Reason #47 Why I Love To Blog -- Back To Bowman And Cattle -- December 19, 2016

Two days ago I posted a link about the upcoming Bowman, ND, livestock auction, scheduled for January 9, 2017. It's a big, big deal.

It was such a big deal that I actually sent a note to a WSJ staff reporter suggesting an idea for the Journal.

Lo and behold, completely independent of that note, the WSJ has an article on livestock auctions. Incredible. It was apparently posted by WSJ a couple of days ago, but it's in the print edition today.

The article begins:

Unruly trading of cattle futures is leading to a revival of live auctions, as ranchers look to bring robust pricing data to the market and guide understanding of supply and demand in their industry.

Cattlemen trade futures, or contracts to buy or sell cattle at a given price on a future date, as a form of insurance on their borrowings to feed hundreds or thousands of animals at a time.

In the past year, values of cattle futures contracts have swung wildly, from near-record highs to six-year lows. A nearly one-third drop in the price of cattle futures through the fall of 2016 has slashed ranch incomes and prompted investigations into the source of the volatility.

Background:

The lack of public bartering and price transparency in the cattle industry is one major source of the market’s problems.

At present, the predominant way of selling cattle is via private production contracts between feedyards and the four big U.S. meatpackers. So-called formula contracts price cattle ahead of sale based on the benchmark price independent cattlemen will get in the cash market, plus or minus premiums and discounts.

So where does that lead us?

Some feedyard operators now are experimenting with live auctions, returning to doing business in an open cash market. They want to generate new public price information and slow the supply of previously committed cattle to slaughter each week.

And, that, of course, takes us back to the Bowman, ND, livestock auction, January 9, 2017.