Cattle prices have recovered and stabilized somewhat over the past year, but concerns about the long-term functionality of the marketplace remain.

Cattle prices have recovered and stabilized somewhat over the past year, but concerns about the long-term functionality of the marketplace remain.

The ongoing challenges were discussed during the Colorado Cattlemen’s Association’s live cattle marketing committee meeting held in conjunction with the group’s annual meeting recently.

At the seasonal peak this spring, prices had rebounded to levels generally better than many had expected, but a lack of convergence between the local cash price and the live cattle futures is still a glaring problem, according to several cattlemen who were in the room that day.

“It’s worse than it’s ever been,” said Curt Russell, who runs a ranch near Sugar City. “I see it as inadequate price discovery.”

The basis, or the difference between the local cash and futures price for fed cattle, has never been wider, now often $10 to $12 a hundredweight or more, when historically it rarely moved more than $2 either way, Russell said.

That volatility, which can negate an otherwise beneficial trade position overnight, has driven more producers away from using it and into forward contracting arrangements with packers, which makes the negotiated cash market even more thinly traded.

“It becomes a self-fulfilling prophecy,” Russell said.

Dan McCarty, field representative and marketing liaison for the National Cattlemen’s Beef Association, put a positive spin on what the organization has been able to accomplish so far to address the situation. A special NCBA working group, formed in the fall of 2015 and dissolved earlier this spring, took a wish list of priorities directly to officials at the CME (short for Chicago Mercantile Exchange) and to Congressional leaders that oversee the Commodity Futures Trading Commission, he said in a report.

They convinced the CME to take a few concrete steps, including limiting the volume of messages the exchange platform will accept from a single entity in a specified time period. Rapid-fire automated trade messages, when sent and then immediately canceled, can unduly influence the market, a strategy called spoofing.

“We did see a little bit of response after that, a little less volatility,” McCarty said.

More importantly, the relationship forged with mercantile officials remains ongoing, McCarty stressed. The initial meetings gave cattlemen a clearer understanding of how the futures market works and the potential tradeoff between restricting activity and harming liquidity.

NCBA’s live cattle marketing committee will continue to discuss the topic during the group’s summer meeting in Denver in mid-July. McCarty also noted that NCBA has hired a governmental affairs manager, Sarah Calhoun, who is a former commodity trader.

The group plans to push for additional reforms during the upcoming Farm Bill negotiations and the reauthorization of mandatory price reporting, which is due by 2020.

“Has it made a difference in the futures market? I don’t know,” said Bill Gray, the rancher from Ordway who chairs the CCA marketing committee. “But at least we’re being proactive about this and that could be the best thing that’s happened to our industry in a long time.”

The discussion included several references to Fed Cattle Exchange, a new online trading platform that was launched last year in hopes of increasing cash trade and bringing more transparency to the market. That effort so far is meeting with mixed reviews.

“Last week they traded 300 head on Fed Cattle Exchange. We didn’t learn anything from that,” Russell said, to which McCarty responded: “It’s 300 more trades than we had information on the previous year.”

Fed Cattle Exchange, a subsidiary of Superior Livestock Auction, is still in the process of improving its site and working out the bugs in its electronic trading system.

All was not doom and gloom in the marketing committee meeting, however. Strong export demand has helped boost markets, and considerable attention is being given to China’s agreement to re-open its potentially sizeable market to U.S. beef for the first time in 13 years, a move precipitated by President Donald Trump’s personal meeting with Chinese President Xi Jinping in April.

How much volume will change hands initially remains unclear, however, because Chinese officials have put a number of stipulations on the beef they will accept. The U.S. Department of Agriculture’s Food Safety and Inspection Service recently released the full list of negotiated requirements.

“This is something we don’t want to screw up,” Terry Fankhauser, CCA’s executive vice president told the committee. “There is zero tolerance for beta agonists in China. They do test for it.”

In addition to being free of synthetic growth promotion agents, cattle bound for China will need to be age and source verified through the Ag Marketing Service. Fankhauser described it as “bookend traceability” that would include the premise of origin and the designated slaughter facility where the meat was processed.

Some marketers are reportedly gearing up for the mid-July opening by getting inventory ready in the pipeline.

“Cattle that would otherwise have gone to the EU could maybe qualify for the Chinese market,” Fankhauser ventured. “Is there enough value in the market to do all of these things that are required? It’s a choice. It’s something to think about on your calves right now.”

Age and source verification fell out of favor when premiums collapsed but the Chinese trade deal could revive it, he and others noted.

“We’ve got some opportunities back in our industry again,” summarized Bill Martin, owner of Western Slope Cattlemen’s Auction in Loma, who spoke to the committee.

“There’s a misconception that a natural designation means no immunizations, and that’s not true,” he added.

Strong calf health programs benefit both buyers and sellers, he said. Not only are buyers looking for pre-conditioned calves, increasingly they want specifics that go beyond the common claim “they’ve had all their shots.” They want vaccination brand names and protocols.

Premiums for non-implanted calves, which qualify to be labeled as “natural” beef, currently range from 3 to 7 cents a pound, he added.

“On an 8-weight steer, a nickel is pretty good,” he said.

He noted that his largest customer of natural beef is JBS-owned Five Rivers Cattle Feeding.

JBS has been in the news the past couple of months after becoming embroiled in a corruption scandal in Brazil. High-ranking executives admitted to spending hundreds of millions of dollars to bribe thousands of politicians and resigned their leadership positions as part of a plea deal with the country’s regulators.

JBS is headquartered in Brazil but entered the U.S. market in a big way by purchasing Greeley-based Swift and Company in 2007. In addition to operating one of the two largest beef packing operations in the U.S., it also owns Pilgrim’s Pride, which claims to handle one out of every five chickens processed domestically.

In recent years, Shineway, a Chinese shipping company, bought Smithfield, the country’s largest pork processor.

CCA’s marketing committee did not discuss those developments, but chairman Bill Gray said they were on his radar screen.

“I have a little bit of concern about these foreign companies controlling our industry,” he said as the meeting concluded. “It’s something to think about and start addressing at our next meeting.”