PRICE DISCOVERY ISSUES FOR FED CATTLE

Interviews were conducted with cattle interviews with persons associated with feeders, beef packers, and others involved in selected cattle feeding, beef packing, and the beef industry to discern their concerns related industry firms and organizations. about fed-cattle price discovery. Three issues These interviews were conducted during predominated. First was the need to better October 1996 through February 1997. They identify beef quality, ideally by objective included discussions with five of the largest means. Quality often, but not always, rebeef packing firms and eight of the 25 largest ferred to tenderness and the “eating expericattle feeding operations (located primarily in ence” of consumers. Second was the need the midwest and plains regions), as well as for greater pricing accuracy, signaling a numerous others in the industry. desire for less average pricing and more value-based pricing. The need for improved market information was the third issue identified. Many differences were identified among


Introduction
Price discovery is the process of buyers and sellers arriving at transaction prices.
(1) More accurate, less subjective mea-Several factors, including issues related to surements of beef quality are needed.Particvalue-based marketing, market information, ipants generally agreed that third party qualand pricing methods, have caused price ity grading was essential.However, larger discovery concerns for cattle producers and packers felt that they could quickly adjust to others.This research was initiated to exam-elimination of federal quality grading.There ine price discovery issues in the beef industry.
was consensus that mechanized, objective,

Experimental Procedures
Most of our information for this study came from a series of personal and telephone

Results and Discussion
packers and among feeders during our interdiscovery was not really a problem or issue.Others thought it was a major problem.Six price discovery issues surfaced frequently.quality grading would be preferable to the current, subjective, quality-grading system.
Several cattle feeders and packers indi-more prevalent than buying on grade and cated that a large market exists for lower-yield.Packers felt fewer cattle would be quality, cheaper, beef products.The issue is traded on a live basis (i.e., on averages) over that these lower quality beef products need to time, but it would be slow to happen because be accurately identified and targeted to the of some cattle feeders' resistance to change.appropriate markets.Concurrently, animals producing these lower quality cuts should (3) Inadequate market information receive lower prices.
inhibits efficient price discovery.Almost Many also voiced considerable concern beef packers, and even retailers indicated a regarding predictability of red meat yields.
need for increased and more reliable market Yields of boxed beef from the same quality information.An issue not addressed was the and yield grade of carcasses vary consider-willingness to pay for more or better informaably, and current technology does not accu-tion.Different individuals and firms stressed rately estimate that yield.Technological different needs.developments, such as video imaging, seem to hold considerable promise in this regard in Cattle feeders felt that more information the near future.Adoption of improved tech-was needed on short-run, week-to-week, nology in this area would make it possible to supply and demand conditions.In particular, reward high yielding carcasses and penalize they wanted more information regarding the low yielding carcasses.
volume of formula and contract cattle being (2) Price premiums and discounts for pants across different sectors indicated a need fed cattle do not adequately reflect cattle for better price reporting for wholesale boxed value.Cattle feeders with small operations beef products.They felt current price reports located in areas with access to high quality, did not represent boxed beef trades, primarily more uniform cattle had strong sentiments because of the low volume of trades regarding this issue.They felt that for prices reported, especially for close-trimmed prodto reflect value differences, cattle must be ucts.Recommendations included using lessmarketed on a grade and yield, dressed-than-truckload prices to increase the volume weight basis.However, large custom cattle of trade reported and greater efforts to capfeeders tend to be less concerned about ture more of the total boxed beef trade in selling cattle on averages.Large operations price reports.that feed large numbers of their own cattle varied in their opinion on this issue, depend-Inadequate retail price reporting was ing upon their management strategy.Cattle identified as a problem area by several indifeeders striving to be low-cost operators viduals.Concerns included the need for were more willing to sell cattle on averages volume-weighted retail prices to reflect actual than those attempting to target their cattle to trade rather than just published prices, and a specific markets.
desire that retail specials be better reflected in Most beef packers interviewed felt that price reports.Improved knowledge of retail buying cattle on averages was detrimental to prices would provide a better indication of the industry.All packers indicated a willing-beef demand.ness to buy cattle based on quality.Buying (4) Risks of live cattle futures basis is cattle based on dressed weight seemed to be excessive.Some cattle feeders felt that the every cattle feeder interviewed, many of the delivered to packers.Many industry partici-