Montana Stockgrowers, USCA talk mandatory price reporting changes
A few cents or even a dollar – they really don’t mean much anymore. But to American cattle feeders and ranchers, 50 cents, 10 cents or even five cents per hundred-weight on a load of cattle could mean the difference between going another year, or giving it up to the bank. Take that figure times the nearly 500,000 head of fat cattle shipped and slaughtered every week, and it is easy to see how a small disruption in the cattle market can create landslide turmoil in cattle country.
Shane Eaton, who farms and ranches with his family near Lindsay, Montana, said more information could be made available when fed cattle sell on the cash market, helping other feeders make informed decisions about when to sell and for how much.
The Eaton Charolais family ranch is also part owners in feedlots in Nebraska, Colorado and Wyoming, where they feed their own cattle, purchase cattle to put on feed and also provide custom feeding services.
Last summer, the cattle market was trending upward, with all signals pointing to a continued positive movement, when one “trade” or sale of finished cattle, turned things the other way, Eaton believes.
Eaton believes last summer’s market switch from up to down was caused in part by a 3,500 head trade on a Monday for $1.50 per hundred weight less than the trades the Friday before.
Most cash sales happen on Friday, so a Monday sale of such a significant number of cattle was unusual, said Eaton.
As a feeder, he watches for public information about trades so he knows what his own cattle are worth when he enters negotiations with a packer buyer. “You look at last week’s trades and you think things will be going higher, so you’ll ask for more money, not less,” said Eaton. But after the unexpectedly low sale, he didn’t know if he should hold out for the market to straighten back out, or sell before it went even lower.
“If someone gets out in front (sells early in the week) and sells a couple thousand head lower than the market to put downward pressure on the cash market, they just lowered the other half million or 400,000 head of cattle by 20 cents, or 50 cents or a buck. That adds up really quick for the feeder, but also for the ranchers that are selling cattle,” he said.
Because very few fat cattle are sold in auction markets or public forums, the federal government requires that packers disclose information about the transactions that take place. Feeders can then use these details to determine what their own cattle are worth. This information disclosure is commonly known as Mandatory Price Reporting and includes such information as the weight and number of cattle, expected quality grade of cattle, and location of the sale.
Eaton would like to add another piece of information: native vs. non-native cattle
The “native” designation would represent cattle that were born and raised in the United States. The “non-native” or “foreign born” designation would represent any that were not born in the United States.
Currently, for USDA purposes, if imported fat cattle are in a sealed truck, destined straight for a slaughter plant, they are considered imported product. But as soon as imported cattle walk off the truck and step on U.S. soil – whether a feedlot or a pasture, USDA considers them domestic cattle.
Eaton found out later that the 3,500 head of cattle that sold were, in fact, Mexican cattle – a detail he believes should be made available on USDA reports.
“We have to have transparency. If it only makes a difference once, that might mean hundreds of millions of dollars. A little change in the fat market makes a huge ripple effect on the feeder side.”
The Montana Stockgrowers Association has adopted policy calling for packers to disclose whether cattle are “native” or “non-native” for purposes of USDA reporting.
With Eaton’s help, the MSGA presented a resolution to this effect to the National Cattlemen’s Beef Association summer meeting.
The Live cattle marketing committee discussed the issue and agreed to talk it over, refine it, and bring it back to the members at the annual convention in January.
The Unites States Cattlemen’s Association has similar policy, said Jess Peterson.
“Price reporting needs to be modernized,” said Peterson. “You think Wall Street would tolerate inaccurate information? That is a huge liability.”
Peterson said another, related issue that needs to be looked at is the confidentiality issue. Some trades are never reported by USDA because there weren’t enough packers bidding. The theory is that with only one or two packers bidding, it could be surmised that XYZ packing company conducted a particular trade.
R-CALF USA’s Mike Schultz agrees.
“Part of the problem is the 3-70-20 rule. That thing is a bottleneck,” said Schultz, a cattle producer from Kansas.
“They don’t have to report if any one packer buys over 70 percent of the market that day or if 3 or more packers aren’t bidding on any particular trade.”
“Imported live cattle are really a problem. They buy them cheaper and sell them cheaper and drive our prices lower.” Schultz said R-CALF USA doesn’t specifically have policy on this subject, but that the group could support it. “It has merit. We want differentiation of product – that’s key to survival.”
Oklahoma State University’s Derrell Peel says he doesn’t know that the concept would “hurt anything” but that the number of negotiated trades is so small anyway, that to break it up into different categories could result in less accurate, not more accurate information. “These things tend to average out over time,” said the extension beef economist.
“I don’t think it would change the cash price reported, but would make the number of head included in that reporting pool smaller,” he said
“Realistically, I don’t think you can keep slicing and dicing the data. You’ll have thinner and thinner categories.” Of the approximately 90,000 head of cattle slaughtered in a day, about 20 percent are negotiated or “cash market” trades, he said.
Looking into the 3-70-20 rule and the number trades that aren’t reported would be reasonable, he said.
Peel also says that cattle from Mexico, in many cases, are of the same quality as cattle from the southern United States.
“Go to the salebarn and run the cattle through the ring, but leave a tarp over the cattle so all you can see is headcount and weight. You know they weigh 550 pounds and that’s it. That’s basically the information we have at our fingertips about other finished cattle that are selling,” he said.
Cash sales of finished cattle make up only about 20 percent of all sales. The remainder of cattle are sold in pre-arranged formula contracts which are based on the “cash market” – higher quality cattle might be locked in at $2 over the reported cash market, for example. When the cash market moves up or down, many formula contracts move with it.
For too long policy in some ag organizations has been set by those who “live off a W-2, not a schedule F,” said Eaton. “We need ranchers and farmers to be the ones making the decisions about our own businesses. We are the ones risking everything, those who get a paycheck every two weeks do not risk everything.” he said.
“The ag economy is literally in crisis. I don’t think anyone would disagree,” said Eaton. “Cattle prices are in the toilet, grain prices are in the toilet. This is the time to do something. We’re not saying we’re going to wave a magic wand and fix everything but it will give us the ability to prevent some of the manipulation that’s going on and provide transparency.”