CALF_News_August_September_2021

11 CALF News • August | September 2021 • www.calfnews.net typically underwater, packers would be able to avoid paying up the full extent for cattle,” Close says. Then there’s the other side of the marketing dollar. “During periods of large or excess cattle supplies, when packers hold all the leverage, or during periods of market disruptions when packers typi- cally have extreme margins, they would pay more than cash market fundamentals would warrant.” No Price Disparity Between Segments Close looked at the possibility of using cutout prices to calculate a live price equivalent as a way to bring more transparency to the marketing chain and make the infighting about cattle prices irrelevant. In the process of his investiga- tion, he discovered that claims of market manipulation have no merit. AMAs are often the target of such accusations, with calls for a return to a cash market for live cattle. However, returning to a traditional cash market for fed cattle would not serve the beef busi- ness well, Close argues. “Many involved in the current debate insist that the share of cash sales be increased, claiming it is the purest and most transparent form of price discovery. That is a very antiquated perspective of the market,” according to the Rabo report. By trading fed cattle on an average, cash sales breed mediocrity by assuming all cattle are the same. “On the other hand, transactions that are determined by indi- vidual carcass merit continuously push the market toward quality improvement,” the report says. Consider that over the past 25 years, the percentage of Choice and Prime cattle has increased from just a tad over 50 percent in 2005 to better than 83 percent now. “While a number of contributors has enabled the improvement in cattle quality, none have been more influential than selling cattle on individual carcass merit and rewarding producers for cattle quality,” he says. But do AMAs lead to an unfair market? “There are advantages to selling cattle on a formula or grid, but net price advantage is not one of them,” Close says. The advantages are knowing that rail space is committed and there are advan- tages in knowing when the cattle will ship, which leads to more efficiency, as well as advantages in liquidating hedge positions. But concerns about price disparity aren’t one of the advantages. “A close examination of sales by transaction type shows there is as much price disparity between live FOB and delivered sales (feedyard to packer) as there is between dressed FOB and delivered sales (packer to wholesale).” Then there’s this. “Over time, the dressed FOB and delivered sales most often lead prices in an escalating market and hold within the middle of the range in declining markets. It is equally impor- tant to acknowledge that the net price of formula and grid sales, when aggregated, hold the middle of the trading range in both ascending and declining markets.” Industry Reaction Early feedback on the idea of a cutout-derived fed cattle price equivalent has been mixed, Close says. The lion’s share of the feedback is from those who understand the idea conceptually, but who simply don’t like change. “I get it and I respect that,” he says. Then there are those who are ready to make the change because they think it will put them closer to the determination of value. “And they think it puts them closer in line to increase cutout values over time because of the growing trend to value-added products,” he adds. “And they think it would get them closer to consumer signals that would make the market more responsive.” Then there are those who like the idea but don’t want to be the first ones out of the box and throw a hoolihan or miss completely. And those who understand basis and use it successfully and have the expertise to manage a volatile and unpre- dictable futures market like things just the way they are. What’s Next? “I don’t think I’ve got the holy grail, but I think the industry is at a critical crossroads,” Close says. “And I think the attempt to insert legislative mandates to the number of cash sales is misguided because of the detrimental impact it would have on cattle quality, grading per- centages and going back to buying cattle on the average,” he adds. “So I think we can, being at a critical crossroads, take steps to move the indus- try back 25 years or we can collectively think about creating a foundation that will move the industry forward 25 years,” he asserts. “I’m not saying I have the answer, but it’s time somebody brings an idea to the table to move us forward.” Let the conversation begin.  FED CATTLE CASH MARKETING Continued from page 6 and radiation. My prognosis is very good. I’m sharing this not for attention but to ask you ladies to please stay diligent about getting your annual mammogram. It could save your life.” When asked if I could publish her post in CALF News , Larisa replied that if only one woman goes in and is diagnosed early, she has made a difference. Our prayers and best wishes go with Larisa, and we here at CALF encourage you to be sure your loved ones take her advice. Be brave Sunshine. Be brave.  GYPSYWAGON Continued from page 5 Betty Jo Gigot bjgigot@calfnews.net Don Close