The early October data blackout by USDA and the government shutdown had everyone groping in the dark.
How ironic is it that a federal government shutdown caused an unprecedented data blackout for the beef industry, just when a new study is examining the thinning cash live-cattle market? Concerns have been growing for years about the smaller cash trade. No one realized how important it was, however, until USDA data about the live cattle trade was suddenly unavailable Oct. 1.
Stephen Koontz, a Colorado State University agricultural economist, is conducting a study at the request of the National Cattlemen’s Beef Association. He wants to discover if the industry believes anything should be done about the thinning trade.
Koontz’s study is examining the cost benefits of feedlots selling cattle on a formula basis vs. selling on the cash market. It is examining the relationship between formula sales volumes and cash prices. It will also examine the impact of a lack of price discovery in Colorado and Texas, where few cattle are now sold on the cash market. Another focus will be on whether the industry is prepared to allow the cash market to get even thinner, or whether it wants to reverse this trend.
The thinning market has been a persistent issue for years, but USDA data reveal a steady decline in the trade from 2005 on. The most pronounced decline has been in Colorado and Texas, from about 50% in 2005 to 10%-12% last year.
The cash trade has also declined up north. Nebraska sold 65% of its cattle on the cash market in 2005, but only 39% in 2012. The only area to sell a majority of its cattle on the cash market last year was Iowa-southern Minnesota (56%).
The decline means that more cattle are being priced on a formula basis. But the Catch-22 is that the basis is still based primarily on weekly cash price averages reported by USDA’s Market News branch. So the alarm bells went off in packing plant and feedlot offices on Oct. 1, when the industry realized it would not have USDA’s weekly averages to formula-price cattle the following week — and possibly for a week or two after that.
Packers quickly worked to develop pricing mechanisms they hoped would be acceptable to cattle feeders. The mechanisms varied from feeding region to region.
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In the Texas-Oklahoma-New Mexico region, packers started using weekly prices reported by the Texas Cattle Feeders Association. Its prices closely follow USDA prices anyway, and prices are usually in an extremely narrow range. More than 90% of cattle in the region are priced on a formula.
Kansas, Colorado and the Northwest region used CattleFax prices for formula pricing. Nebraska and Iowa-southern Minnesota likely used CattleFax prices, with some adjustments agreed to between packers and cattle feeders. That’s because cattle there can sell at widely varying live and dressed prices.
At the same time, packers also informed their beef customers they would move to using their own weighted prices for beef cuts, grinds and trim, based on what they would keep reporting to USDA under mandatory price reporting. Such a move was critical, because between 45% and 50% of all beef loads reported in USDA’s weekly comprehensive boxed beef report are formula sales.
That report and dozens of others covering livestock and meat prices were all unavailable for at least a week or so after the shutdown. This meant no one knew how many livestock were slaughtered, and how much beef and pork was produced. It demonstrated how daily USDA data are the lifeblood of the meat and livestock industry, as well as many other sectors of U.S. agriculture.
USDA had already stopped publishing a number of reports after the budget cuts earlier this year. One report lost was USDA’s midyear cattle inventory. So the industry already was flying blind about herd numbers. Nothing, however, compared to the early October data blackout that had everyone groping in the dark.
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