The extreme market swings that followed the recent Tyson beef plant fire in Holcomb, Kansas, were just the most recent example of an industry trading on nothing but rumors, says Kim Ulmer.
He thinks cattle producers have had enough of hedge funds and speculators running the market, and has taken the unusual step of building a new marketplace auction platform, available in all 50 states.
"The week of the Tyson fire the board of trade dropped over $12 a hundredweight on the feeder cattle side. It shut down everybody up north here," says Ulmer, based in South Dakota.
"Sales were canceled due to those crazy rumors. Hedge funds were bailing out and overselling. Sale barns canceled sales because of all that volatility," he says, adding "the Chicago Mercantile Exchange (CME) created the panic because it's trading on rumors and no one is worried about being able to actually deliver on the price."
Ulmer describes his new trading platform—the American Merchantile Exchange (AME)—as an asset-based system. He calls the CME a "commodity casino".
"You put your money on the table and hope the cards fall the right way," he says of the CME. "Bankers need to see a stable risk management tool in place today. They are afraid to loan in the livestock industry because it's become too volatile."
"This will be a true futures contract," notes Ulmer of the AME. He explains producers will choose a reserve price at which they are comfortable selling. There will be no commingling of 7-, 8- and 9-weights, as on the CME.
"If you are selling a 9-weight, that's what we'll compare it to," he says.
The first test of the AME ran September 3, and Ulmer says all went well. The next offering is set for September 17.
Ulmer, who owns an auction market at Huron, says if a reserve price isn't met on the AME, the offering is converted to a timed auction. "The producer can keep his cattle safe in the pen and deliver them in the future. He doesn't have to go home disappointed," he notes.
Cost to sell on the AME is $3 per head, which is nonrefundable and essentially is a listing on the site for the offering. Think of it as a classified ad good for a year. At time of sale there is a $1.50 per hundredweight commission, similar to what one would pay at an auction market.
"This is extremely safe," adds Ulmer. "This was set up to protect the producers, so they know the buyer, and the buyer knows the seller. Producer and buyer are treated fairly. Honest weights and honest measures, with open transparency."
Ulmer says the AME is set up to be bonded and licensed in all 50 states to protect both seller and buyer. All cattle sold are protected, with wire payments only within 24 hours of delivery. Purchase agreements and settlement sheets are provided for each transaction, with payment instructions and account information. Only livestock clearing through the AME account are protected by the AME license and bond. The AME is regulated by Packer and Stockyards regulated merchantiles.
Sales are held in conjunction with the Tuesday Auction Market sale at Huron Continental Marketing. Buyers may bid online or with Cattle USA or in the area at the site. To participate in bidding or to list an auction, users must create an account.
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