The long-awaited USDA report on the Tyson Fire in Holcomb, KS, and the onset of the COVID-19 pandemic has been released. If you’re looking for a smoking gun, you’re not going to like the USDA report.
The Boxed Beef & Fed Cattle Price Spreads Investigation report is more of a recap of events that took place. Both events caused a disruption in the supply chain, and fed cattle that were ready for slaughter weren’t able to be processed. Then cattle inventory built up and an oversupply was created, and the market responded. An instantaneous drop in packer demand, or ability, forced prices of fed cattle down. It’s that simple...
...Price discovery was discussed in the
report and referred to Livestock Mandatory Reporting (LMR) and improved
price discovery. I think price discovery is pretty well settled for
feeder cattle markets, since most sell at auction. But for fed cattle,
it’s different. We have the futures market as an indicator and the
negotiated fed cash trade. The report recognizes that some of the five
reporting areas are unable to report transactions because of
confidentiality. For instance, in Colorado JBS and Cargill are the only
players and reporting trade would not be masked as intended.
It
has been suggested that LMR change the reporting areas to include at
least three competing packers, like expanding Colorado to include the
West Coast. They also report that there has been some discussion about
the concept of creating and compensating a pool of negotiated cash
market traders. I’m not sure how that would work.
The
LMR program collects a lot of relevant data. Knowing how to read that
data can be challenging. LMR needs to be reauthorized by Sept. 30 of
this year. The industry should determine what combination of data would
be more useful. LMR could interpret that data better.
Roughly
60 percent of packer-to-retail sales are sold on a formula. Wouldn’t a
base price for those formula trades be worth knowing? Is there a premium
paid to producers for delivering cattle outside the 21-day window? The
data must be there, but it must be presented to industry more clearly.
Industry groups should get their wish list together soon and present it
to the Agricultural Marketing Service...
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