Cattle Current Daily—Oct. 11, 2021

Cattle Current Daily—Oct. 11, 2021

Negotiated cash fed cattle trade ranged from a standstill to mostly inactive with light demand in all major feeding regions through Friday afternoon with too few transactions to trend, according to the Agricultural Marketing Service.

Live prices last week were steady in the Southern Plains at $122-$124/cwt. in Kansas and $124 in the Texas Panhandle. Prices were steady in the western Corn Belt at $122 but mostly steady to $2 higher in Nebraska at $122-$124. Dressed prices were $196, which was steady in Nebraska and toward the top of last week’s price range in the western Corn Belt.

Feeder Cattle futures closed an average of 39¢ lower as traders positioned for the weekend following the surge higher. Week to week on Friday, they closed an average of $5.17 higher.

Similarly, Live Cattle futures closed narrowly mixed from an average of 37¢ lower to an average of 17¢ higher. They closed an average of $3.92 week to week on Friday.

Choice boxed beef cutout value was $2.03 lower Friday afternoon at $283.27/cwt. Select was $1.74 lower at $262.74/cwt.

Corn futures closed mostly 1¢ to 3¢ lower.

Soybean futures closed mostly 4¢ to 7¢ lower.

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Major U.S. financial indices fell on Friday after jobs data came out weaker than expected for September, right as most expect the Federal Reserve to start tapering efforts. Only 194,000 workers were added last month, even though the jobless rate declined to 4.8% – partly due to folks who have quit looking for jobs. The biggest loss in jobs was seen from government entities, although a bright side came from leisure and hospitality, which nearly doubled the rate of jobs added in that sector.

The Dow Jones Industrial Average closed 9 points lower. The S&P 500 closed 9 points lower. The NASDAQ was down 74 points.

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Fundamental economics and credible research continue to suggest voluntary efforts to improve cattle price discovery offer less risk and more opportunity than government mandates.

Last week, the Texas A&M University Agricultural and Food Policy Center (AFPC) issued proceedings from an in-depth workshop on cattle markets titled The U.S. Beef Supply Chain: Issues and Challenges.

It stems from the Committee on Agriculture in the U.S. House of Representatives asking USDA to commission a study to look into the issues surrounding fed cattle pricing. Ultimately, USDA partnered with the AFPC.

Leading agricultural economists from across the nation address a number of key cattle market issues at the heart of current debate and legislative proposals. Arguably, the most complex surrounds Alternative Marketing Agreements (AMAs), which enable pricing cattle based on individual value rather than averages, reduce transaction costs and increase marketing efficiency, among other things. As more cattle trade through AMAs and outside of the spot cash market, some argue price discovery erodes. This notion is behind legislative proposals calling for mandated levels of weekly regional negotiated cash fed cattle trade.

“The beef industry’s move to AMAs (alternative marketing arrangements) represents part of the progression to value-based marketing and economic pressures to reduce transaction costs. Legislation or efforts to increase negotiated trade will increase industry costs,” according to the AFPC study. “Those increased costs are estimated to result in lower calf prices and higher beef prices. Cattle pricing and market signals have evolved over the last 40 years. Premiums that were not present prior to AMAs are now common. One of the challenges is maintaining the reward for quality if the method of pricing changes. Thinking through  the effect of the pricing mechanism on market signals is an important consideration to prevent even more negative impacts of potential changes.”

For perspective, Stephen Koontz, agricultural economist at Colorado State University conducted research more than a decade ago, estimating that participants realized $25 per head in value from formula pricing due to lower costs and increased marketing efficiency. AFPC researchers say the value is likely significantly more today. However, they used the $25 value in an equilibrium displacement model (EDM) to quantify the effect of an increase in costs at the feeder-packer level on cattle and beef prices if all cattle sold via negotiated cash trade.

“As expected, increasing transaction costs results in lower live animal prices and higher wholesale and retail beef prices. The impact on live prices ranges from -$1.75/cwt. for fed cattle to -$2.62/cwt. for calf prices,” according to the report. Beef prices at the wholesale (cutout) and retail levels increase. The impact on live prices is larger, in percentage terms, than meat prices. If the live-to-cutout spread is a concern, the end result is a widening price spread.”

In the AFPC study, Koontz examines and models the economic impact of mandating packing facilities procure 30% or 50% of their fed cattle needs via the negotiated market for delivery within 14 days.

“The bottom-line impact of any intervention into the cattle market is the fact that there are modest benefits and considerable costs due to lost efficiency and product quality from mandates,” Koontz says.  “Similarly, but context reversed, this is because AMA use has considerable benefits and modest costs due to solid economic foundations. This was the conclusion across the fed cattle and beef, hog and pork, lamb and lamb meat, and downstream meat distribution industries in the LMMS (Livestock and Meat Marketing Study conducted by GIPSA). For the cattle and beef industry, the costs are ultimately incurred by cow-calf producers and beef consumers. The short-term impact for a policy most like that being considered is a $2.5 billion negative impact in the first year and a cumulative negative impact of $16 billion over 10 years, inflated to 2021 dollars. This cost is leveled mainly on cattle producers. The 50/14 proposal would have these negative impacts and the 30/14 would have similar negative impacts albeit approximately halved.”

2021-10-10T18:20:21-06:00

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