After months of bi-weekly meetings, the producer-led NCBA Price Discovery Triggers Subgroup delivered its report to the Live Cattle Marketing Working Group and the NCBA officer team last week. The framework lays out a plan to increase negotiated trade and incentivize each of the major packers to participate.
In essence, the subgroup will evaluate the weekly negotiated trade information for each of the USDA Agricultural Marketing Service’s cattle feeding reporting regions on a quarterly basis. Eventually, the subgroup will include in its evaluation an analysis of packer participation data, but this information is not yet published under Livestock Mandatory Reporting. To avoid tripping triggers, in any given quarter, each region will have to achieve no less than 75% of the weekly negotiated trade volume that current academic literature indicates is necessary for “robust” price discovery in that specific region (For Kansas that would be 15,750 head.); achieve this negotiated trade threshold no less than 75% of the reporting weeks in a quarter; achieve no less than 75% of the weekly packer participation requirements, to be determined in short order, and assigned to each specific region; and achieve this packer participation threshold no less than 75% of the reporting weeks in a quarter.
In the event three triggers are tripped in any two out of four rolling quarters, the subgroup will recommend that NCBA pursue a legislative or regulatory solution to compel robust price discovery. The subgroup will take into account black swan events on a case-by-case basis and allow for flexibility within the plan if the normal flow of cattle is disrupted. Periodic adjustments may need to be made to the framework in the event academic literature is updated, technological advances are made, or other conditions of supply and demand have changed. The subgroup will make these adjustments on an as-needed basis.
“While certainly not a silver-bullet solution, I truly believe that this approach provides the industry a goal to strive toward and, perhaps more importantly, a path forward if progress is not demonstrated toward that goal,” NCBA President Marty Smith wrote in a letter to members.
To view the full report, go to www.kla.org/resources.