Livestock set to turn costly on high feed prices

Livestock is an often forgotten area of the commodities market. It refers to domesticated animals raised in an agricultural setting to produce commodities for food (milk), fiber (wool) and labor (plough).

Livestock market is very old in India. Livestock fairs of Sonepur (Bihar), Pushkar, Nagaur(Rajasthan ), Dadri, Bateshwar (UP), Vautha (Gujarat)  have taken legendary positions.  Largest cattle fair of the world at Sonepur and Pushkar starts on the day of Karthik Purnima in November, followed by other fairs.

Three of the most common units of pricing in these fairs are per unit, per pair and per group. As different classes of animals are assembled and sold in the livestock fairs, the commonly accepted unit of sale is per head. The per pair unit are practiced for bullocks, as identical bullocks are preferred for engaging them on plough and cart. The per group unit are used for sheep, goats and cattle meant for slaughter. The popular method of transaction for settling price is by direct negotiation but hatha system (i.e. negotiation under cover) also exists in some livestock fairs.

This year may see a very high price for most of the livestock in all the markets. The relationship of the cost of feed, expressed as a ratio to the sale price of animals is an important benchmark for rearers. This serves as an indicator of the profit margin or lack of profit in feeding animals to market price. Due to year on year rise in the price of  feed (maize, soybean etc), we can expect to see a high livestock prices in these fairs.

The livestock sector, traditionally based on local production and consumption, supports the livelihoods of an estimated 600 million rural poor all over the world. Population growth and rising incomes have both contributed to rising demand.

As high as 70% of livestock in India is owned by 67% of small, marginal and land less. 60% of livestock farming labor is provided by women and more than 90% of work related to care of animals is rendered by womenfolk of the family. India has 53% of world Buffalo population and 15% of world Cattle population.

While the country has futures market in feed, the livestock market does not have any futures market in India nor is it under the notified list of commodities.

However, there are mainly two types of cattles traded at the CME- Live cattle and feeder cattle (besides the lean hogs and frozen pork bellies). Even, the current US Secretary of State, Hillary Clinton had dabbled in Livestock futures thru her broker at Refco. She was allowed to order 10 cattle futures contracts, which at that time required a $12,000 margin. In her first commodity trade, she had only $1,000 in her account….much lower than the required margin. In commodities futures trading, whenever an account falls below the “maintenance margin”, it typically triggers a "margin call," where the trader must put up sufficient cash to cover the contracts. Although Hillary Clinton's account was under-margined for nearly all of 1979, no margin call was made, no additional cash was put up and she eventually reaped a $60,000 profit. There never was any official governmental investigation into it….even when she became the first lady of US.  Some things shall always remain non transparent like “Hatha system” of our livestock fairs …even if it is a financial futures market.

Published in The Economic Times