One of the primary complaints contained within R-CALF’s lawsuit against the four major packers revolves around captive supplies and the declining level of cash trade establishing the weekly market. That is, R-CALF alleges the four major packers conspired to violate U.S. anti-trust laws in order to artificially depress prices paid to U.S. cattle producers. R-CALF further alleges that occurred through an organized reduction of cattle purchased in the weekly cash market.
The cash market has long been an item of consternation for both R-CALF and the Organization for Competitive Markets (OCM). It’s a topic addressed previously by Industry At A Glance; there were three columns in a series highlighting cash trade and its relationship to volatility and basis.
Meanwhile, this week’s graph approaches it from a different perspective, providing some historical context between the level of cash trade and the actual fed market, utilizing 26-week moving averages to avoid week-to-week noise. Keep in mind that R-CALF’s complaint asserts collusion began on Jan. 1, 2015 as denoted in the illustration.
With that in mind, it’s important to note that fed prices peaked in mid-April, 2015 – the same time in which the level of cash trade was bottoming out around 20% of total volume. After that point, the proportion of cash trade began to turn gradually higher as the year progressed.
However, most important is the time frame represented prior to 2015; cash trade steadily declined between 2006 and 2015 – all the while fed prices began to surge sharply higher in 2010. The correlation between percent cash trade and the fed market during that time frame equals -0.80 (and it equals -0.37 between 2015 and 2018).
Speer serves as an industry consultant and is based in Bowling Green, Ky. Contact him at [email protected]