Beef Buzz News
Dr. Stephen Koontz says Mandated Cash Cattle Trade Will Cost Cow-Calf Producers
Tue, 03 May 2022 17:30:24 CDT
Senior Farm and Ranch Broadcaster, Ron Hays features comments from Dr. Stephen Koontz from Colorado State University during his testimony to the Senate Ag Committee hearing looking at the Grassley-Fischer bill. Last year, Koontz was selected to be the go-between for cattle feeders, cattle producers, and packers when it came to looking at negotiated trade in the 75% voluntary plan that was put together by the National Cattlemen’s Beef Association.
Listen to Dr. Koontz talk on the Impacts of Cash Cattle Trade
Koontz is not a fan of mandated trade in any form or fashion.
“Price discovery happens in very thick markets and very thin markets,” Koontz said. “It is not driven by the volume of cash trade.”
Koontz said he has done some research on this subject that is not yet published, but he is comfortable saying he believes that result.
“There is not any research that shows mandating cash trade is going to make for better cattle prices,” Koontz said. “That is just not part of the research that I understand.”
Dr. Koontz said that if you mandate cash cattle trade, those cattle that are moving into the cash negotiated trade move out of formula pricing, and there is a cost to that.
“Formulas are worth about $25 per head for their feeding enterprises that use them, and more or less so, about $25 per head for the packers that use them,” Koontz said. “The bottom line is, that’s $50 and if you transfer animals from the formula bucket to the negotiated cash trade, you lose whatever proportion of animals those are- you lose that $50 value.”
That cost, Koontz said, is going to be passed down primarily to the cow-calf producer.
“In particular, in the southern plains, with the closure of the facility in Plainview became very much a region kind of on razor’s edge,” Koontz said. “The supply of cattle in that area could easily be out of balance with the packing capacity.”
The southern plains region, Koontz said, went very aggressively towards using AMA’s so that they knew what was coming and they were able to coordinate. There were some concerns there about price discovery, he added.
“I do think the incentive is on both sides of the market,” Koontz said, “if they are not comfortable with what is being traded to back out, to move back to trade more cash if there is an issue there.”
Koontz said he has done some research on how price discovery can effectively happen with very few trades.
“The real advantages that came from AMA development in use was in cattle management,” Koontz said. “The underlying feed yards were the ones who had developed those programs that negotiated them with packers. Managing those cattle better in terms of knowing when they get marketed enables those producers to target those premiums.”
If you are required to go into the cash market, you could chase the premiums through a negotiated grid, Koontz said, but that negotiated grid has the risk that the negotiations fail. By doing this, you wind up losing the production efficiencies as well as the returns on the profit side, he said.
To Listen to more of Ron’s conversation with Dr. Koontz on Mandated Cash Cattle Trade, click the LISTEN BAR below.
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR below for today’s show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
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