August 5, 2021
As calls for increased transparency in the cattle market continue, USDA announced that beginning Monday, August 9, 2021, it will issue two new USDA Market News reports based on Livestock Mandatory Reporting data that will provide additional insight into formula cattle trades and help promote fair and competitive markets.
The action was widely praised by those in the cattle sector who have been calling for additional transparency. USDA says it is one piece on USDA’s efforts to deliver on President Biden’s Executive Order 14036 on Promoting Competition in the American Economy, which directed USDA to, among other things, “enhance price discovery, increase transparency, and improve the functioning of the cattle and other livestock markets.”
The first new report, the National Daily Direct Formula Base Cattle, which will be issued on Monday, August 9, will provide greater information into the foundational prices used in cattle market formulas, grids and contracts. The second report, the National Weekly Cattle Net Price Distribution, which will be issued Tuesday, August 10, will show the volume of cattle purchased at each different level of pricing within those formulas, grids, and contracts.
By providing greater insight into the nearly 80% of the cattle market traded outside of the cash negotiated spot market, the new reports shine more light on the prices paid to cattlemen and women and the overall market dynamics undergirding the prices consumers pay at the grocery store, the department says.
“During the past five years, stresses and disruptions caused by concentration in livestock markets have hurt producers, workers and consumers and highlighted vulnerabilities in America’s food system supply chain resiliency. Current negotiated cash cattle trade is approximately 30% less than it was in 2005, while formula transactions have increased at the same rate. Our new reports on formula transactions will bring needed clarity to the marketplace,” says Secretary of Agriculture Tom Vilsack.
The formula bucket is a catch-all for transactions which do not fit the definition of either a negotiated cash, negotiated grid, or contract trade. Most formula pricing agreements utilize a base price from which premiums are added and discounts subtracted. However, the base prices for these transactions are determined through means other than direct, buyer-seller negotiation. The National Daily Direct Formula Base Cattle report will share national base price information of formula agreements.
The National Daily Direct Formula Base Cattle reports will enable stakeholders to see the correlation between the negotiated trade and reported formula base prices, as well as the aggregated values being paid as premiums and discounts. Daily formula base price reports will be national in scope and released in morning, summary and afternoon versions. The weekly and monthly formula base reports will be both national and regional in scope and include forward contract base purchase information.
The National Weekly Cattle Net Price Distribution report will show at what levels (price and volume) trade occurred across the weekly weighted average price for each purchase type – negotiated, negotiated grid, formula and forward contract. Currently, the market speculates whether large or small volumes of cattle trade on both sides of the price spread. And in fact, with premiums and discounts applied to the prices, the spreads shown on reports can be wide. Publishing a price distribution for all cattle net prices will offer more transparency to each of the purchase type categories, USDA says.
This report is a window into what producers are paid for cattle (net) and retains confidentiality by segregating volumes purchased in $2.00 increments +/- the daily weighted average price depending upon premiums and discounts. AMS has published a similar net price distribution report for direct hogs since January 2010.
The National Cattlemen’s Beef Association says the addition of these new publications will allow producers to better compare their marketing arrangement to others and allow them to make more informed business decisions on their operations.
Vilsack says in the coming months, the department also plans to conduct several producer-focused outreach sessions to help producers and others understand how these data can inform real-world marketing decisions at farm, ranch, feedlot, and other points in the supply chain.
These new reports will be issued by USDA Market News, overseen by the Department’s Agricultural Marketing Service.
The week prior, the House Livestock and Foreign Agriculture Subcommittee held a hearing on the shortcomings of the supply chain. In addition to the need for greater processing capacity, the need for greater producer access to real-time data was a primary theme. Earlier this summer the full Senate Agriculture Committee also held a hearing featuring the need for greater transparency.
“When I talk to cattlemen across the state, they know they can compete if they have an open and transparent market. This is another step in the right direction,” says Rep. Dusty Johnson, R-S.D., who serves as the republican leader of the House ag subcommittee. “This USDA announcement does not let Congress off the hook. We have work to do and must reauthorize mandatory price reporting by the end of September to ensure these new reports can be released in a timely and consistent manor.”
“USDA’s announcement is a significant step toward increasing transparency in the cattle markets,” says NCBA Vice President of Government Affairs Ethan Lane. “As Livestock Mandatory Reporting awaits congressional reauthorization, it is encouraging to see the administration taking proactive steps to broaden the scope of this critical information tool. NCBA remains committed to maximizing market transparency and looks forward to building on this momentum to shed more light on the fed cattle trade.”
In March, Sens. Deb Fischer, R-Neb., and Ron Wyden, D-Ore., introduced the Cattle Market Transparency Act. The bill would require USDA to create and maintain a publicly available library of marketing contracts between packers and producers in a manner that ensures confidentiality, and a pilot program of this library was included in the recent agriculture appropriations bill passed by the full Senate Appropriations Committee. Fischer says she continues to work toward advancing these priorities ahead of a reauthorization of the Livestock Mandatory Reporting Act.
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