Cattle producers from all across South Dakota heard about cattle markets and the Chicago Mercantile Exchange at the South Dakota Cattlemen’s Association Convention Nov. 30.
Panelists included Todd Wilkinson, SDCA president; Craig Uden, NCBA president-elect and chair of NCBA’s CME working group; Don Close, vice president of food and agribusiness research at RaboAgrifinance; and Brad Kooima, Kooima & Kaemingk Commodities.
“I feel that the CME volatility is the No. 1 issue facing the livestock industry right now. The volatility, whether it be up or down, continues to make it almost impossible to do effective risk management. It trickles down all the way to your basic operation,” Wilkinson says.
Uden says at the last national NCBA convention they formed a large group to study volatility. He notes that from February through June they did not get a lot done since CME was throwing a bunch of ideas at them and they could not figure out a direction. At their summer meeting, they made a larger working group and split the group into three – volatility, price discovery and contract specs/delivery points.
The group noted that while NCBA voters voted for a 65-35 choice-select spread, leaving delivery points the same and that weights would go to 1,650 pounds, however, Kooima says CME did not agree.
“How did the CME react to that? Pat on the back, thanks guys but you know what? We are going to discount Worthing (SD) and do 60-40 and we’ll see what we feel like doing on the weights because we haven’t decided yet,” Kooima says. “Every rule they make they’ve accommodated the funds. Maybe the fact that the funds like it is the reason we shouldn’t do it. These people are driven by commissions.”
Close agreed with much of what the others on the panel were saying, however, he did note that while it was not enough of an increase from 55 to 60, the CME did increase it.
“I would vehemently argue that it is way more possible to get changes made than it was under the old pit system,” Close says.
Uden notes that while the industry has some issues to work through, they have made some changes.
“We’ve made fairly substantial changes to the industry with more negotiated trade. We’re starting to move some on contract specs and sometimes we’re going to have to let some of this work its way out and see what we’ve already accomplished and what the fruits of those labors are,” Uden says.
Uden says the working group will come together at the end of January at NCBA’s national convention in Nashville. The three subgroups will bring some proposals to convention.
While everyone on the panel were frustrated with the CME and the current state of the cattle market, Uden says there is still hope.
“We know times are tough, but this markets perked up a little bit and it’d sure be nice and I think there’s a lot of optimism out there because of the way the election went as far as pushing back on regulations,” Uden says.
He noted while domestic consumption of beef has gone up 3-4 pounds per capita, he realizes that is mostly due to the price of the product now. In order to bring more value to the product, Uden says international trade will need to be expanded.
Uden says the more people know about the subject, the better equipped they will be to handle the challenges.
“I think people that get involved and understand the issues are better equipped to handle the changes and make the adjustments they need at their own operations to become more efficient or drive more quality or however they need to market their cattle. There’s a lot of options out there,” Uden says. “People are pretty resourceful or they wouldn’t be in this business.”