Volume VII Number 2 March/April 1999

Research





Cattle feeders and packers want to better identify quality, more accurately set prices and improve market information, according to a survey by Kansas State University and Oklahoma State University researchers.

The Survey included five of the largest packers and eight of the 25 largest feedyards. Most of the yards were in Kansas, Oklahoma, Colorado, Nebraska and Texas.

"We spent any where from three hours to a full day with many of these folks," said Dr. Ted C. Schroeder of KSU.

It was a fairly intensive interchange of issues and ideas, he says. The survey was not about something they could quantify in numbers. It was gathering the essence of issues and ideas.

We wanted a little geographic dispersion of folks, but we probably spent a little more time on size dispersion," he said.

While the results varied, six price discovery issues tended to surface more frequently, according to Schroeder.

  1. The need for more accurate, less subjective measurements of beef quality

  2. Price premiums and discounts for fed quality do not adequately reflect cattle value

  3. Inadequate market information often inhibits efficient price discovery

  4. Risk of the live cattle futures basis is excessive

  5. Formula pricing adversely affects cash fed cattle markets

  6. Group marketing of fed cattle may offer solutions to some price discovery problems

One of the overriding themes of the entire group of folks we talked to was the issue of the need to improve the price discovery process." Schroeder said.

The two primary aspects of it are general market information and movement toward a value-based pricing system, he said.

Packers and cattle feeders surveyed indicated they wanted more general market information so they would know what the supply and demand scenario is on a given day and where prices are being traded and what quantities are traded.

"They just want to be able to track some of the market dynamics on a day-to-day and week-to-week basis particularly as we have large amounts of cattle moving through non-cash means," Schroeder said.

The need to get closer to some kind of value-based pricing system where the feedlot or cattle owner is rewarded for quality or penalized for lack of quality was the second concern for the people interviewed.

What surprised Schroeder was some of the producers who are noted for being commodity driven and numbers driven with low cost. Feedlots voiced the same concerns and the need to get closer to value based pricing.

Most packers the team spoke with indicated they felt buying cattle on the averages was detrimental to the industry. The packers appeared to be willing to pay for higher quality, but they also want discounts for lower quality cattle, he added.

"Since we completed that survey, there have been, I think, pretty significant strides in further development of grid pricing systems," Schroeder said.

There has been the development of more, and an expansion of, existing alliances which are trying to target specific quality attributes.

There was some indication northern producers were more agreeable to alliances or group marketing than southern producers, but he said he would have a hard time saying it was a geographic trend.

"Certainly, some up north were exploring that more aggressively," he said. "I have a feeling it has to do with size of the yard." On average, northern yards are smaller.

"In the south, it seems like there is a little more independence because in part of size, I think," Schroeder said. "...Even in Kansas, we had some yards who were fairly aggressive or progressive about getting involved with some alliances."

In Texas Schroeder didn't see as much interest in group marketing.

"But then again the yards down there were doing some of their own value based marketing and didn't see the need, perhaps, to collaborate," Schroeder said.
 








  

   
   

   


   

   		
  
   



  

    



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