Agricultural News
As Wholesale Beef Price Doubles- Cattle Industry Grapples With Price Discovery
Mon, 11 May 2020 04:50:10 CDT
This past Friday, wholesale Boxed Beef Prices hit $460 per hundred, according to USDA Market News. As the coronavirus pandemic panic began in March, prices were around $230 for Choice beef, while cattle prices were around a dollar a pound and have languished in the reality of too many cattle and not enough processing plant capacity. There are a half million cattle or more now backed up in the cattle-beef pipeline because of COVID-19 taking several key beef processing plants offline. Cassie Fish with The Beef says that we might get back to close to a normal slaughter number in another week or so but the damage is done- and will take much of the rest of the year to get things sorted out- especially with carcass weights now thirty pounds above the levels seen last year at this time. In the midst of the cattle price- wholesale price disparity- cattle producers are openingly questioning the price discovery for cattle ready to leave the feedlot and head to the processing plant.
Along these lines- NCBA President-Elect Jerry Bohn of Kansas has released the following statement in response to a letter from Dr. Stephen R. Koontz of Colorado State University providing additional context and clarity regarding his work on cattle markets and the use of that research in conjunction with the 30-14 proposal for mandated cash trade for live cattle:
"NCBA has been working closely with Dr. Stephen R. Koontz to develop solutions that address our concerns with the decline in negotiated cash markets and lack of price discovery. Recently there have been calls for marketing mandates with Dr. Koontz's research being used to support those proposals," said Bohn. "In response to our inquiries regarding his research on this topic, Dr. Koontz released the attached letter to correct the record and clarify his positions and findings on this topic.
"NCBA is committed to finding an industry-led solution, backed by current research and data, to increase the amount of negotiated cash trade in the industry. NCBA's Live Cattle Marketing Committee Working Group has been hard at work crafting industry-led solutions on the best methods to increase cash market activity without causing financial harm to the industry."
The 30-14 policy proposal refers to beef packing companies being required by the government to purchase at least 30% of individual plant fed cattle needs in the negotiated cash market and that those purchases would be delivered to the plant within 14 days. In the letter from Dr. Koontz, he offers an explanation of why the cattle market needs additional price discovery but also explains that he believes that a solution that is mandated in Federal Law would be a mistake- " my work does not recommend, and I do not support, a mandate of a given percentage cash trade."
He adds that the current inbalance found between wholesale boxed beef prices and live cattle cash prices would not be solved by a percentage plan being advanced by come cattle groups. " The current market situation is due entirely to the supply disruptions at meatpacking facilities plants are being closed or operated at reduced speeds due to the human health event. Further, there have been disruptions to common domestic trade flows from delivery to food?away?from?home providers and to at?home food outlets. Additionally, we entered 2020 knowing protein supplies would be abundant most of the year. None of these issues are related to price discovery."
Koontz believes that a mandate would cost the cattle industry millions and perhaps billions of dollars each year. He explains in his letter that a better plan might be to establish what some other industries call "market movers." What is that and how would it work? He explains " Many asset markets do this. The industry participants working together to create, and compensate, a pool of cash market traders that are discovering price, are good at this service, and willing to do it within their business model and for the benefit of the industry is what is needed. It is one means to solve the public good problem of not enough quality price discovery. It would be less costly than a mandate and open to changes in how the industry does business in the future."
Dr. Koontz complete letter on his concerns about using research he has been involved with to justify a 30-14 mandate or similar can be read by clicking on the PDF at the bottom of this story.
00106_Price_Discovery_Issue_Letter_2020_Koontz.pdf
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