NCBA President: We support more cash trade
A Florida cattleman who got involved in his state organization in order to help influence property rights policy, soon found himself the president of the National Cattlemen’s Beef Association.
Marty Smith of Wacahoota, Fla., who is also a practicing attorney, said that the NCBA believes that the current percentage of fed cattle that are sold on the “cash” market is inadequate, and they are continuing to look for solutions to the problem.
“We do support greater numbers of cash trade, and more specific, in depth price discovery,” he said. An NCBA working group that includes “a lot of cattle feeders” and “a lot of state executives” is looking into possible solutions. “They are looking at it in a lot of different directions and trying to come up with a lot of different solutions for us,” he said. A problem existed prior to the pandemic, he said. “We saw that last summer with the Holcomb (Kansas packing plant) fire. We saw that our system has real weaknesses and at times is just absolutely broken. When we get into those situations where packing capacity goes down, that leads to an oversupply of cattle and some really devastating results. We’ve got to do what we can to correct that system,” he said.
NCBA doesn’t support Sen. Chuck Grassley’s, R-Iowa, legislation to mandate that the bigger meatpackers purchase at least 50 percent of their weekly kill on the cash market, and that cattle be delivered to the packing plant within 14 days of purchase.
Currently, USDA data indicates that about 20-25 percent of fed cattle are sold on the cash market, with formula and grid agreements being based on that relatively small amount of negotiated trade. Because of confidentiality rules, far less than the 20-25 percent of cattle sales are actually reported publicly, so the vast majority of cattle are being priced based upon sometimes just a few reported cattle sales week in and week out. Because quality varies significantly between pens of cattle, there is sometimes not even a reported sale of comparable quality cattle to base the formula cattle price on.
The three major cattle organizations R-CALF USA, U.S. Cattlemen’s Association and NCBA all agree that current volumes of negotiated or cash trade are too thin to provide for proper value discovery of those negotiated cattle as well as the formula cattle that are sold, unpriced, in agreements that are based on the cash price.
“With NCBA we have very extensive and detailed policies that have been set,” Smith said. “NCBA supports and believes in a free market system, we’re not going to dictate and we don’t want the government dictating specifics about cattle being bought or sold.”
NCBA’s policy can be amended, of course, and if the summer meeting takes place, proposed amendments can be talked about then, he said.
“We’ll be focusing on our policies, we’ll be looking to see if there are policies that need to be adjusted or changed. We’re all hoping this current situation will be remedied,” he said, referring to the drop in fed cattle prices that took place simultaneously with record hikes in boxed beef prices. President Trump has ordered the Department of Justice to look into the pricing disparity, while many have accused the meatpackers of price gouging. Many plants have been closed or forced to operate at less than full capacity, in most cases because of COVID-19 cases among employees.
Smith addressed this, saying cattle prices are under pressure and are not reflective of beef demand. “We’re hoping to see some correction of that, we’ve got a lot of people with a lot of ideas how that could be corrected,” he said.
Another NCBA committee is talking about the idea of changing contracts to cause cattle prices to more accurately reflect boxed beef prices, and they are also discussing changing specifications within CME contracts on live cattle to better fit the grid cattle, “to be more reflective of what we’re actually producing instead of just pricing the lowest end of the cattle.”
His group is discussing the concept of a government “set aside” program where feeders would be incentivized to back off on rations to move finishing dates further into the future. The group is also talking about incentives for cash trade participants.
One solution could be a change in contracts to provide more profits to the producer, he said.
As for immediate action, Smith said his group has worked with the administration on keeping packing plants open and transportation functional. “We’ve really been working hard with USDA and the White House to keep that supply chain going,” he said.
Smith said he retains ownership on his cattle and sends them to feedlots in Texas or the Midwest. He does currently own cattle that are ready for slaughter — some contracted and some not.
In general the contracted cattle are moving through the pipeline, to the kill floor, while those that weren’t contracted tend to be waiting for a bid, he said.
In regard to the many legislative proposals being talked about among other cattle groups, Smith said NCBA is looking at the big picture.
“We look at those proposals, they are nothing that really works to enhance the cattle industry, and we’re not going to jump out and try to change something because someone said that is the quick fix,” he said. ❖