Regional Triggers Report: NCBA rolls out price framework for voluntary price discovery reform
“Oct. 1 is the start of the federal government’s fiscal year. Usually, the National Cattlemen’s Beef Association’s (NCBA) Washington, D.C. team is focused on the annual appropriations process and making sure the government gets funded without any policies that are harmful to the cattle industry,” stated Tanner Beymer, NCBA’s director of government affairs and market regulatory policy.
“This year, however, Oct. 1 was significant for another reason – it was the date a subgroup of NCBA members was due to develop a framework to achieve price discovery in the fed cattle markets,” Beymer added.
During an episode of NCBA’s Beltway Beef podcast, dated Oct. 18, Beymer sat down with a panel of producers and fellow NCBA members to discuss the recently published Regional Triggers Report.
The panel consisted of Jerry Bohn, a Kansas cattleman and NCBA’s president elect who served as chairman of the subgroup, Brad Kooima, owner and feedlot operator who represented the Iowa Cattlemen’s Association on the subgroup and Kevin Buse, owner and operator of Champion Feeders, LLC, who represented the Texas Cattle Feeders on the subgroup.
Robust and transparent trade
Bohn began the discussion by explaining the background behind the working group and the task they were presented.
“The beef industry has seen a lot of struggle, particularly over the last year. However, one of the biggest concerns the industry has seen is the lack of transparency and robust negotiated trade in our markets,” Bohn explained.
Therefore, during NCBA’s Summer Business Meeting in Denver during July, the association’s Live Cattle Marketing Committee participated in a six-hour conversation regarding the path NCBA should take in addressing price discovery.
During this conversation, NCBA members appointed a subgroup to construct a voluntary framework, which includes triggers based on regional levels of negotiated trade, to increase frequent, transparent and measured negotiated trade, in order to achieve robust price discovery.
Shortly after NCBA’s Summer Business Meeting, President Marty Smith appointed seven producers to the Regional Triggers Subgroup, and after months of bi-weekly meetings, the subgroup delivered its framework to the Live Cattle Marketing Working Group and the NCBA officer team on Oct. 1.
“One of the things most important to our association was to prove how important open negotiated cash trade transparency is to our live cattle contract,” noted Buse. “Conversations within our subgroup meetings were very enlightening to both members in the meetings and producers out in the country alike.”
A voluntary framework
Deemed “A Voluntary Framework to Achieve Price Discovery in the Fed Cattle Market,” the subgroup’s framework lays out a plan to increase negotiated trade and incentivize each of the major packers’ participation in such negotiated trade.
“We call it the 75 Percent Plan, and it is designed to provide negotiated trade and packer participation benchmarks for the industry to strive toward,” stated Bohn.
“We took robust trade numbers identified by Dr. Stephen Koontz’s research back in 2016 for each of the U.S. Department of Agriculture’s Agricultural Marketing Service’s cattle feeding reporting regions. We will evaluate weekly negotiated trade information for these regions on a quarterly basis,” Bohn explained.
In each given quarter, in order to avoid tripping the triggers laid out by the subgroup, each region will have to achieve four different goals.
First, they must achieve no less than 75 percent of the weekly negotiated trade volume current academic literature indicates is necessary for robust price discovery in the specific region.
Second, they must achieve this negotiated trade threshold during no less than 75 percent of the reporting weeks in the quarter.
Third, they must achieve no less than 75 percent of the weekly packer participation requirements, to be determined in short order and assigned to each region.
Lastly, they must achieve this packer participation threshold during no less than 75 percent of the reporting weeks in a quarter.
In the event any of the triggers are tripped in two out of the four rolling quarters, the subgroup will request NCBA re-design a mandatory, regulatory program to ensure adequate negotiated trade.
“While this approach certainly isn’t a silver-bullet solution, it provides the industry a goal to collectively strive towards,” Beymer said.
“I think this framework goes a long way in giving the cattle industry a sense of where we need to be and the direction we need to go,” Beymer continued. “I am confident the industry will meet this challenge as it always does, and together we can ensure price transparency and robust price discovery in our markets.”
The policy will go into effect Jan. 1, 2021 and will be reviewed at the end of each quarter.
Hannah Bugas is the managing editor of the Wyoming Livestock Roundup. Send comments on this article to firstname.lastname@example.org.