Negotiated cash fed cattle trade was limited on light demand in all major cattle feeding regions through Tuesday afternoon, according to the Agricultural Marketing Service (AMS). There were a few live trades in the Southern Plains at $106/cwt., which was steady with the previous day and $2 lower than last week.
Cattle futures firmed Tuesday, regaining a portion of what was lost in the previous session’s selloff. Other than being oversold, there was no compelling explanation.
Live Cattle futures closed an average of 74¢ higher, from 12¢ higher in spot Oct to $1.07 higher toward the back.
Feeder Cattle futures closed an average of $1.87 higher, (70¢ to $2.40 higher) except for 10¢ lower in spot Oct.
Choice boxed beef cutout value was 86¢ higher Tuesday afternoon at $210.60/cwt. Select was 17¢ lower at $191.67.
Corn futures closed mostly 1¢ to 3¢ higher.
Soybean futures closed 8¢ to 11¢ higher through Sep ’21 and then 5¢ to 6¢ higher.
Major U.S. financial indices closed higher Tuesday, buoyed by promising chatter about Congress getting closer to agreement concerning an economic stimulus deal.
The Dow Jones Industrial Average 113 points higher. The S&P 500 closed 16 points higher. The NASDAQ was up 37 points.
Late last week, the National Cattlemen’s Beef Association (NCBA) released its widely anticipated framework for voluntarily enhancing negotiated cash fed cattle trade volume. In broad terms, it calls for minimum levels of cash trade in each of four designated cattle feeding regions, as well as weekly participation by the four largest beef packers.
“The framework explains in detail what we are calling the 75% Plan, which is designed to provide negotiated trade and packer participation benchmarks for the industry to strive toward,” explains, Marty Smith, NCBA president, in a letter to that organization’s members.
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 (more later).
- Achieve this packer participation threshold no less than 75% of the reporting weeks in a quarter.
That’s outlined in A Voluntary Framework to Achieve Robust Price Discovery in the Fed Cattle Market. It was developed by NCBA’s Regional Triggers Subgroup. The NCBA Live Cattle Marketing Work Group tasked that group to develop a voluntary framework, including triggers, to increase frequent and transparent regional trade to a regionally sufficient level.
Levels of weekly trade volume are based on previous and ongoing cash price discovery research conducted by Stephen Koontz, agricultural economist at Colorado State University.
“For instance, in Kansas, the robust number that Dr. Koontz identified was 21,000 head of negotiated trade on a weekly basis, so 75% of that is 15,750 head per week,” explained Jerry Bohn, chairman of the Regional Triggers Subgroup, during last Friday’s Beltway Beef podcast. “We did that for every region of the country. From there, we put together this trigger plan of 75% of the required volume each week, 75% of the time.”
The framework defines four cattle feeding regions: 1) Texas, Oklahoma and New Mexico; 2) Kansas; 3) Nebraska and Colorado; 4) Iowa and Minnesota. Weekly robust cash trade levels for the regions range from 5,000 head (Colorado) to 31,000 head (Nebraska).
As for the packer side of the equation, according to the framework:
“Each of the four major packers shall be responsible to participate in negotiated trade, at appropriate and adequate levels, within each of the regions from which they predominantly procure fed cattle. At this time, there is insufficient data published under LMR (Livestock Mandatory Reporting) to measure the participation of the major packers in negotiated trade within each region. NCBA is currently involved in conversations with U.S. Department of Agriculture’s Agricultural Marketing Service (USDA-AMS) to determine what packer participation information can be shared under the current LMR statutes and USDA’s rules of confidentiality. The subgroup has drafted a potential framework for the packer participation silo, but will await additional information from USDA-AMS before finalizing.”
The framework defines eight minor triggers, each having to do with whether or not threshold-level negotiated trade volume and threshold-level packer participation were achieved in various regions.
The subgroup will evaluate, on a quarterly basis in arrears, the weekly negotiated trade volume and packer participation information for each reporting region, using LMR data from USDA-AMS.
To avoid tripping a minor trigger, each region must:
- Weekly trade 75% or more of its “robust” price discovery threshold via negotiated means, no less than 75% of the reporting weeks, and
- Weekly fulfill its packer participation obligations (to be determined as outlined above) no less than 75% of the reporting weeks.
In any given quarter, the tripping of three or more minor triggers equals a major trigger.
“In the event that a major trigger is tripped during any two out of four rolling quarters, the subgroup shall recommend NCBA pursue legislative or regulatory measures to compel adequate negotiated trade for robust price discovery,” according to the report.
“While certainly not a silver-bullet solution, I truly believe that this approach provides the industry a goal to strive towards and, perhaps more importantly, a path forward if progress is not demonstrated toward that goal,” wrote Smith.
“It’s not intended to be the ultimate fix to the marketplace, but ultimately what we wanted is to have the industry in the driver’s seat until such a time that it was determined that we can’t achieve what we need to on a voluntary basis,” explained Tanner Beymer, NCBA director of government affairs and market regulatory policy, during the podcast.