Several weeks ago, Industry At A Glance highlighted the long-term trend around negotiated sales on the live side of the beef complex. The data clearly indicate there’s a strong propensity for both cattle feeders and packers to increasingly rely on formula-based sales in their weekly transactions, along with forward-contracted or grid-committed cattle, or both. And, as those commitments increase, subsequent action in the cash market subsides.
The same phenomenon is also occurring on the beef side of the market. USDA’s weekly comprehensive cutout report includes sales by type of negotiation:
- Negotiated sales 0-21 days
- Negotiated sales 22 or more days out
- Formula sales
- Forward contract sales
The first category (negotiated sales 0-21 days) represents spot market negotiations in the wholesale complex. Often, price settlement that occurs in the other categories is based off that spot market negotiation. This week’s graph highlights the percentage of total sales comprised by the spot market.
The trend on the wholesale beef side is very similar to what’s occurring in the live cattle market. That is, weekly negotiated sales continue to decline over time. Packers (sellers in this case) and beef buyers are increasingly relying on out-front commitments. And as noted in the live cattle discussion, “…while there’s lots of grumbling about the sufficiency of a true test of the cash market from week to week, seemingly no one wants to step up and establish the market test.”
Is this a trend that will eventually flatten out or reverse? Or do you perceive the proportion of spot market transactions will decline even further? If so, what ramifications might that have on the live market and weekly negotiations on the live side? Leave your thoughts in the comments section below.
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