The USDA will launch two new cattle pricing reports next week that “will bring needed clarity to the marketplace,” said Agriculture Secretary Tom Vilsack on Thursday. The reports, which will provide more information on prices for cattle sold through the major channels, such as cash, formula, and contracts, were greeted as a significant step toward transparency in an often-opaque market.
Only a small fraction of cattle — about one in five head — are sold on the spot market, but cash prices are instrumental in determining payments to producers through so-called formula sales. Four packers dominate cattle slaughter. With a limited number of buyers and comparatively few cash sales, ranch and farm groups increasingly question if producers are getting a fair price when they market their stock. Cattle prices are too low considering the high retail price of beef, they say.
Activist groups such as R-CALF USA say the solution is to require meatpackers to buy at least half of their slaughter cattle on the spot market each week so that price discovery occurs in public. Packers and some cattle producers say cash market quotas will disrupt alternative arrangements, such as formula pricing, that pay a premium for top-quality animals.
On Monday, the Agricultural Marketing Service will issue its first National Daily Direct Formula Base Cattle report, showing the correlation between cash prices and formula base prices as well as premiums or discounts applied to the base prices. On Thursday, the AMS will begin its National Weekly Cattle Net Price Distribution report, showing the prices and number of head sold through each purchase type — cash, negotiated grid, formula, and forward contract — in increments of $2 per 100 pounds.
“Our new reports on formula transactions will bring needed clarity to the marketplace,” said Vilsack. “Current negotiated cash cattle trade is approximately 30 percent less than it was in 2005, while formula transactions have increased at the same rate.”
Data for the reports will be drawn from daily reports, required by law, of cattle sales.
The National Cattlemen’s Beef Association said the new reports were “a significant step” toward increased transparency in pricing. “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.”
“However, more must be done,” said Nebraska Sen. Deb Fischer, sponsor of a bill that would require packers to buy a minimum number of cattle on the cash market in each region of the country. “I’ll continue to work to advance policies that ensure a robust cash market so all segments of the cattle market can thrive.”
Iowa Sen. Chuck Grassley, sponsor of a bill requiring packers to buy half of their cattle on the spot market, said the new reports were “an important step” toward transparency. “I’m going to continue to work with my colleagues on all-encompassing legislation to ensure our independent producers are being treated fairly.”