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AUDIO: Fed Cattle Marketing, the Elephant in the Room

AUDIO: Fed Cattle Marketing, the Elephant in the Room
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The cattle market from late 2019 to 2020 has experienced two black swan events. The first being the fire at the Tyson packing plant in Holcomb Kansas in which live cattle futures plummeted the following day. Whole sale beef prices, on the other hand, quickly shot up. A very similar reaction happened when COVID-19 started to disrupt the meat supply chain and as the calendar nears June, several live cattle futures contracts are still trading below $100.

The black swan and volatile market have acted as gasoline to an already burning fire among cattlemen about fed cattle marketing and price discovery in the industry. Senior Economist for Nebraska Farm Bureau, Jay Rempe, wrote about the topic in a recent publication of “Agriculture Economic Tidbits”.  Rempe pointed out that negotiated purchases continue to be fairly strong in Northern states but Southern states are almost non-existent in cash trade.

The article cites that, “Nebraska averaged 41 percent of total transactions between 2016-2020 on an annual basis according to the U.S. Cattlemen’s Association. In contrast, cash purchases in the Texas/Oklahoma/New Mexico region accounted for 9 percent. Weekly and monthly data will vary quite a bit around these averages. Negotiated purchases in Nebraska between 2014-2018 accounted for 37 percent of the total U.S. negotiated transactions, according to research by agricultural economists at Kansas State and Iowa State. The researchers also found 85 percent of negotiated purchases nationally were for a 0-14 day delivery and 15 percent were for 15-30 day delivery. Nebraska and Iowa accounted for 63 percent of the deliveries in the 15-30 day window. In his research of fed cattle markets, Dr. Stephen Koontz of Colorado State concluded, “Price discovery in the national fed cattle market displays no problems.” However, cash markets are doing less than half the price discovery they once did. Problems appear at the regional level, particularly in the southern plains. As a result, cash markets in the northern plains, Nebraska, and futures prices are becoming more prevalent in price discovery.”

The lack of cash trade have many cattle producers concerned about market manipulation by the highly concentrated meat packing industry. The cry for reform has reached all the way to the US Senate with Senator Grassley (R-IA) and Senator Tester (D-MT) introducing the 50/14 plan that would require packers to purchase 50% of their kill in the cash market and slaughter those cattle within 14 days.

In an interview with the Rural Radio Network Rempe said, “This could be the first of its kind legislation that would require a business to purchase its raw materials in a certain market setting.” Rempe noted anytime legislation like this is presented, it is good to look at both sides of the story and ultimately decide what is best for the cattle industry.

You can hear Rempe’s full thoughts and what other options may be available for fed cattle marketing here:

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