A
Anonymous
Guest
I just showed you in a real life example how to go long on the board and not lose money on the cattle because of your position.
You're still babbling and trying to impress yourself.
~SH~
Sand: "If you go long and the price at delivery is down 30 cents, you lose money on both the cattle and your "lock". That is why you would short the market - so that the money you would lose on the commodity would be made on the contract."
Published August 16 2010
GIPSA responds to rule misunderstandings
By: Daryll E. Ray and Harwood D. Schaffer,
KNOXVILLE, Tenn. — The USDA's Grain Inspection, Packers and Stockyards Administration made two announcements July 26 via a letter signed by Edward Avalos, undersecretary for marketing and regulatory Programs, USDA. The comment period on GIPSA's proposed livestock competition rule has been extended to Nov. 22. In addition, Avalos released a four-page document to "clarify" the rule.
"It has become apparent that there are misunderstandings" concerning the proposed rule, Avalos says. "This rule does not limit or prohibit marketing agreements, the use of premiums or other value-added activities. The rule does not require anyone to do business with any particular person or require packers to pay all producers the same price."
We have converted "misconceptions" into questions and then quote a portion of USDA's response.
Q. Would the provision on competitive injury allow producers to sue companies without having to show competitive injury?
A. If a producer filed a claim on matters dealing with practices that could cause competitive harm, such as manipulation of prices, the producer would need to show harm or the likelihood of harm to competition. If a producer filed a claim on matters that do not involve competitive harm, such as retaliatory conduct, using inaccurate scales or providing a grower sick birds, proof of competitive injury or the likelihood of competitive injury would not apply.
Q. Would the rule cause increased litigation because of the provision on competitive injury or harm?
A. The lack of clarity on the issue of competitive injury currently causes litigation. The rule seeks to clarify the issue and reduce litigation.
Q. Would the provision on packer-to-packer sales eliminate marketing agreements or other value-added activities and take away the incentive to produce meat products that consumers prefer?
A. The proposed rule seeks to prevent collusion and price manipulation caused by the sharing of pricing information between packers. It does not ban packers from owning their own livestock. When a packer sells livestock to another packer, the information signals important market information about price and supply levels. With high levels of consolidation and vertical integration, firms may be able to affect the prices of sales on the open market. There is nothing in this provision that limits or eliminates marketing agreements. Instead, the proposed rule would provide integrity in the market to prevent manipulation of prices on the open market and in marketing agreements.
Q. Will the packer-to-packer provision now require packers to sell livestock across the country to other packers willing to buy livestock?
A.: The rule prohibits only direct sales between packers. A packer could sell to individuals, market agencies, dealers or other buyers.
Q. Would poultry growers and swine production contract growers be guaranteed a return of 80 percent with their production contracts?
A. Under the proposed rule, producers are to be offered production contracts with a sufficient period of time that provide the opportunity to recoup up to 80 percent of the cost of their capital investment. Producers would not be guaranteed an 80 percent return on investment. This rule would not affect provisions in production contracts to deal with poor performers such as termination for cause.
Q. Will companies no longer be allowed to provide premiums to producers?
A. There is no provision in the proposed rule that would limit or eliminate the ability of companies to provide premiums to reward producers for providing certain quantity or quality of livestock. The proposed rule simply requires that if differential pricing is offered, the packer, swine contractor or live poultry dealer must maintain records to document the business justification for that pricing arrangement.
Q. Will the rule take away producers' ability to maintain the privacy of business transactions because all transactions will be reviewed and then posted on a government website open to public access?
A. There is nothing in the proposed rule that suggests GIPSA would review all transactions, nor require these transactions be made available on its website. To increase transparency, GIPSA is proposing packers, swine contractors and live poultry dealers provide sample contracts and poultry growing arrangements to GIPSA. In return, GIPSA will make sample contracts available on its website. Any trade secrets, confidential information and identifiable information would be removed and not made available on GIPSA's website.
Editor's Note: Ray is director of the University of Tennessee's Agricultural Policy Analysis Center in Knoxville. Schaffer is a research assistant professor at APAC.
~SH~ said:When I send my calves to a feedlot and simultaneously purchase enough feeder cattle futures contracts at $96 to cover all the cattle I am feeding and the board falls to $86 by the time those cattle are finished, the CME pays me that difference. If the CME feeder cattle futures rises to $106 in that time frame, I pay the board that difference.
Are you calling that a "short" position? Yes or no
~SH~
When I send my calves to a feedlot and simultaneously purchase enough feeder cattle futures contracts at $96 to cover all the cattle I am feeding and the board falls to $86 by the time those cattle are finished, the CME pays me that difference. If the CME feeder cattle futures rises to $106 in that time frame, I pay the board that difference.
Are you calling that a "short" position? Yes or no
Going back to the real time numbers I presented above, if I locked the cattle in at $96 for December and the board is $86 when the cattle are finished and the cash ("spot") market is $85.50, I will have only lost $.50 per cwt (basis) because the board will pay me the difference between $86 and $96.
If I am wrong, by all means SHOW ME where I am wrong. Not just cheap talk again.
If I lock these cattle in on the board the same day I take the cattle to the feedlot, do you not consider that a "LONG" position?
Answer these questions Sandhusker.....
Fedup: "If you intend to feed these cattle for 100 days, you must feel the market is strong enough for you to make a profit. To protect this profit, you must take a SHORT position in the futures market.
If the price drops, the money that you lose on your cattle will be offset by your SHORT futures position!"
Fedup: " You are 180 deg off on your understanding of futures positions."
Fedup: "The futures market does not care if you own cattle or not! It does not care if you plan to feed 10 days or 100 days! It doesn't give a darn what your plans are!"
FedUp: "If you hold a SHORT futures position and the market goes DOWN, you make money! If the market goes up, you lose money!"
"The cattle futures market is susceptible to downward price movements – in contradiction of supply/demand fundamentals, when beef packers, who may hold a physical hedging position in the market, also engage in substantial speculative short selling of the market. The effect of the beef packers' speculative short selling is to lower not only the futures market price, but also the cash spot market price, which is intrinsically tied to the futures market.
~SH~ said:"The cattle futures market is susceptible to downward price movements – in contradiction of supply/demand fundamentals, when beef packers, who may hold a physical hedging position in the market, also engage in substantial speculative short selling of the market. The effect of the beef packers' speculative short selling is to lower not only the futures market price, but also the cash spot market price, which is intrinsically tied to the futures market.
Sandhusker,
If, as you say, I am wrong that short positions are used for speculation, why Bullard's concern with "speculative short selling"??
Hmmm???
~SH~
SH: "If, as you say, I am wrong that short positions are used for speculation, why Bullard's concern with "speculative short selling"??
Sandhusker (in response): "When did I say that?"
SH (previous): "Let me explain that better, long positions generally are not used by speculators nearly as much as short positions hence the concern with packers using short positions".
SH (previous in response): "WRONG".
Group Praises Vilsack, Holder and Varney
for Approaching Cattlemen's Competition Issues with Open Minds
Fort Collins, Colo. – R-CALF USA wishes to express its gratitude to Agriculture Secretary Tom Vilsack, U.S. Attorney General Eric Holder and Assistant Attorney General for Antitrust Christine Varney for hosting the first-ever historic joint workshop on competition issues in the livestock industry on Aug. 27, 2010, in Fort Collins, Colo. An estimated 2,000 producers were in attendance, many of whom were R-CALF USA members.
Much of the officials' opening remarks made clear that they recognize Rural America is in crisis and that young people who want to farm or ranch should be able to do so and make a fair profit, and that to correct the situation, there must be an open, public dialogue on these very complex, but important issues.
"As I travel across the country, I hear a consistent theme: producers are worried, worried whether there is a future for them and for their children in agriculture," said Secretary Vilsack. "There are many ingredients needed for someone to get into farming and ranching. He or she needs to have access to capital to get the land, equipment and livestock. They need to be willing to take significant risks and work very hard, and they need to know that there's an open and competitive market for their livestock and for their commodities. Livestock producers are extraordinarily innovative, despite enduring some very difficult times. USDA is designed to support producers' ability to join together to market their products, to find value-added opportunities and enter into contract arrangements. Additionally, we look to support producers in their efforts to work hard and to receive a premium for th eir efforts."
Vilsack cited some worrisome statistics: 1) The Top 4 cattle packers control roughly 80 percent of steer and heifer procurement, and the Top 4 hog packers control roughly 65 percent of the market; 2) In 1994, the spot market for hogs was 62 percent. Today, it is only roughly 5 percent, nationally, and new figures, just recently developed show it dipping below 4 percent for the first time ever; 3) In cattle, depending upon what part of the country you live in, the spot market is also rapidly declining. In 1999, the spot market for cattle was 68 percent. Today, it's closer to 52 percent, nationally, and in some parts of the country it is less than 30 percent.
"This thinning spot market is a concern because it sets the base prices in marketing contracts," he emphasized.
Vilsack also indicated that in the past 40 years, the U.S. has lost 800,000 farmers and ranchers, and those that remain are aging. From 2002 to 2007, the average age of a farmer increased from 55 to 57. The number of farmers aged 75 and older has increased by 20 percent over the same period. Meanwhile, the number of operators under 25 years of age has decreased by 30 percent.
"Some have argued that the status quo is better for livestock agriculture and that the current system has resolved it in efficiency and innovation (but) I think we need to take a look at where we are," Vilsack explained. "Under the status quo, there has been a significant exodus from agriculture and a depopulating of Rural America. The sad fact is that young people find it very difficult to get into this important occupational calling we call farming. Only 50 million people now live in Rural America. Urban areas are growing at a much faster pace, and more than half of rural counties have lost population.
"Today, if you consider all family farm operations, only roughly 10 percent of family farm income comes from farming, he continued. "More and more of our farmers are looking elsewhere for their primary source of income. Rural communities have higher poverty rates than the rest of the country. The average per capita income of rural residents is approximately $11,000 below their urban and suburban counterparts.
"While the causes of decline in farm numbers is complex, it's no secret that livestock and poultry marketplaces have become more consolidated and vertically integrated, and although there can be efficiencies found in these trends, there is also the potential for unfair practices and limited transparency, which increases risk for producers," Vilsack added. "We continue to seek answers and solutions, and under our watch at USDA, we've taken a number of steps in an effort to improve competition in agriculture. We've increased GIPSA's budget to improve enforcement over unfair and deceptive practices in the marketplace, and the department is hiring more attorneys and field investigators to handle complex investigations and other violations."
Attorney General Holder told the crowd that this new partnership between the U.S. Department of Justice (Justice), the U.S. Department of Agriculture (USDA) and leaders in the agriculture industry is, "a partnership forged, not only so we can better understand the conditions that you face every day, though that's a first and crucial part of this effort, but also – and most important – so we can act.
"None of us believes that antitrust enforcement is the solution to every problem, but it is a solution, and it is a part of our larger commitment to championing the pro-consumer principles that will promote competition in the agricultural sector…," he continued. "We are here to listen. Not only do we welcome your insights and recommendations – we're relying on them.
"As much as (our) discussion is about cattle, hog and other livestock industry issues, it is also about our nation's founding ideals about fairness and about equal opportunity…our conversation is about much more than simply last year's trends or this year's challenges," he added. "It's about your livelihoods. It is about your families. It is about this region's economy, and our centuries-old American way of life.
"America's farmers put food on the table for all of us, and there's something wrong in the system when the farmers can't make a living – when they cannot pass that farm down to their children," emphasized Asst. Attorney General Varney. "We all need to approach this with an open mind. We all have a part in the solution. And, we don't have an agenda. I don't have an outcome. I don't know what the answer is. But I sure know there's a problem, and I'm here to try to understand what it is we can do…to help fix the problem, to keep American agriculture as vibrant as it's been for the last two centuries."
"R-CALF USA members are fortunate to finally have the opportunity to make our voices heard in an effort to make sure we preserve a competitive market capable of generating a fair, competitive profit from our efforts," said R-CALF USA Region VI Director/President Max Thornsberry, DVM. "This is a once-in-a-lifetime opportunity, and we must seize it to correct these producer issues now. If we don't, there likely won't be a U.S. cattle industry comprised of independent cattle producers in another decade or so. Our members look forward to working with USDA and the Justice Department in the coming months, and again, we thank Agriculture Secretary Vilsack, U.S. Attorney General Eric Holder, and Assistant Attorney General for Antitrust Christine Varney for recognizing that Rural America is in crisis and we appreciate their desire to take action to reverse that trend."