No triggers tripped in negotiated trade volume, some packers still slow to cooperate
According to a letter to members from NCBA president Jerry Bohn, there were no triggers tripped in the negotiated trade volume silo during the second quarter, meaning there will be no regulatory or legislative solutions at this time. Even so, Bohn said some packers have been slow to participate.
“Using data collected under Livestock Mandatory Reporting (LMR) and published by the Agricultural Marketing Service at USDA, the subgroup found that no minor triggers were tripped in the negotiated trade volume silo during the second quarter. Thus far, we have fallen short of our goal to complete the packer participation silo. However, I am pleased to report that we have now finalized agreements with the four major packers to analyze their participation in the negotiated market from the third quarter onward. The completion of the packer participation silo brings the total number of minor triggers in our program to eight — one for each of the four cattle feeding regions analyzing negotiated trade volumes and one for each of those regions analyzing negotiated packer procurements. Resolving this critical piece of our voluntary effort will help ensure that both buyers and sellers of live cattle bear mutual responsibility for achieving robust price discovery.”
When Q1 negotiated trade data was evaluated, a major trigger was tripped. According to the member-approved framework, if another major trigger is tripped in another quarterly evaluation, legislative or regulatory action will be pursued.
According to NCBA, under the “Negotiated Trade” silo of the 75% Plan, one minor trigger is assigned to each of the regions. The subgroup evaluated the weekly negotiated trade volumes for each cattle feeding region and determined that the Iowa-Minnesota and Nebraska-Colorado regions exceeded their thresholds under the 75% Plan during all of the reporting weeks – therefore, passing their negotiated trade threshold for this quarter. They also found that the Texas-Oklahoma-New Mexico and Kansas regions each fell short of the threshold during five of the Q1 reporting weeks. One of those weeks occurred during Winter Storm Uri and another coincided with mandatory maintenance at a major packing plant which resulted in a lengthy closure. Both events disrupted normal cattle flows and brought critical packing capacity to a grinding halt. The data from the weeks surrounding both events justified invoking the force majeure provisions of the framework, though a major trigger was still tripped due to a lack of packer participation.
Bohn said the second quarter saw a striking level of buy-in from cattle producers and, due primarily to cattle feeders, especially in the Southern Plains, the second quarter saw more negotiated market participation than the first. Some packers, he said, have shown a desire to work alongside us to increase their procurements of negotiated cattle, and seem to recognize the importance of price discovery to the entire industry.
“That said, NCBA has been frustrated by the apparent lack of urgency demonstrated by some of the largest purchasers of fed cattle,” Bohn said. “The subgroup believes that completing the packer participation silo will encourage all major meatpackers to be part of the solution to this problem.”
The subgroup met in Denver on July 6 and discussed the findings and some of the lessons learned, including how cattle marketing varies so substantially from region to region, notably in terms of whether quality grades or dressing percentages drive marketing.
“Second, it is important to remember that price discovery and price determination are different things,” Bohn said. “For example, in four trading weeks during the second quarter, negotiated trade volumes exceeded robust price discovery levels in all regions. Nevertheless, cattle prices did not make significant gains in the same period. High cattle supplies and a shortage of adequate beef packing capacity have helped create a current market dynamic where leverage in negotiations resides with the packers.”
Additionally, he said the use of non-value-added formulas, such as weighted averages, “cash plus” transactions, and “top of the market” trades, neither contribute to price discovery nor further our objective to increase genuine negotiated trade in the market. The subgroup also noted the need for additional research and academic literature to better understand the role of competition, or packer participation, in price discovery and the industry-wide cost of reduced negotiated volumes.
He admits there remains no silver bullet, but the work continues to ensure every segment of the industry can be profitable.
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