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USDA gives online U.S. cattle auction a boost

| CHICAGO, Sept 29

CHICAGO, Sept 29 Sales through an online U.S. cattle auction will begin impacting the prices that top meat packers pay for livestock next month, according to a U.S. Department of Agriculture decision issued on Thursday - a move that stoked traders' hopes for more transparent markets.

The agency said transactions at the weekly auction, called the Fed Cattle Exchange, will be included in USDA reports that companies such as Cargill Inc and Tyson Foods Inc use to determine how much they should pay farmers for an increasing percentage of animals sold.

It is the latest effort by government and industry officials aimed at improving transparency in the cash and futures markets for cattle, which have come under heightened scrutiny following a sharp setback in prices in the second half of last year from record levels in 2014.

The exchange launched in May and held several sessions before halting activity in June. It resumed on Sept. 14.

"Any further transparency of cattle prices is a good thing and for that reason I welcome it," Joe Ocrant, president of Chicago-based Oak Investment Group and a cattle futures trader for more than 40 years, said about the USDA's decision.

Cargill said it too supported the move, without providing details. Tyson did not immediately respond to a request for comment.

Transparency in livestock pricing has been a concern of producers and traders for years.

In the past decade, farmers in the cash market have increasingly signed deals months in advance to sell their animals to meat packers, rather than negotiating a price for the animals shortly before sending them to slaughter.

That has created a questionable system for pricing, some farmers and traders have said, because packers often base prices for the longer-term contracts partly on what the USDA reports was paid in dwindling near-term negotiated deals.

Advance sales, struck under so-called formula contracts, accounted for about 57 percent of sales last year, up from 33 percent a decade earlier, according to USDA data.

Cash sales negotiated closer to slaughter accounted for about 21 percent in 2015, down from 52 percent in 2005, data show.

Including transactions from the online auction in the USDA reports on near-term negotiated sales could help "legitimize" the average price reported by the agency by increasing the number of deals on which it is based, said Danny Jones, president of Superior Livestock Auction, which owns the Fed Cattle Exchange.

The exchange had sought to include its sales in the USDA report. (Additional reporting by Theopolis Waters; Editing by Bill Trott)

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