Sort & Cull

Sometimes I think a one-armed paper hanger with narcolepsy could handle this job. Demanding and stressful it is not.

In fact, the modern workload of cash cattle reporters makes the rounds of a night watchman at a mattress factory look grueling.

Between summarizing the previous week's sliver of market light and estimating new showlists, I suppose Mondays represent a decent part-time job. But the long, dry haul from Tuesday through Thursday is typically idle enough to turn ambitious go-getters into hopeless sluggards.

How many ways can you decorate empty market reports with phrases like "bids and asking prices are poorly defined," "the country trade remains at a standstill," and "cash business is slow in developing?" Those fresh out of journalism school manage to fake enthusiasm for a while, constantly Googling synonyms for "quiet," "unestablished" and "delayed," cheerfully nagging feedlot and packer sources with the perseverance of hungry telemarketers.

Bless these brave little soldiers.

But it doesn't take long for the cash desert to scorch and burn even the most cockeyed optimist, turning him into a dispirited clock-watcher who has somehow managed to lose the next two paychecks playing online blackjack.

The cash reporter's sense of purpose briefly resurfaces for a few, fleeting hours each Friday when a dying breed of cattle marketers frantically shimmy through a narrow window. While this small explosion of late-week activity may seem to offset a good deal of nap time enjoyed earlier, the limited cash spasm should not cause the bone-idle seeking employment to look elsewhere. Knowledge that one last-minute price pretty much fits all will quickly reassure him that he's on the right career path.

If you find such criticism to be excessively cruel and heartless, please know I count myself as a proud member of this lazy lot. Just don't tell the boss.

Furthermore, none of this is an invitation to shoot the underutilized messenger. It's not our fault that cattle buyers and sellers have (apparently) decided to marginalize the negotiated cash arena as a means to determine market value. Such was not always the case.

Old-timers often remind me of the golden age of cash trading when the great terminal markets lining the Missouri forced packers and producers to honestly square off on a daily basis. In 1955, the Omaha Stockyards hosted more than 2.25 million cattle (fats, feeders and cows), enough to fund day-in-and-day-out receipts close to 9,000 head.

When unpriced cattle and the unfilled morning kill suddenly came face to face, the extraneous game-playing became quite minimal. Sometimes doing business on the razor's edge like this favored buyers, sometimes it favored sellers.

Once packing plants moved deep into feedlot country in the 1960s and 1970s, the fate was sealed on the terminal marketing system. Though its deathbed scene still lingers, I wonder if you could say the same thing about negotiated cash in general.

This radical realignment of infrastructure meant that feedlot managers didn't need to put wheels under cattle until they were specifically priced and scheduled; and it meant that head buyers could also take their own sweet spending time. In short, it redefined the very calculus of leverage.

Yet the general art of cash negotiations held up reasonably well until the 1980s and 1990s when marketing agreements and formula pricing became increasingly common. At first, this anti-cash trend seemed to be sparked by arguments of efficiency and realities of concentration (i.e., both in terms of cattle feeders and packers). Once this marketing shift hit critical mass, more and more panicking producers partnered-up with obligating packers, making the demise of cash trading a self-fulfilling prophecy.

Fire alarms and police sirens started to go off in the early '90s. Not only did traditional cash traders begin to complain about a serious want of packer competition, some formulators expressed worry that a poorly tested cash market would fail as a fair and reliable trigger for their own mechanisms of cattle value.

Indeed, many proponents of Mandatory Price Report (first launched in April 2001) somehow saw the program as a cash market savior, arguing that if only producers had more reliable price data they would refuse to fund the evil of "captive supplies." I never bought it.

More significantly, few cattle buyers seemed to buy it. Between 2005 and 2012, total five-area steers and heifers traded on a cash basis fell from 55.8% to 27.8%. As you might expect, the death of cash over the same time period was especially ugly in Texas, imploding from 47.2% to 10.2%.

But even in the cash-proud state of Iowa, the popularity of formula marketing grew at the expense of old-school "bid and asked," increasing from 7.2% in 2005 to 20.5% last year.

A new wave of nail biting seems to be rolling through parts of cattle country. Grassroots pressure convinced the National Cattlemen's Beef Association (NCBA) to set up a working group in the summer of 2012 for the purpose of examining the thinning cash market. The group has recently asked Colorado State University agricultural economist Stephen Koontz to conduct a study to determine the cost benefits of feedlots selling cattle on a formula basis versus selling on the cash market. Koontz has also been charged to determine whether the industry is prepared to allow further atrophy in the cash market or whether it wants to reverse this trend.

Good luck on that last question, Professor Koontz. Your methodology may be hopelessly flawed if it assumes that the industry knows its own mind in that regard.

Frankly, the latest data classifying purchase-type belies any "save-the-cash-market" rhetoric. For the period Jan. 1-July 16, 2013, cash sales constituted no more than 22.2% of total national trade volume, down from 26% last year and 52.1% in 2005.

This seems to be one of those situations where admirers of the problem abound while fixers of the same slip out the backdoor. Why? Because so many see competitive advantage in allowing someone else to save and preserve the absolutely necessary cash market.

Such dangerous ambivalence will last as long as it lasts. At some point, the dog will get too small to wag the tail, necessitating some major change in the way we price cattle.

In the meantime, you know where to find me -- at least for a few hours on Friday.

For more John Harrington comments, visit www.feelofthemarket.com

(AG)