A proposal for an online auction that could shake up the U.S. pricing model for cattle made its public debut on Friday after a secret test run last week, with the support of a unit of the world's largest meatpacker.
Producers learned of the plan, backed by a feedyard owned by JBS SA, as exchange-operator CME Group Inc said it was studying steps to improve cattle futures after complaints about extreme volatility.
The cash and futures markets have come under scrutiny over pricing following a setback from record levels reached in 2014 and a years long drop-off in cash sales.
Terry Duffy, executive chairman of CME, said he was concerned about the decline in cash sales because futures contracts need a viable underlying cash market to function properly.
"The industry needs to work a little harder to figure out how they're going to get more liquid in the cash trade," Duffy told Reuters on the sidelines of a trade conference in California.
Cash sales, in which producers and meat packers negotiate for cattle a few weeks before they are killed, have declined as producers have increasingly locked in prices months in advance. Still, prices for the advance sales are usually based on average prices for cash sales, which are concentrated in certain geographic areas.
Some producers say that method undervalues cattle, and the fall in prices has refocused attention on efforts to improve the system. A change could affect what consumers pay for steaks and burgers.
Jordan Levi, managing partner for Arcadia Asset Management in Oklahoma City, told a meeting of the National Cattlemen's Beef Association that he organized a trial run of an online auction on Jan. 18 to improve price transparency.
Representatives of the four major meat packers - JBS, Cargill Inc [CARG.UL], Tyson Foods Inc and National Beef Packing Company [NBEEF.UL] - took part, he said in a presentation that followed a Reuters report on the details.
Levi aims to host a live auction within 60 days.
He organized the trial with Mike Thoren, chief executive officer of feedyard JBS Five Rivers, said Ed Greiman, chair of the cattlemen's association's marketing committee. Thoren could not be reached for comment.
In cattle futures, CME may reduce trading hours and take other steps to improve markets after producers complained about volatility.
Duffy fingered increased cattle inventories and fundamental factors for pressuring futures prices.
U.S. data on Friday showed the cattle herd was at a five-year high.