NCBA Releases Plan For Voluntary Price Discovery Reform
NCBA Reform Plan 102120
The National Cattlemen’s Beef Association on Friday released its proposal to improve price discovery without mandating participation by producers or packers.
Produced by a working group of seven NCBA members along with staff, the report calls for a regional approach and a “75% plan,” which is designed to provide negotiated trade and packer participation benchmarks for the industry to strive toward.
In a letter to members, NCBA president Marty Smith acknowledged the “availability of current and accurate market information has a substantial impact on our ability to make informed marketing decisions as cattle producers. It is no secret that in recent years adequate price information has been in decline in the fed cattle marketplace. This is largely due to the decrease in negotiated trade across the cattle feeding regions.”
NCBA appointed a Live Cattle Marketing Working Group of NCBA members which reported its findings to the Live Cattle Marketing Committee at the 2020 NCBA Summer Business Meeting. Policy adopted at that meeting directed NCBA to appoint 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 to regionally sufficient levels to achieve robust price discovery determined by NCBA funded and directed research in all major cattle feeding regions, and established a deadline of October 1, 2020 to complete this work.”
The proposal released last week – called “A Voluntary Framework to Achieve Price Discovery in the Fed Cattle Market” – includes plans to increase negotiated trade and incentivize each of the major packers’ participation in such negotiated trade.
“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 in arrears,” Smith wrote. “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.”
The report also identifies several qualifications each region will need to achieve to avoid tripping price triggers:
- 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,
- 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,
- Achieve this packer participation threshold no less than 75% of the reporting weeks in a quarter.
NCBA is pursuing this voluntary approach in an effort to avoid government intervention through a legislative or regulatory remedy. Smith, however, notes that if the voluntary approach fails to achieve the price discovery sought by the industry, NCBA would be open to considering legislative solutions.
Specifically, Smith notes that if any of the previously listed triggers are tripped “in any two out of four rolling quarters,” NCBA’s subgroup will recommend the organization “pursue a legislative or regulatory solution to compel robust price discovery.”
“While certainly not a silver-bullet solution, I truly believe that this approach provides the industry a goal to strive towards and, perhaps more importantly, a path forward if progress is not demonstrated toward that goal,” Smith said.
Commentary On The Regional Triggers Report, Featuring Jerry Bohn, Brad Kooima, And Kevin Buse