NCBA releases price discovery plan
National Cattlemen’s Beef Association president Marty Smith of Florida, shared details about his organization’s plan to use voluntary methods to achieve robust price discovery in the fed cattle market. In an Oct. 15, 2020, letter to members (available online), Smith shared some information about the plan. He says that after months of bi-weekly meetings, the seven member Regional Triggers Subgroup came up with a multi-tiered concept.
The subgroup consisted of: Jerry Bohn -NCBA President-Elect & Subgroup Chair, Kevin Buse, Texas Cattle Feeders Association, Shelby Horn, Texas & Southwestern Cattle Raisers Association, Brad Kooima, Iowa Cattlemen’s Association, Jordan Levi, Colorado Livestock Association, Troy Sander, Kansas Livestock Association and Troy Stowater, Nebraska Cattlemen.
Smith’s letter said, “Called a ‘A Voluntary Framework to Achieve Price Discovery in the Fed Cattle Market,’ this approach lays out a plan to increase negotiated trade and incentivize each of the major packers’ participation in such negotiated trade. The framework explains in detail what we are calling the ‘75% Plan,’ which is designed to provide negotiated trade and packer participation benchmarksfor the industry to strive toward.
“In essence, the Subgroup will evaluate the weekly negotiated trade information for each of the USDA Agricultural Marketing Service’s cattle feeding reporting regions on a quarterly basis in arrears. Eventually, the Subgroup will include in its evaluation an analysis of packer participation data, but this information is not yet published under Livestock Mandatory Reporting.
“To avoid tripping triggers, in any given quarter, each region will have to:•Achieve no less than 75% of the weekly negotiated trade volume that current academic literature indicates is necessary for “robust” price discovery in that specific region,•Achieve this negotiated trade threshold no less than 75% of the reporting weeks in a quarter,•Achieve no less than 75% of the weekly packer participation requirements, to be determined in short order, and assigned to each specific region,•Achieve this packer participation threshold no less than 75% of the reporting weeks in a quarter.
“In the event that triggers are tripped in any two out of four rolling quarters, the Subgroup will recommend that NCBA pursue a legislative or regulatory solution to compel robust pricediscovery. The Subgroup will take into account black swans on a case-by-case basis, which are outlined in the force majeuresection of the document, and may allow for flexibility within the 75% Plan if events disrupt the normal flow of cattle in a quarter. Periodic adjustments may need to be made to the framework in the event that academic literature is updated, technological advances are made, or other conditions of supply and demand have changed. The Subgroup will make these adjustments on an as-needed basis.”
R-CALF USA, a cattlemen’s group based out of Billings, Montana, criticized the plan, saying that the Grassley 50-14 bill would be a far more successful option for the cattle industry.
Bullard said NCBA’s entire plan defies logic and common sense because it sets a threshold for minimum purchases in the negotiated cash market at levels well below the average volume in that market during the past three years, which he said was a period marked by a severely dysfunctional marketplace that has caused serious financial losses to America’s independent cattle producers.
“This plan is much worse than if it simply enshrined the status quo. It’s a recipe for disaster for the U.S. cattle industry,” Bullard commented.
The NCBA plan relies first on predictions that the nation’s broken cattle market will become robustly competitive if the largest beef packers purchase a total of only 86,000 cattle each week from the competitive cash market. But the NCBA plan requires the largest beef packers to only purchase 75 percent of that minimum number, or 64,500 cattle, during some, but not all weeks, said the R-CALF news release.
According to U.S. Department of Agriculture (USDA) data, during the past three years (Oct. 16, 2017 – Oct. 21, 2020) the national weekly volume in both the negotiated cash market and the negotiated grid market – the two markets covered by the NCBA plan – averaged over 117,000 head per week.
Bullard said this means the targets in the NCBA plan will result in the packers purchasing far fewer cattle in the competitive price discovery market than they purchased on average during the past three years – a period when the U.S. cattle market demonstrated a complete and utter lack of competition.
The full plan can be accessed at ncba.org
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