Given the unique circumstances facing agricultural markets because of COVID-19, Commodity Futures Trading Commission (CFTC) chairman Heath Tarbert hosted an agricultural advisory committee on April 22 to update the industry on CFTC’s priorities and actions moving forward.
In recent weeks, Tarbert noted that CFTC has established a livestock market task force that is monitoring in real time contracts such as live cattle, feeder cattle and lean hogs.
“Our market analysts are watching for any indication that prices are moving in an un-economic manner relative to the underlying commodity’s cash prices,” Tarbert said. “Specifically, we are monitoring to see if, for example, traders are attempting to manipulate futures prices through disruptions caused by supply and demand shocks.”
Dave Amato, who will head up CFTC’s livestock task force, said he believes the livestock markets are reacting as what would be expected considering the unprecedented times and how other markets have tracked. Amato said 8% of the meat packing capacity is off line, and most plants are operating at 50-75% of production. “A lot of that is due to employee absenteeism,” he explained. “Given those estimates, the total meat packing industry is operating at 60% of normal capacity.”
He added that about 8% of milk is being dumped, poultry producers are getting letters telling them to kill their chickens and hog slaughter numbers for the week are off by about 400,000 from normal kill levels.
“These are just definitely very, very strange times,” Amato stated. He added that it’s similar to what happened in the market after an August 2019 fire at Tyson Foods' beef plant in Holcomb, Kan., "except it’s at a much, much greater level. Instead of having one plant down, you have multiple plants down."
Amato noted the livestock fundamentals are changing daily, which is pointing prices in different directions. “Normally, these are caused by fear or uncertainty, and the situation we’re in right now has both,” he explained.
He said the task force did examine the June live cattle contract from March 1 to April 14. For that period, it either traded limit up or limit down on 14 days, or about 45% of the trading days over that 31-day period that the market experienced limit moves.
Amato also indicated that since January, and once the virus hit, the live cattle markets have seen a tremendous sell-off by non-commercials, and the commercial class has been buying at lower prices. “A lot of the sell-off that we’ve seen and downward pressure on prices is due to this non-commercial exit changing positions from being net long to either less long or possibly even some cases net short,” he added.
Tarbert also said CFTC will soon appoint a liaison to the U.S. Department of Agriculture for the first time in its 45 years of existence. The original Commodity Exchange Act requires that USDA to appoint a liaison officer for purposes of maintaining a connection between USDA and CFTC. “Reciprocating with our own liaison will ensure robust dialogue and continued coordination regarding matters of mutual interest,” Tarbert said.
Agriculture Secretary Sonny Perdue, who also offered comments in the meeting, said he appreciates the liaison because the responsibilities are more and more intertwined between the two agencies.
Perdue stated that he has directed the Agricultural Marketing Service to extend its investigation initiative after the Holcomb beef plant fire to include the price effects for live cattle and boxed beef during the COVID-19 emergency. “So, as part of this ongoing investigation, our Packers & Stockyards investigators will see if there’s any price restrictions, collusion or practice of unfair advantages,” Perdue said.
He added that CFTC’s livestock task force was created predominantly to evaluate some of those price swings. “We look forward to working directly with that task force as well as your liaisons,” Perdue said.
“If any of that investigation yields any evidence of the violations of the Packers & Stockyards Act, we’ll begin immediate necessary enforcement action and, where appropriate, initial referrals to the Department of Justice for further investigation,” Perdue said.