To that end he's had discussions with some key players in the feeding industry about replacing the live cattle futures contract, a contract which he opines is no longer relevant, with a boxed beef contract.
"It's not an original thought on my part," comments Mies. "Paul Engler has been calling for a boxed beef contract for 15 years, but no one has jumped on the bandwagon."
The value of going to a boxed beef contract, he explains, is that under mandatory price reporting it is reported twice a day, every day. That provides much more transparency.
"As it is now, we have 4.5 days of market time where we don't know what the cash market is and we're speculating."
That in itself, Cobb says, is a problem. He points to the latest USDA negotiated cash slaughter cattle trade for Texas, Oklahoma and New Mexico combined.
"In 2005, 47 percent of the market was sold on a cash basis. In 2012 it was 10 percent, and I would venture to say that 10 percent is the median, because at the beginning of the year it would have been higher and then later October through December it was probably five percent," states Cobb. "So where Colorado used to be the lowest in terms of the percent marketed in cash, it's now Texas."
CBP's goal, he points out, is to effectively market cattle through whatever marketing method maximizes the value of the cattle. What concerns him is that the negotiated market is now so small, and yet it continues to be the best method for fundamentally-based price discovery.
"Unfortunately, it has become the new alternative marketing arrangement," says Cobb. "The negotiated price in the weekly market sets the base price for the value of all cattle, and is a significant contributor to the futures market.
"If there isn't effective competition in the market, cattle must be marketed in a different way, and cattle values need to be determined using a different method," he insists.
In part because of the futures market, Cobb opines that the industry has moved away from supply and demand fundamentals when it comes to valuing cattle.
"Hedging is not only the strategy used to manage risk, but also the way to price cattle. And, it's gotten to where it's not so much about fundamental supply and demand determining the value of the cattle; it's about the futures market projecting the value of cattle.
"Cattle marketing has evolved to a point that we do not do a good job of selling cattle based on value, again because the cattle are already priced via hedges," he reiterates. "We've effectively become basis traders. Fed cattle risk management is planned around the basis, and what it is at the time we sell.
"If there isn't effective competition in the market, cattle must be marketed in a different way, and cattle values need to be determined using a different method," he insists
