The cattle industry is weighing its options for a better price-reporting system that will address a chronic shortfall of information.
In recent years cattle price data has become thin on the ground, something that has big implications for insurance programs, trade disputes and day-to-day decisions that rely on accurate market information.
Canada’s reporting system is voluntary, said Brenna Grant, manager of Canfax Research Services, the organization responsible for collecting cattle price data in Western Canada.
“It’s always a challenge and we’re always encouraging producers to report,” she said. “We have confidentiality rules that we comply with in order to have a certain number of different sources reporting, but we also have to see repeatability in the prices reported. If you don’t meet those criteria, then we can’t publish prices.”
Many producers, she noted, either forget or neglect to call Canfax with their prices.
Brian Lemon, Manitoba Beef Producers general manager, pointed to the impact on insurance programs, which use market prices to establish compensation, as well as price data’s role in the country-of-origin labelling (COOL) dispute between Canada and the U.S.
The law required pork and beef to be marked with which country an animal passed through at various stages of production, causing Canadian cows and pigs to be segregated and, it was argued, less attractive to U.S. processors. The issue went through multiple dispute settlement rounds and appeals before the World Trade Organization ruled that Canada and Mexico could impose over $1 billion in retaliatory tariffs in December 2015. COOL was repealed soon after.
“The price reporting that we had in the past was a big part of us being able to show the damage that the U.S.’s mandatory country-of-origin labelling had done to our industry here in Canada and it was a big part of our World Trade Organization fight against the COOL policies in the U.S., so it’s important that we have that information as an industry,” Lemon said.
At this point, it is unclear if that same trade dispute role will come back into the forefront now that the North American Free Trade Agreement renegotiation has opened.
Lemon said the conversation on fed cattle price reporting is “not about preparing for NAFTA or any changes that might be coming,” although he added that price reporting will be critical if the U.S. and Canada clash on cattle in the future.
Grant, however, noted a different, more immediate tie-in with NAFTA talks.
“Going into any trade agreement or a renegotiation of something like NAFTA, the first thing you’re going to do is evaluate where you’re seeing value in trade and live cattle trade is very important for the Canadian beef industry because with a free trade agreement, prices are arbitraged in the larger U.S. cattle market. By having price discovery here in Canada, we’re then able to see how prices are changing relative in relationship to the U.S.,” she said.
Asking for feedback
This summer, the Canadian Cattlemen’s Association (CCA) asked for member feedback on seven possible courses of action, and the pros and cons of each, on fed cattle price reporting:
- Do nothing;
- Communicate with government and producers on thin market reporting impact;
- Study the risks of low reporting to each beef sector;
- Upgrade reporting agencies’ systems for automatic (and therefore easier) data downloads;
- Delay price reporting;
- Pay producers to report; and
- Explore mandatory price reporting.
The online survey ran from June 5 to July 14 and results were presented to the Price Discovery Task Force and during CCA meetings in early August.
“We want to see which options float to the top,” Lemon said. “I don’t know that there’s any of them that we want to say ‘this’ is our preferred option or not. I think at this point we’ll let the survey do its work and let the folks around the table have their debates.”
Sector-specific risk assessment would fill a gap left by the 2014 Price Discovery Task Force, but critics say the importance of robust data on pricing mechanisms is already well established and that such a sector-by-sector risk study would be of limited value.
Likewise, upgraded systems may lower the effort it takes for producers to report, but may prove costly.
“It becomes very expensive very quickly for a couple of reasons,” Grant said. “First, there are a lot of different programs out there that feedlots use and so you have to provide interoperability with a lot of different programs. Second is that not all of the feedlots use all of the functions within those programs, so they maybe use them for performance data collection, but not their prices. Their prices might be kept separately in a spreadsheet, so trying to get something that actually works in terms of making automatic data downloads from producers very easy for them to do has the potential to be quite expensive.”
More communication, however, may be more feasible, she added.
“In a voluntary system we always have to be communicating the reason why producers are doing this and recognizing the fact that producers have been doing this voluntarily for over 40 years and have been able to successfully have very robust cash reporting,” she said.
The survey noted, however, that Canfax has already attempted reaching out to producers.
“An information-only approach has had limited success,” the survey reads. “The value of this approach assumes that this topic is not well understood at this point.”
Fewer cash sales
The thinning cash market has added to price discovery concerns. Reporting agencies in both the U.S. and Canada have noted smaller volumes passing through cash markets as more and more producers turn to formula pricing and forward contracts.
“We need to recognize that’s a change that’s happened across the North American industry and be accommodating and adjusting to those marketing realities and also continually encouraging those producers to continually report,” Grant said.
The survey argues that the thin cash market may mean data is insufficient even if producers are paid to report.
In a 2014 paper published by the Canadian Cattlemen’s Association, Ted Schroeder of Kansas State University noted that weekly data sets were including fewer transactions as the cash market thinned, to the point that prices reported by Canfax or the U.S. Department of Agriculture were questionable in some weeks.
“In such situations, relatively small numbers of transactions that are not representative can have economically important influences on reported prices,” he wrote.
In fall 2014, Canfax introduced enhanced price reporting, which covers the expanding forward contract and net formula prices as well as the cash and grid markets. By 2016, Grant noted that cash volumes had over doubled, although part of that increase was due to marketing incentives making cash more attractive. Formula and contract volumes had also increased, although enhanced price reporting is still thin in those areas.
“That comes down to the consolidation within the industry,” she said. “You might have large volumes, but it’s still a struggle to meet those confidentiality requirements and the robustness in terms of repeatability.”
It’s not the first time the Canadian Cattlemen’s Association has wrestled with price discovery and scarcity of market data.
In 2013, Canfax had four weeks where no fed steer prices were reported in Alberta and three weeks without fed heifer prices. The next year, those numbers increased to nine weeks without steer prices and 25 weeks when no heifer prices were reported.
The lack of data raised concern about the Western Livestock Price Insurance Program, which requires weekly prices to operate.
In 2014, the CCA made a concerted effort to bolster reporting, passing a motion that “fed cattle price reporting to a third party (e.g. Canfax, BFO, FPBQ) become a program requirement for all federal/provincial programs that require fed cattle price data to operate.”
The motion hit an obstacle, however, when it was brought before the federal government. The government was concerned that reporting as a program requirement would be hard to enforce, cause logistical and administrative problems, might affect different beef sectors unequally and might lower participation in business risk management programs.
Two and a half years after the motion was tabled, government asked industry to revisit the issue.
“In part, I think it’s as much about logistics,” Lemon said. “You know, who collects the data? Who owns the data? Making sure that privacy rights and commercial sensitivities are maintained, proprietary information is not shared unwittingly. It’s about doing it the right way, I think, as much as anything else, but I think that everybody accepts that this kind of information is important to our industry.”
The Canadian Cattlemen’s Association is still meeting with provincial and federal governments on the issue, Grant said.