UPDATE 1-Pricing worries prompt reviews of U.S. cattle markets
(Adds details on futures markets and comments from auction organizer and CME executive chairman)
By Tom Polansek
SAN DIEGO Jan 29 (Reuters) - 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. Continuación...