In July 2020, the National Cattleman’s Beef Association (NCBA) announced support for a voluntary framework to “increase frequent and transparent negotiated trade to regionally sufficient level” to achieve robust price discovery. A set of “triggers” evaluated on a quarterly basis form the framework. Today is the second in a two-part post on the results of Q1. How did each region perform during Q1? What are the takeaways from these outcomes?
Dates and Deadlines
4/27/2021-4/28/2021- Hemphill County Beef Conference
4/29/2021 – Swisher County Spring Meeting (Call 806-995-3726)
5/12/2021 – May WASDE
What I’m Reading
NCBA Reports On Q1 Voluntary Price Discovery Framework – Drovers
AFPC at Texas A&M to host vital cattle industry workshop – AgriLife Today
Prices good, drought bad for Texas cotton – AgriLife Today
USDA enhances CRP for climate mitigation – Feedstuffs
White House launches drought relief working group – Feedstuffs
The 75% Plan
In my post last week I reviewed NCBA’s 75% plan and a few of the factors that led to that plan. The high points to remember about the 75% plan are
- The goal of the 75% plan is to increase frequent and transparent negotiated trade to regionally sufficient level, to achieve robust price discovery
- Robust negotiated trade volumes are defined by work form Dr. Stephen Koontz
- Trade in a given region must meet 75% of the robust negotiated volumes 10 weeks out of 13 in a given quarter
- Failure to meet the specified levels constitutes a minor trigger
- Three minor triggers constitute a major trigger
- Two major triggers in a set of four rolling quarters dictate action from NCBA to support legislative changes to fed cattle marketing
First Quarter Outcomes
In the following tables, you’ll find data pulled from AMS’s weekly cattle reports by region. I’ve pulled this data weekly and compiled it into three tables highlighting compliance with different negotiated thresholds.
In the first table, you’ll find highlighted values for weeks in which negotiated trade volumes did not meet the minimums of the 75% plan. TX-OK-NM failed 4/13 weeks, Kansas failed 6/13 weeks, NE-CO failed 2/13 weeks, and IA-MN did not fail any weeks. Keep in mind that highlighted values do not account for weeks in which force majeure was invoked. Winter storm Uri and plant maintenance in Kansas each led to certain weeks (not necessarily failing weeks) qualifying for force majeure exclusion.
Q1 2021 Voluntary Threshold ‘Failures’ by Week by Region
(Red Represents Week in which Negotiated Trade Volume fell below threshold)
In the second table, you’ll find highlighted values for weeks in which negotiated trade volumes did meet the volume to establish robust price discovery. In the same quarter last year TX-OK-NM only traded a negotiated volume necessary for robust price discovery once. NE-OK only traded a negotiated volume necessary for robust price discovery twice. Kansas traded negotiated volume necessary for robust price discovery six weeks in 2020, and fell to only three weeks in 2021.
Q1 2021 Weeks in Which Negotiated Trade Exceeded ‘Robust Threshold’
(Green Represents Week in which Negotiated Trade Volume was above threshold)
In the third table you’ll find highlighted values for weeks in which negotiated trade volumes did meet the minimum volume necessary to establish price discovery. One of the biggest takeaways from my review of this data is that in all regions but Kansas, and during one week in Nebraska, minimum volumes to establish price discovery were achieved.
Q1 2021 Weeks in Which Negotiated Trade Exceeded ‘Minimum Threshold’
(Green Represents Week in which Negotiated Trade Volume was above threshold)
First Quarter Takeaways
I’ve had several discussions with colleagues and producers about what the results of the first quarter really mean over the past few weeks. I think a lot of people take the top-line results of the failure to meet the established thresholds and consider these voluntary efforts to be a failure. It is evident that by the measures of the 75% plan, a major trigger was tripped. However, I won’t be quick to call the results of Q1 an outright failure.
First, when compared to Q1 2020 negotiated trade volumes, negotiated trade in Q1 2021 increased substantially. Were the 75% plan in place in 2020, in 10 of 13 weeks TX-OK-NM negotiated trade volumes would’ve failed the 75% plan. In 3 of 13 weeks Kansas negotiated trade volumes would’ve failed the 75% plan. In NE-CO 5 of 13 weeks would’ve failed the 75% plan. Negotiated trade in TX-OK-NM in Q1 2021 rose substantially, both in total negotiated head traded and in weeks passing the 75% plan, over Q1 2020. In fact, the TX-OK-NM region traded almost 55,000 more negotiated cattle in Q1 2021 than in Q1 2020. Negotiated trade is up substantially in NE-CO too. Challenges remain in Kansas, where total negotiated volume fell by almost 36,000 head.
Q1 2020 Voluntary Threshold ‘Failures’ by Week by Region
(Red Represents Week in which Negotiated Trade Volume fell below threshold)
I’d like to make a note for the sake of transparency. The first quarter of 2021 includes the onset of the COVID-19 pandemic, which induced severe market disruptions. Because of these disruptions, I struggled with choosing to compare 2021 and 2020 as a benchmark. I chose to leave 2020 as the previous year for comparison given that COVID-19 was one of the forces which led to the 75% plan.
Second, negotiated trade is up over the previous five-year average across the southern plains. Comparing given weeks across years negotiated trade was, on average, 1.4 times the 2016-2020 average in TX-OK-NM. In Kansas in Q1 2021, negotiated trade was, on average, 1.2 times the 2016-2020 average in a given week. In the regions in which negotiated trade was the most poor, conditions are improving.
Third, the proximity of misses to makes is worth noting. The old saying goes something like ‘close’ only counts in horseshoes and hand grenades. However, we’re discussing policy which can be messier than either of those things under the wrong circumstances, and the 75% rule is designed to increase negotiated trade. Two failing weeks in TX-OK-NM only fell short by a few hundred head. Three failing weeks in Kansas fell short by less than 1,000 head. Of these five ‘close’ weeks across the southern plains in 2021, four still saw higher negotiated trade volumes than in 2020, despite failing the 75% rule.
Lastly, though the NCBA goal is “to increase frequent and transparent negotiated trade to regionally sufficient level, to achieve robust price discovery” the minimum volumes are worth consideration. In Q1 20201 in TX-OK-NM the minimum negotiated volume to achieve price discovery (6,000 head) was met every week. In Q1 2020, the region fell short of achieving minimum negotiated volumes to achieve price discovery five weeks.
Wrap Up
The gains made by cattle feeders are important. I plan to leave final judgement on the 75% plan to later reviews in this rapidly evolving market. Results for Q1 show an industry making strides to achieve negotiated volume to achieve robust price discovery as a result of the voluntary 75% plan. Sometimes feeders are even making changes at the expense of higher prices. I think NCBA’s President, Jerry Bohn, was justified in his wrap up in the report on negotiated trade:
“This quarter, the market fell short of the negotiated trade volumes outlined in our voluntary framework, but that should not overshadow the significant improvements made to price discovery since the framework’s implementation.”
I’m interested in your thoughts and questions around negotiated trade and price discovery. We’ll revisit the issue quarterly after the data has been compiled. In the meantime, feel free to reach out at benavidezjustin@tamu.edu