by Kayla Sargent
August 9 is a day that won’t soon be forgotten by those in the cattle industry. The Tyson plant fire in Holcomb, Kansas sent cattle prices limit down and revealed just how volatile the cattle market is. While the effects of the fire were devastating to many in the industry, it started a critical conversation amongst producers nationwide. In fact, earlier this month, National Cattlemen’s Beef Association (NCBA) announced that cattle markets are one of the groups policy priorities going into 2020.
“At this point within the industry, I think it’s come to the forefront of making sure that we are a part of the conversation on how we stand on free and safe market principles and how we want the industry to be a part of all discussions,” NCBA Manager of Legislative Affairs and Market Regulatory Policy Darryl Blakey said. “As we’ve seen when the Tyson situation occurred back in August, there was a lot of discussion around what’s actually going on in the market.”
Specifically, NCBA plans to work to “promote policy that creates markets free from unfair practices and manipulation both in the fundamental markets and the cattle futures markets.” Additionally, NCBA will strive to “maintain free and safe market principles and continue to fight against policy that would create a market environment riddled with unneeded government mandates which aren’t back by data.”
While “cattle markets have always been a vital part to our members and our association,” according to Blakey, the issue “typically takes a backburner to policy discussions because it typically does not have a lot of legislative items that move within its bandwidth.” Instead, Blakey said it is more about engaging with USDA Agricultural Marketing Services (AMS) and the Chicago Mercantile Exchange (CME) on potential updates and reporting structures.
Livestock Mandatory Reporting Reauthorization…
This year is different, not only because of widespread industry discussion in regard to cattle market concerns, but also due to reauthorization of both Livestock Mandatory Reporting (LMR) and the Commodity Futures Trading Commission (CFTC) are set to occur on the Hill. During NCBA’s annual convention February 5-7, members passed policy regarding LMR reauthorization.
First, NCBA policy simply supports LMR.
“We want to make sure that this policy is reauthorized going into September,” Blakey said. “We want to make sure we are engaged with USDA on any potential improvements that need to occur to make sure we have timely and accurate data as we look at pricing information.”
One area that allows room for improvement, according to Blakey, is “reporting the negotiated slaughter cattle purchases and separate delivery windows.” NCBA supports this both on a regional and national scale, he said. Blakey said NCBA has also “asked for some additional changes in reporting structure within the beef side of the discussion.”
These policy proposals stemmed, in part, from a working group that was formed at NCBA’s Summer Business Meeting in Denver, Colorado. The group of seven was charged with bringing together suggested policy for LMR reauthorization after numerous meetings, conference calls, and reviews of studies and listening sessions.
Reporting Imported Feeders…
The working group also did further research on policy that Montana Stockgrowers Association (MSGA) presented at the summer business meeting that stated, “in an effort to improve transparency and to prevent market manipulation, MSGA supports changing LMR for live cattle to add a division such as ‘non-native.’”
MSGA Northeastern Director Shane Eaton wrote the policy after seeing foreign-born cattle negatively influence the market. Eaton recalled a market situation where live cattle in Nebraska traded at $113.36 the week of August 6 and fell to $111.26 the week of August 13.
“I believe the weekly price drop in Nebraska was precipitated by the Monday, August 6 trade of foreign-born cattle,” Eaton explained prior to presenting his policy at the summer business meeting.
In his working group report at NCBA’s annual meeting in February, NCBA Live Cattle Marketing Committee Vice Chairman Jim Fryer said there wasn’t adequate evidence to show negative impacts of foreign-born cattle on trade.
“There was one week where there was supposed Mexican cattle and it sounded like the allegation was that it wrecked the market,” Fryer said. “So, we went through and looked at how the volume of those different price categories evolved and the evolution of the price futures themselves. It seemed like most things were well within the trading ranges of the previous weeks.”
Fryer said after studying data, they found “no outlier” in price distribution among regions.
Eaton responded in the weeks following the Tyson fire, heifer dress prices were $2 below steers. He called this “quite an anomaly,” so Eaton’s yard manager looked further into the situation and contacted a “major packer.”
“The packer got back to our yard manager and explained that the difference, for the heifers being $2 lower than the steers, was because somebody sold Mexican heifers at such a discount in the two weeks following the fire that it influenced the price by two bucks,” Eaton said.
Eaton said the packer they were in contact with told the yard manager that the loophole in price reporting is “affecting your customers.” As such, Eaton proposed an amendment to NCBA’s foundation policy for LMR that would “add a new division to mandatory price reporting for imported feeders fed to slaughter weight in the United States.” Eaton urged members to support the amendment that would “close the loophole and bring transparency to those of us who still trade cash.”
Surcy Peoples, Texas Cattle Feeders Association (TCFA) representative and member of NCBA’s LMR working group, said “extenuating circumstances surrounding a lot of the activity that went on during those events” was not disclosed. With that knowledge, Peoples said TCFA would oppose the amendment. The amendment failed.
“One of the things that consistently did not have a solid foundation was this idea that non-native Mexican cattle were interrupting or trading at a discount in our markets,” Blakey explained in a follow-up interview regarding the working group’s findings. “In fact, there were no true situations that would spell that out at all. We, as NCBA, make sure our policy is solid and has the support of the economists in the industry before we move forward and try to make changes to market reporting structure.”
United States Cattlemen’s Association (USCA) has adopted MSGA’s directive regarding a “non-native” division in LMR as policy and is pushing for this change at the Congressional level.
More Market Policy…
Beyond LMR, NCBA passed several more policy items that fall in line with their cattle market priority.
“We had additional policy that was passed in our committee meeting around formula transactions and around other issues within next day cattle weights that we will now digest and work with USDA and our industry to make sure we move forward,” Blakey said.
Iowa Cattlemen’s Association (ICA) submitted both the policy on formula transactions and next day cattle weights. The formula transactions policy seeks to bring more transparency and price discovery to the market. It stated, “NCBA support initiatives to increase transparency in formula transactions and to require LMR to publicly report the details of formula transactions including the net price, base price, and any premiums.” This resolution passed with a narrow vote after some discussion in which Peoples announced TCFA’s opposition.
The next resolution stated that “NCBA supports an 11:00 a.m. daily LMR report providing the average carcass weight of cattle harvested the previous day.” ICA said this will give producers the “same timely information” that packers have access to already.
Finally, a resolution was brought forth by TCFA, California Cattlemen, Kansas Livestock, Colorado Livestock, and Texas and Southwestern Cattle Raisers that would create another working group to “advise NCBA leadership and staff and identify improvements and possible solutions for consideration and action by the Live Cattle Marketing Committee at the July 2020 Business Conference.” This group will consider possible amendments to LMR reauthorization; budgetary resources for USDA AMS; alternatives to increase negotiated cattle sales; possible changes to CME processes; and other market issues identified by the group.BACK