Date of this Version
Farm and Ranch Management, October 12, 2020.
Agricultural Economics, University of Nebraska-Lincoln.
This was first published by In the Cattle Markets
Alternative Marketing Arrangements (AMA) have once again taken center stage in the cattle market over the last several weeks. It is common knowledge that the use of AMAs varies by geographical region with Southern Plains feedlots using a larger share relative to Northern Plains feedlots. A long-standing issue is whether each geographical region is contributing a perceived appropriate amount of negotiated cash trade to aid in price discovery. This issue has intensified as the national level of negotiated cattle continues to decline. Lower cash prices and increased volatility due to COVID-19 government quarantine measures and the Holcomb Fire have appeared to intensify this issue among market participants.
Both proposed bills put forth by the U.S. Senate have stated that need for more price discovery due to the Holcomb Fire and COVID-19 market disruptions. Figures 1-5 graphically show that the national level of negotiated cash was likely not significantly impacted by either market disruptions. The current concern surrounding AMA’s (i.e. formula/grid pricing) has more to do with lower cash prices received by producers due to market reactions to major market disruptions than the role of AMA’s role in thinly traded markets. While both bills would bring increased negotiated cash price discovery and transparency in the feedlot-packer market interface, neither are likely to increase the cash price received by producers since they do not fundamentally change the supply of fed cattle nor the demand for wholesale beef. Further, it is unlikely that if these bills were implemented prior to either the Holcomb Fire or COVID-19 it would have prevented the backlog in cattle nor affected the demand for wholesale beef. If implemented, these policies would create additional transparency but potentially creating increased costs and reducing profitability for the entire beef complex. Consistent with the economic theory of derived demand, the additional costs of these policies are likely to predominately carried by the cow-calf industry.