Chicago | Reuters –– The U.S. Department of Agriculture said Thursday it will require meat packers to report cattle purchases they make through online auctions to the agency starting next week, a move that stoked traders’ hopes for more transparent markets.
USDA will begin including transactions from auctions on the Fed Cattle Exchange in pricing reports that top packers, including Cargill and Tyson Foods, use to determine how much they should pay farmers for an increasing percentage of animals sold.
That means the exchange, which has held eight auctions since launching in May, will begin impacting prices that packers pay in the broader market.
The decision is the latest effort by government and industry officials aimed at improving transparency in cattle markets, which have come under heightened scrutiny following a sharp setback in prices in the second half of last year.
The exchange had asked USDA to include its auction results in the pricing report.
Cargill and Tyson said they were glad the agency agreed.
“Price discovery is important to both the packing and feeding sectors, and we believe this move will improve it,” Tyson spokeswoman Caroline Ahn said.
By requiring packers to report transactions, USDA intends to provide transparency to markets that few people see, such as deals farmers negotiate privately with packers. Cattle auctions are not normally included because anyone can attend them.
The exchange is different from other auctions, though, said Michael Lynch, director of the USDA division that compiles the pricing report. It provides an eBay-like platform for producers to sell their cattle to packers, instead of selling animals on behalf of producers, he said.
Declining transparency around cattle pricing has concerned producers and traders for years.
Farmers in the cash market have increasingly signed deals months in advance to sell cattle to packers, rather than negotiating prices shortly before sending animals to slaughter.
Some farmers and traders have said that shift has created a questionable pricing system. Packers often base prices for longer-term contracts partly on what the USDA reports was the average price paid in dwindling near-term negotiated deals.
Danny Jones, president of exchange owner Superior Livestock Auction, said the auction results could help USDA “legitimize” its reports by increasing the number of deals on which it bases average negotiated prices.
Advance sales, known as formula contracts, accounted for about 57 per cent of cattle sales last year, up from 33 per cent a decade earlier, according to USDA data.
Cash sales negotiated closer to slaughter accounted for about 21 per cent in 2015, down from 52 per cent in 2005.
— Tom Polansek reports on agriculture and ag commodity markets for Reuters from Chicago; additional reporting for Reuters by Theopolis Waters.