USDA to talk price reporting: Industry to gather in Kansas City, MO, Dec. 12
As the live cattle market inches upward, the players in the industry – from the seedstock producer to the finishing lot owner – are trying to figure out what happened over the last several months and what can be done to prevent another similar market crash.
Some are hoping to get some answers, or at least learn more about possible solutions at an upcoming gathering.
The U.S. Department of Agriculture’s Agricultural Marketing Service will host a stakeholder meeting to review the findings and recommendations from a recent study on Thursday, December 12, 2019 at the USDA National Grain Center located at 10383 North Ambassador Drive, Kansas City, Mo. 64153. The meeting will begin at 12:30 p.m. central time and end at 4.
A recently released report on potential changes to Livestock Mandatory Reporting (also known as mandatory price reporting) will be the focus of the meeting.
Dr. Ted Schroeder and Dr. Glynn Tonsor with Kansas State University and Dr. Lee Schulz with Iowa State University looked at a couple of different options for updating the rule. The LMR rules will be opened up in 2020 for possible amendments, as is done every five years.
The study explored the feasibility of reporting negotiated slaughter cattle purchases in separate 0-14 and 15-30 day delivery windows and the possibility of the realignment of states in the 5-Area reporting region, while maintaining the confidentiality, set forth in the LMR statute.
With so few packers buying the lion’s share of slaughter-ready cattle, confidentiality rules often prevent a number of negotiated sales from ever being reported, said Corbitt Wall, Commercial Cattle Manager/Livestock Market Analyst at DV Auction.
“Not many years ago, we reported half a million (head) in negotiated sales a week, now we rarely get over 100,000,” he said.
The “five area feeding region” consists of Texas, Kansas, Nebraska, Iowa and Colorado – the country’s biggest cattle feeding states. But because of confidentiality rules, and because some of these regions sell very few (less than 10 percent) of their finished cattle in the cash, USDA is considering updating the regions.
Wall said that reports from Colorado, for example rarely include any sales. This is due to the confidentiality or 3-70-20 rule that requires that in any given area, there has to be 3 market participants (buyers), one buyer can’t make up more than 70 percent of the information for the time period, and there can’t be just one buyer providing information more than 20 percent of the time. If these confidentiality requirements aren’t met, a sale isn’t required to be reported. “With those rules plugged into our system, basically Colorado hardly ever prints anymore, and Texas is trending in that direction, too.”
As far as the five areas currently reported, Wall said USDA is considering adding portions of other states on the fringe of the five area such as Wyoming, South Dakota, and Illinois, and possibly others to the data collected. He said adding more data is always helpful but he doesn’t want to lose the continued data as it has been collected for about 20 years, since the inception of LMR.
Wall is concerned, for one thing, that if the lines are “gerrymandered,” that all past historical data will become much less useful.
“We can see market change over time, we don’t want to abandon that. The historical data is valuable, so we can look back and make comparisons,” he said.
Wall believes that steer and heifer data could be combined, if needed, to provide a more robust dataset for the industry. Including the fringe areas – without re-drawing the district lines – would help increase the amount of information available.
NCBA spokesman Ethan Lane said his organization plans to attend the meeting to gain information and at this point doesn’t have proposals to change the LMR rules.
“There are a lot of people talking all kinds of things. The goal is to be sure price reporting policy is driven by verifiable facts and no speculation. There are 1,000 ‘ifs,’ but we need verifiable data,” said Lane.
R-CALF USA will not be at the meeting, and can’t comment on LMR at this time due to the group’s ongoing litigation against the four major meatpackers.
The group has a response brief due Dec. 13, 2019, and they continue to wait for the court to schedule a hearing on the motions to dismiss filed by the meatpackers’ legal teams.
Jess Peterson with the United States Cattlemen’s Association said that his group believes changes are needed, in order to provide sufficient information about the market to allow for market transparency. They are willing to try different options until something helps. “There needs to be valid, accurate information. When you’re eliminating numbers because of the confidentiality rules, that’s a problem,” he said.
One change USCA supports is the requirement that packers disclose whether cattle are of native origin or non-native origin. Currently, cattle that are imported, then fed in the United States, are considered a domestic product.
Even with LMR updates, many in the industry agree that the lack of cash trades continues to challenge the industry and prevent true price discovery.
“I think what people are feeling, on a down market, is that buyers can take that down market and snowball it even farther by buying cattle for future delivery,” said Wall.
The pool of negotiated trades is so shallow it doesn’t provide sufficient information to properly base all other trade upon, said Wall. “Everything this meeting is meant to do is basically to compensate for the lack of negotiated trade. All of this discussion would be fixed if we had more negotiated trade, but I don’t know how you do it.
“I’m totally against government intrusion, and I don’t know how you’d do it but we’re getting to the point that we’re going to lose it if we don’t start putting some staples in there somehow to hold it together. All of our farmers and ranchers that depend on cattle production to keep their farms and ranches together to feed their families. Maybe you should propose that these formula programs have more volume on the base price,” he said. When 80 percent or more of the finished cattle are formula sales, it is important that the “base price” be inclusive of a large volume of cattle – not just one or two qualifying sales. “If you’re going to sell all your cattle out of your feedlot for the weighted average or high of the week, maybe USDA should mandate that a minimum number of head are sold in a negotiated to qualify as a base,” he said.
“You wonder why all these backgrounders, cow-calf people and feeders are so interested. That cash fat cattle price is what drives everything that they are going to get. That’s the trickle-down deal. If we lose that weekly cash finished cattle price then the rest the industry is doomed, and we can’t rely on futures to do that for us.”
The study that will be talked about at the meeting can be found online at: http://www.ams.usda.gov/rules-regulations/mmr/lmr/generalinfo.