Negotiated Cash Trades Increase, LMIC Says

Negotiated sales increased with market volatility. ( AHA )

Unprecedented volatility in fed cattle markets during March produced a strong increase in negotiated cash sales from feedlots to packers.

“Marketing arrangements vary by region but one theme has remained consistent across the regions in the last few weeks: increases in negotiated cash trade,” according to the Livestock Marketing Information Center (LMIC). “This trend is consistent with the uptick in boxed beef and that packers may need more cattle than they forecast to meet wholesale demand. Cattle feeders, too, are likely hesitant to enter into forward looking marketing arrangements when there is so much uncertainty in the marketplace.”

Nationally, cattle sold on a live and dressed basis the final week of March was nearly 30% of total trade, according to LMIC. That increase corresponded with declines in negotiated grid sales, formula and forward contract arrangements.

During the first quarter of last year weekly negotiated cash cattle trades totaled about 25% of sales, with 3.5% negotiated grid, 67% were sold formula and 4.8% were sold via forward contracts, according to USDA data. During the first quarter of 2020, sales transactions were similar, with 23% sold via negotiated cash basis, 3.2% through negotiated grid, 69% formula arrangements and 4.6% formula contracts per week.

The last two weeks of March, however, saw nationally negotiated cash trade jump above 25% of transactions, according to USDA data analyzed by LMIC.

“The last time we had two weeks in a row over 25% was June 2019,” LMIC said. “Regionally, some of the fed markets have seen higher increases in cash trade. For TX-OK-NM negotiated transactions over the last three weeks have averaged over 9%, prior weeks of 2020 had shown negotiated transactions made up between 3-6%. The week of March 23rd was over 11% and was the highest single negotiated transaction volume since November of 2017.”

In Kansas, LMIC says negotiated cash transactions dominate the fed cattle marketing arrangements.

“The first quarter of 2020 averaged 74% in negotiated transactions on a weekly basis compared to 59% the year before. Formula trades, the second highest volume, averaged 24% in the first quarter 2020, compared to 39% in 2019’s first quarter,” LMIC said.

A wider range of negotiated transactions were found in Nebraska in 2020, ranging from 20-75%, depending on the week.

“The weekly average for the quarter is 44% compared to 66% last year,” LMIC said. “The variability last year also appears to be much less, ranging from 45-56%. Formula transactions have decreased significantly, dwindling to 30% or less in the last four weeks while previous weeks in 2020 were all above 45%. Forward contracts in this region have moved to single digits in 11 of the last 16 weeks.”

Marketing arrangements vary by region but one theme has remained consistent across the regions in the last few weeks: increases in negotiated cash trade. This trend is consistent with the uptick in boxed beef and that packers may need more cattle than they forecast to meet wholesale demand. Cattle feeders, too, are likely hesitant to enter into forward looking marketing arrangements when there is so much uncertainty in the marketplace.

The Denver-based LMIC is a joint effort of three types of participating institutions: 28 state Land Grant Universities, USDA agencies, and leading livestock organizations. Katelyn McCullock is the LMIC Director and Senior Agricultural Economist.

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