Price discovery in fed cattle markets has been a concern for cattle producers for several years. Nationally, negotiated trade as a share of fed cattle transactions has fallen from around 55 percent in 2008 on a monthly basis to roughly 20 percent today (Figure 2). Transactions in Nebraska have followed a similar trend—negotiated transactions have trended downward to where they now make up between 25-40 percent of the market on a weekly basis (Figure 3). As a result, cash trades in cattle markets are contributing less to price discovery than they once did.
Figure 2. Cattle Sold by Transaction, 2012-2021
Figure 3. Nebraska Cattle Sold by Transaction, 2017-2021
Thinning cattle markets have given rise to hearings on Capitol Hill and several proposals being introduced in Congress to address the issue. Nebraska Senator Deb Fischer recently led a group of senators, including Chuck Grassley of Iowa, in announcing the planned introduction of the Cattle Market Price Discovery and Transparency Act. The legislation will have several provisions to improve price transparency including requiring USDA to create and maintain a publicly available library of marketing contracts, requiring more timely reporting of cattle carcass weights, and requiring packers to report the number of cattle scheduled to be delivered for slaughter each day for the next 14 days.
Most noteworthy, though, the legislation will also require the USDA to establish regional minimum thresholds for negotiated cash and negotiated grid trades. Packers—on a plant-by-plant basis—would be required to purchase a specific amount of cattle through negotiated transactions. The legislation will also specify the USDA cannot set minimums at less than the current 18-month average for each region. And no regional minimum can exceed 300 percent of the lowest regional minimum. For example, the negotiated share of fed cattle transactions in the Texas/Oklahoma/New Mexico region for the past 18 months has been slightly less than 10 percent. If the USDA were to set the minimum for this region at 10 percent, the mandatory minimum for the Nebraska or other regions could not exceed 30 percent.
Expect plenty of discussion on the measure. Many provisions could be relatively easy for Congress to enact. However, the regional minimum negotiated transaction thresholds will carry a heavier lift as industry players both support and oppose the concept.