A survey of feedlots showed that the primary reasons cattle feeders enter into marketing agreements were to secure higher prices on higher-yielding, better-quality cattle, and to obtain increased access to carcass data after slaughter.

"A surprising result was the magnitude of increase expected in cattle being sold under marketing agreements in the future," said Kansas State University economist Ted Schroeder. "Also, the magnitude of polarization of cattle feeder's preferences regarding certain policy issues is striking."

The survey showed that grid pricing, where each carcass is priced individually according to its own quality merit, grew from 16 percent of marketings in 1996 to 45 percent in 2001. That number was expected to jump to 62 percent by 2006. In grid pricing, premiums are paid for high quality, high yielding cattle and discounts are applied to poorer cattle. The grid refers to the premium or discount schedule being used.

Schroeder, along with economists Clem Ward at Oklahoma State University, John Lawrence at Iowa State University, and Dillon Feuz at the University of Nebraska conducted the survey in March and April with 316 feedlot respondents. The results, drawn primarily from respondents in Texas, Iowa, Kansas and Nebraska, revealed some things cattle feeders like about marketing agreements and some they don't.

It's clear that marketing agreements are replacing cash live or dressed-weight pricing. Marketing agreements provide cattle feeders with opportunities to obtain premiums over traditional cash markets for intensively-managed cattle. They also provide cattle producers detailed carcass quality and yield data on their animals which enables them to make more informed production management and marketing decisions.

Although many cattle feeders see considerable value in marketing agreements, for those who have expertise in negotiating cash fed cattle prices, as well as those who rely on negotiated prices for formula pricing, a disappearing cash market may be disconcerting, said Schroeder, who is an agricultural marketing specialist with K-State Research and Extension.

"An important result is that the magnitude of declining cash market fed cattle trade elevates the need for an alternative to cash negotiated live or dressed weight cattle trade (including plant averages) for future base prices in grid pricing arrangements," he said. "Another implication of the survey results is that with polar sentiments on several policy issues, cattle feeders have strong motivations to convey policy preferences clearly getting the reasons for their positions articulated and represented in policy deliberations."

The survey also revealed:

• In 1996, 23 percent of survey respondents' fed cattle were sold under some type of marketing agreement. That increased to 52 percent in 2001 and was expected to rise to 65 percent by 2006.
• Cattle feeder use of cash live and carcass weight pricing is expected to decline and grid pricing increase substantially over time. Most respondents indicated they used the cash live or carcass weight market for at least some of their sales in 1996 and in 2001, and expect to in 2006. However, the percentage of cattle they market using cash markets is declining - from 82 percent in 1996 to 53 percent in 2001, to an expected 33 percent by 2006.
• Respondents felt that cash market bids are lower when packers have cattle contracted. They did not, however, generally support breaking the largest beef packers or retailers into smaller companies.
• The cattle feeders indicated a desire to have grid base prices tied to boxed beef or retail markets, rather than to packing plant averages or local cash markets which are currently in use in many cases. As cash fed cattle market volume declines, concerns about how representative plant average and local cash market prices may be are likely to increase. Respondents also indicated a slightly less strong desire to have base prices negotiated.
• Respondents generally felt that beef packers should not be allowed to own and feed cattle. That response varied geographically, however, with those in Iowa feeling strongly that packer ownership and feeding should be banned, and those located in Kansas and Texas being more neutral on average, but divided. In fact a large number of producers in Kansas and Texas were strongly opposed to banning packer ownership and feeding of cattle, Schroeder said.

• Respondents did not feel that mandatory price reporting of fed cattle and boxed beef implemented by the government last year was benefitting the industry. They indicated that it had not enhanced their ability to negotiate terms of trade with beef packers.

Interested person can access the full report at the K-State Department of Agricultural Economics Website