Cattle Market And Controversy Tri County Beef Cattle Merkting 2016 Jasper, TX April 21, 2016 David P. Anderson Professor and Extension Economist
Overview Price Correction Increasing Beef Supply Price Relationships Price of Competition Prices
Data Source: USDA-AMS, Compiled and Forecasts by LMIC
$ Per Cwt. 180 SLAUGHTER STEER PRICES Southern Plains, Weekly 170 160 150 140 130 120 110 100 JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS C-P-52 04/18/16
$ Per Cwt. 300 280 260 240 220 200 180 160 140 120 MED. & LRG. #1 STEER CALF PRICES 500-600 Pounds, Southern Plains, Weekly JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS, Compiled & Analysis by LMIC C-P-54 04/18/16
Mil. Head 40 JANUARY 1 COW INVENTORY U.S., Annual 35 30 25 2016 = 30.3 Million Head +3.5 Percent 20 15 10 5 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Beef Dairy 2016 = 9.3 Million Head +0.1 Percent Data Source: USDA-NASS
Data Source: USDA-ERS & USDA-FAS
Short Term Supplies
Data Source: USDA-NASS
Data Source: USDA-AMS & USDA-NASS
Cents Per Pound 150 WHOLESALE BONELESS BEEF PRICES Fresh, 50% Lean, Weekly 130 110 90 70 50 30 JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS M-P-25 04/18/16
Mil. Pounds 550 525 500 475 450 425 400 375 350 325 300 BEEF PRODUCTION Federally Inspected, Weekly JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS & USDA-NASS M-S-18 04/18/16
Data Source: USDA-ERS & USDA-FAS
Data Source: USDA-ERS & USDA-FAS, Compiled & Analysis by LMIC
Data Source: USDA/NASS
$ Per Cwt. 130 SLAUGHTER COW PRICES Southern Plains, 85-90% Lean, Weekly 120 110 100 90 80 70 60 50 JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS C-P-35 04/18/16
Cents Per Pound 320 300 280 260 240 220 200 180 160 140 WHOLESALE BONELESS BEEF PRICES Fresh, 90% Lean, Weekly JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS M-P-24 04/18/16
Short Term Supply Sharply Lower Cattle Prices More beef than a year ago Slaughter and weights Increased domestic production More imports, less exports Packing Capacity
Price Relationships
$ Per Cwt. 95 85 75 65 55 45 35 25 15 5 FEEDER STEER vs FED STEER PRICES 700-800 Lbs. Minus Slaughter Steer, S. Plains, Weekly JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS, Compiled & Analysis by LMIC C-P-53 04/18/16
$ Per Cwt. 18 16 14 12 10 8 6 4 2 0 CHOICE MINUS SELECT BEEF PRICES Carcass Cutout Value 600-900 Lbs., Weekly JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS, Compiled & Analysis by LMIC C-P-68 04/18/16
Demand
Cents Per Pound 650 RETAIL BEEF PRICE All Fresh, Monthly 600 550 500 450 400 JAN MAR MAY JUL SEP NOV Avg. 2010-14 2015 2016 Data Source: Bureau of Labor Statistics & USDA-ERS M-P-11 04/15/16
Index Value 120 RETAIL ALL FRESH BEEF DEMAND INDEX Annual, Using CPI 1990=100 100 80 100 96 91 86 86 82 79 75 75 77 80 81 85 83 91 88 85 85 80 77 75 77 79 81 86 92 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Data Source: Bureau of Labor Statistics, USDA-ERS, Compiled & Analysis by LMIC
Data Source: USDA-AMS
Competition
Data Source: Bureau of Labor Statistics & USDA-ERS
Cents Per Pound 180 170 160 150 140 130 120 110 100 90 80 WHOLESALE CHICKEN BREAST PRICES Skinless/Boneless, Northeast, Truckload, Weekly JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-AMS P-P-02 04/18/16
Mil. Birds 180 BROILER CHICKS PLACED Weekly 175 170 165 160 155 150 JAN APR JUL OCT Avg. 2010-14 2015 2016 Data Source: USDA-NASS P-S-11 04/15/16
Futures Market Controversy
Futures Market Controversy Perception That Market is Broken Volatility Different Prices from Fundamental Market HFT Speed Concern That No Longer an Effective Risk Management Tool
Futures Market Risk Management Price Information or Discovery Worth in the Future Substitute for Current Market CME is a For-Profit Company
NCBA Letter to CME HFT Contributes to Volatility Many trades, very fast Make money on small movements, lost of volume, many times Volatility Has it become a liability? Inability to get in or out
Latency NCBA Letter to CME Suggested a one second delay between trades Increase chance of execution Spoofing Submit buy or sell order with intent to immediately cancel it Influence prices Audit Trail for Analysis Trades, orders, prices, etc Monitoring and Regulation Self regulating business
Relationship to Thin Markets Fewer Sales in Cash Market Base for and to settle futures market trades Different Issue From Futures Market Issue, but Related Attempt to create an electronic auction for fed cattle Will it work? Potential problems?
Data Source: USDA-AMS
A Little Research Yang, Bessler, and Leatham (2001) Cash and futures are cointegrated Non-storable commodity like beef or pork Babula and Miljkovic (2015) Pork and futures market prices are close substitutes
Where to From Here? Not Clear What Steps Will CME Take? What Is (Are) the Alternative(s)? Volatility is Still Here CME cut trading hours to the old hours
Thank You! livestock-marketing.tamu.edu afpc.tamu.edu One Big Thing in Livestock Markets (979) 845-4351 danderson@tamu.edu