The U.S. Department of Agriculture will include cattle transactions from a private online auction to bolster price discovery in cash markets amid industry dismay with wide swings in futures markets.
The USDA said cattle sold weekly on an exchange owned by Superior Livestock Auction LLC, which says it’s the largest U.S. marketer of cattle using televised and Internet auctions, will be added to the agency’s mandatory reports on negotiated purchases. The livestock industry requested the data inclusion, the government said Thursday in a statement.
“In recent years, participation in the cash slaughter cattle market has declined significantly from 37 percent nationally in 2010 to 25 percent today,” the USDA said. “This occurred as the supply chain moved to using more formulas and forward contracts to market cattle more efficiently,” and that “reduced opportunities for price discovery in the negotiated market,” the agency said.
Industry groups have blamed high-frequency traders and a lack of cash transactions for increasing futures volatility, which deterred animal owners and meatpackers from using the contracts for hedging.
In April, a U.S. Senate subcommittee asked the government to start an investigation into cattle pricing after producer groups cited an unexpected plunge in prices in 2015. In August, Chicago-based CME Group Inc., which runs the largest U.S. cattle-futures market, said it’s considering changes to trading, including eliminating animal deliveries and shifting to cash settlements for contract expiration.
Adding transactions from Superior’s Fed Cattle Exchange will increase the volume of negotiated purchases as much as 2 percent, the USDA said.
Cattle futures on the Chicago Mercantile Exchange have slumped 25 percent this year. Cash steer prices reported by the USDA have dropped 23 percent in 2016. This month, 60-day volatility on the Bloomberg Commodity Cattle Subindex, a measure of futures returns calculated to smooth out rollovers, approached the record high reached in December.
The Fed Cattle Exchange provides a fee-based Internet auction for feedlots to offer pens of market-ready cattle for sale. Meatpackers bid on the animals in a timed format, similar to an online auction.