Last year, several pieces of legislation were introduced in Congress whose principal aim was to increase the level of negotiated cash cattle trade, said Assistant Professor & Livestock Extension Economist for the Department of Agricultural Economics at the University of Nebraska, Lincoln, in a letter to Extension agents through the Livestock Marketing Information Center.
The cattle industry responded by creating a voluntary framework, known as the 75% rule, that included marketplace triggers based on levels of negotiated trade and participation, Dennis said. The objective was similar to the introduced legislation – to increase the frequency and price transparency in all major cattle feeding and packing regions from cattle feeders and from packers.
HOW IT FUNCTIONS
The 75% rule functions off a series of minor and major triggers, he said. There are eight minor triggers (four cattle feeding and four packer participation). Minor triggers are summed within a quarter and aggregated from weekly thresholds where three minor triggers equal a major trigger.
A major trigger occurring in two of four rolling quarters would prompt the industry to seek legislative action, Dennis said. This policy can be adjusted given updates from literature, industry, qualifying Black Swan events or ad hoc events that disrupt the normal beef complex.
(The packer participation portion of the plan is still under development, however. NCBA and the Meatpacking Industry have not made any further formal announcements about when or what minor triggers will look like, he said.)
The four cattle feeding regions are 1) Nebraska-Colorado (NE-CO), 2) Texas-Oklahoma-New Mexico (TX-OK-NM), 3) Kansas (KS) and 4) Iowa-Minnesota (IA-MN).
VIOLATIONS
A feeding region can fail in any given week without tripping a trigger, Dennis said. A minor cattle feeding trigger occurs if less than 75% of the robust level of negotiated trade occurs in less than 75% of the weeks in a given quarter.
Violations occurred in 9 of the 13 weeks in the quarter for a total of 10, he said. The NE-CO and IA-MN regions did not violate. The TX-NM-OK region violated 4 of 13 weeks, and the KS region violated 6 of the 14 weeks.
Under the proposed 75% rule, the KS and TX-OK-MN regions would have quarterly violations and thus become minor triggers, he said. Overall, across weeks and locations, 19.23% of location-weeks violated the 75% rule.
In the latest quarter it seems, the percent of robust trade was less of a concern than the total number of weeks required to meet robust trade minimums, Dennis said.
CATTLE, BEEF RECAP
Fed cattle trading last week was at $116 to $120.50 per cwt on a live basis, up $1 to $4.50 from the previous week. Dressed-basis trading was at $184 to $190 per cwt, unchanged to up $5.
The USDA choice cutout Monday was up $5.82 per cwt at $258.67, while select was up $2.89 at $249.86. The choice/select spread widened to $8.81 from $5.88 with 66 loads of fabricated product and 39 loads of trimmings and grinds sold into the spot market.
The USDA reported Monday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.25 to $1.28 a bushel over the May CBOT futures contract, which settled at $5.53 1/4 a bushel, down $0.06 1/2.
There were 10 heifer and 35 steer contracts tendered for delivery Monday against the Apr futures contract.
The CME Feeder Cattle Index for the seven days ended Friday was $139.80 per cwt, down $0.83. This compares with Monday’s Apr contract settlement of $146.45 per cwt, up $2.57.