USDA Approves More Transparent Price Reporting

In a move that will provide more accurate pricing information for cattle producers, the USDA will begin accepting feeder cattle prices reported on a delivered basis with a freight adjustment.  The delivered basis transactions will be included with those already being collected and reported on a free on board (F.O.B.) basis, and will be eligible for inclusion in the CME Feeder Cattle Index™.

This reporting change comes in response to concerns expressed by producer-members of the National Cattlemen’s Beef Association regarding the low volume of animals that were being used for calculation of the Index.  USDA limitations on the types of cattle sales eligible for inclusion in its reports were identified as a major contributing factor to this situation.

“This alteration will enhance the transparency and effectiveness of the Index by allowing producers who receive feeder cattle on a ‘delivered’ basis to convert the price paid to a F.O.B. price by subtracting out the transport costs they incurred,” said Jason Jordan, manager of legislative affairs for NCBA.

The Index serves as a valuable risk management tool for producers and is based on feeder cattle prices collected and reported from a 12-state region by USDA.  The accuracy of the Index depends upon a sufficient number of animals being included in the calculation. However, in recent years it had become clear that the current reporting parameters limited the volume of reportable sales such that the validity of the Index was in question, especially during fall months.

Recognizing that an alteration was needed, NCBA collaborated with key officials from the Chicago Mercantile Exchange and USDA to identify changes that would facilitate a higher volume for calculation of the Index.  Specifically, delivered-basis transactions may be converted to an F.O.B basis by the buyer or seller, and reported by telephone, e-mail or facsimile.  In order to ensure accurate reporting, the following stipulations apply:

•  All cattle sales must originate in the 12-state region.

•  Producers must provide transaction information on  consistent basis to be included.

•  The buyer or seller must convert the price from delivered to F.O.B. and provide Market News with both prices.

•  Origin point of the cattle must be provided.

•  Names of the buyer and seller must be provided.

•  Documentation verifying the aforementioned conditions must be provided to USDA upon request.

As producers begin to report these delivered transactions, USDA will compile the information and make it publicly available for a period of time in order to illustrate the impact of this alteration before including delivered transactions in its reports.  Also, understanding that cattle are often sold on even weights, USDA will begin including 850-pound animals in the 800-849 pound weight category.

“Open communication and information sharing have led to this distinct change in USDA policy,” said Jordan.