The COVID-19 situation will be completely different even in the roughly 24 hours between when I write this and when you read this. However, something that won’t be different is the economic effect of the pandemic, and for you, how it has affected the cattle market. USDA will investigate the COVID-19 market, wrapping that into its look at the market dynamics after the Tyson beef plant fire last August.
That is important and necessary. But it will take time.
In the meantime, there’s more and more angst by all ag producers and more and more calls to restructure the cattle market. Restructuring something as complicated as the cattle market is no small task and one we must undertake with plenty of cautious thought. But we must have those conversations.
As those conversations continue, I believe there are two critical areas that need attention—price risk management and finding a new base price point for fed cattle. Both revolve around the futures markets.
I’m not advocating we do away with futures trading. Some beef producers successfully use futures as a price and risk management tool. But not every producer can or wants to participate in the futures market.
Thus, can we develop a price and risk management tool that works for everyone, whether they have 3 head, 30 or 300? Australian beef producers are asking the same question and have already begun developing such a system.
Then we need to find a different market other than futures as a price point for fed cattle cash prices. The velocity of the volatility we’ve seen in Live Cattle futures is simply incredible. Algorithm-based computer trading has been a concern since it started and its apparent affect on volatility in futures prices cannot be ignored.
While I don’t think it’s a good idea to ban speculative trading, I do think computer-speed algorithm trading has weakened the legitimacy of the CME and cattle futures. It’s time to look for a more fundamental and legitimate market to use in pricing fed cattle.
Beef producers had a conference call with USDA Secretary Perdue earlier this month. The call was hosted by NCBA and consisted of members of the NCBA Live Cattle Marketing Working Group. Perdue said his department needs ideas of "what is going on and why." He noted he wants to "rectify" the situation, according to the Missouri Cattlemen’s Association (MCA).
According to MCA Vice President Bruce Merson, who represents Missouri on the working group and participated in the call, "We are listening to producers and we will not settle for good enough. We need all ideas on the table. We understand the anger and I am angry too, but we need ideas to make meaningful changes to help the farm and ranch families we represent."
If you aren’t a member of a cattlemen’s association, now more than ever is the time to join and make your ideas known.