mandatory Reporting Program on the horizon, the United States Cattlemen’s Association says there is an opportunity to make changes to the current economic activities within the beef industry.

The 30-14 proposal, as its being called, would require a minimum 30% of each packer processing plant’s weekly volume of beef slaughter to come as a result of purchases made via negotiated cash trade. That would be mandated for every plant that reports daily slaughter numbers to USDA’s Agricultural Marketing Service. That 30% excludes any dairy bred or cross animals, cattle over 30 months of age, and foreign bord animals.

In addition, cattle purchased under the required minimum, would be required to be delivered to the packer not more than 14 days after the date on which the livestock are sold to the packer. Furthermore, the proposal states, no packer can discriminate against a seller for choosing to sell his cattle to negotiated cash sale purchases from that of other sales transactions.

“We feel that this would spur enough negotiated cash trade to where we would have a healthy amount of trade for price discovery,” says Wall. “It’ll be better for those that are on a formula situation. It’ll be better for those that are feeding in some type of value-added program. In turn it’ll make those cattle bring more and trickle down to our yearling market for our backgrounders and ultimately help keep our cow-calf producers in business.”

Some cattle groups have said that a mandate of 30% negotiated cash trade is not enough. Some producers have asked for that number to be 50%. However, Corbitt Wall says that, “There’s no way that we’ll ever get more than 30%. Big corporate feeders are already supplying more than half of the weekly volume, and they’re not going to give that up. We’ve got to have a little room too for those people in value-added programs that want to get into a formula situation and still have room for a healthy negotiated cash trade.

USCA says that with these changes in place, the Mandatory Livestock Reporting system could be used to provide accurate and transparent reports of daily prices and the number of cattle purchased via cash markets, providing greater market opportunity and price discovery for independent cattle producers.

Corbitt Wall adds that the current crisis does provide the opportunity to make some serious changes in the industry. “We can’t waste this crisis,” he says. “Your packers of course aren’t wasting it. They’re making millions of dollars per day at each facility. We’ve got to use the awareness that’s out here right now, while the irons are hot, that could potentially save this industry from going by the way of the chickens and the pigs.”

 

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Northern Ag Network


1 comment

Tim cole April 30, 2020 - 5:34 pm

Step in the right direction but needs to be more like 40-14 or more! Also need mcool back !

Reply

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