Now that the Market News division of USDA has been indefinitely closed due to lack of funds, many livestock producers and processors find themselves in deep doo-doo.
Because locked offices, furloughed employees, and unplugged computers cannot collect and collate the price and volume data necessary to generate critical weighted averages used to formulate the marketing of most cattle, hogs, and meat.
According to the latest survey of marketing methods, cattle feeders formulate nearly 60% of ready steers and heifers. Hog producers are even more addicted to the trigger of weighted averages in this regard, pricing 90% to 95% of fattened barrows and gilts through the automatic dictates of the formula.
Although standard operating procedure at the packing house has always been more difficult to track and quantify, it is generally assumed that 75% or more of meat sales are formulated with invoices keying off officially sanctioned averages.
I'm told it's all very efficient, precise, and predictable. Furthermore, it's such a great way to avoid all that unpleasant face-to-face time with market adversaries. You know, that old school give-and-take that once made business so time-consuming, so messy, so human.
But the government shutdown has now created a major pricing crisis for all the sleek formulators of the livestock world. Can the wheels of business stay on track and continue to roll forward without the endorsement of weighted averages by the USDA? Can the small tail continue to wag the big dog if official tail monitors stay at home in their bathrobes?
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT T
More Recommended for You
Recommended for You
At this point, your guess is as good as mine. But the potential difficulty of the situation somehow caused me to entertain the following fantasy. Imagine we're in the tense boardroom of major pork processor with a desperate CEO drilling his nervous subordinates for answers:
"Maybe I'm all wet, people, but something tells me that year-end bonus checks will melt like cheap candles if we can't solve this pricing disaster," the chief executive hissed. "Now who's got some ideas, and they better be good."
"Couldn't we tie the hog base to previous three-year average lows and link pork sales to the Russian inflation rate," suggested the leading brown-noser.
"That's brilliant, McQuillan," the CEO groaned. "You're wasting your talents in this small shop. Why not just run for Congress and add to the national lunacy? Next!"
"Well sir, couldn't we somehow designate respected banks in various locations, using their time and temperature signs to set the daily pricing grid?"
"I'm trapped on a hostile frontier of price discovery with a wagon train of idiots. Maybe I should just retire and drain the pension fund while there's still something to drain."
Suddenly, a timid voice from the far end of the table dares the whisper the unspeakable: "We should use the cash market".
"Did someone say cash?" the corporate head demanded. "What in the world do you mean?"
"I'm not entirely sure how it works," the backbencher squeaked. "But I think it involves sellers starting with asking prices and buyers starting with bids. After an extended period of crying, pleading, begging, stonewalling, playing hard to get and feigning disinterest, the two parties actually agree on terms, irrespective of 'negotiations' conducted elsewhere".
"That sounds crazy," the CEO blustered. "Johnson, could this harebrained business model actually work?"
"Actually, such one-on-one market used to be quite the rage, along with buggy whips and letter writing," his secretary responded. "And if I'm not mistaken, there are still a few old-timers that practice this black magic."
"I know it's a long shot, but this may be the answer. Call HR and have them hire the best cash trading veterans they can find. Offer them whatever it takes to pull them out of retirement. Let's show the government we can live without its marketing help."
"But what if this bizarre cash experiment doesn't work," Johnson couldn't resist asking.
"I guess the company will have to file Chapter 11 under the Bankruptcy Code," his boss sighed. "That is, just as soon as the Department of Justice reopens."
© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.