Alternative Marketing Arrangements retook center stage in the fed cattle market over the last several weeks as two bills designed to increase market transparency work through Congress, said Elliot Dennis, livestock Extension economist at the University of Nebraska, in a letter to extension agents through the Livestock Marketing Information Center called In The Cattle Markets.
The concern surrounding AMA’s has more to do with lower cash prices received by producers after major market disruptions than the role of AMA’s, he said.
But data show that the national level of negotiated cash cattle trading likely was not affected significantly by COVID-19 or the Holcomb, KS, fire, Dennis said. These policies would increase transparency but potentially create increased costs and reduced profitability for the beef complex.
Both bills would bring increased negotiated cash price discovery and transparency, but neither likely would increase cash prices since they do not change the supply of fed cattle nor the demand for wholesale beef.
Further, it is unlikely that if these bills were law prior to the Holcomb Fire or COVID-19 it would not have prevented the backlog in cattle nor affected beef demand, Dennis said.
AMA USE VARIES BY REGION
Use of AMAs varies by geographical region with Southern Plains feedlots using more than Northern Plains lots, he said. A long-standing issue is whether each region is contributing a perceived appropriate amount of negotiated cash trade to aid in price discovery.
The first proposed legislation was the “50-14” rule led by Chuck Grassley (R-IA) and Senator Jon Tester (D-MT), which sought to mandate large-scale packers procure a minimum of 50% of all cattle purchased via negotiated cash for harvest in 14 days.
The second bill, introduced by Senator Deb Fisher (R-NE), would authorize the USDA to set regional mandatory minimum thresholds of negotiated cash trades with industry comment, Dennis said. It also would authorize the USDA to set up a contract library like the one currently available in the hog market.
BILLS WON’T HELP
However, the supply of fed cattle and demand for beef determine the price of fed cattle, Dennis said. These rules would increase negotiated cash transactions helping weekly price discovery but are unlikely to affect the underlying fed cattle supply and demand.
The industry reacted to these bills in two ways, Dennis said. First, the industry tried to increase the amount of negotiated cattle in the market using the “Bid-the-Grid” program. This led to an unprecedented amount of negotiated grid cattle being sold, most notably in Kansas.
The second reaction was to develop and advocate for a voluntary framework, he said. This framework would work to have each region increase the share of negotiated cattle if certain levels or “triggers” were reached. But to get feeders to move away from AMAs toward negotiated cash the market, incentives must be at least as large as those offered under AMAs.
CATTLE, BEEF RECAP
Fed cattle trading this week was seen at $107 to $109 per cwt on a live basis, steady with last week. Dressed-basis trading was reported at $169 per cwt, up $2 to down $1.
The USDA choice cutout Wednesday was down $1.30 per cwt at $211.14, while select was off $0.81 at $199.27. The choice/select spread narrowed to $11.87 from $12.36 with 147 loads of fabricated product and 26 loads of trimmings and grinds sold into the spot market.
There were no delivery notices against the Oct live cattle futures market Wednesday.
The CME Feeder Cattle Index for the seven days ended Tuesday was $140.92 per cwt, up $0.21. This compares with Wednesday’s Oct contract settlement of $138.37 per cwt, up $0.25.