Cattle Marketing Forms Changing

Some groups point to USDA statistics about how cattle are sold to packers for slaughter and say sellers are giving the buyers too much control over weekly fed cattle prices, and that it’s hard to tell what cattle are really worth.

Others will say that enough open negotiation continues each week to make pricing determinations.

Among the four major ways slaughter-ready cattle are sold to packers, the percentage of those sold on a negotiated basis has diverged from those sold on a formula basis over the last five years.  At the same time, the percentage of fed cattle sold under a forward contract has risen in the last year.  Grid pricing is declining, and now represents less than 5% of total weekly sales to packers.

A graph of USDA data by the Livestock Marketing Information Center breaks down the percent of steers and heifers sold to packers on a weekly basis going back to 2008.  At that time, many in the industry claimed cattle producers were relinquishing too much pricing power to the buyers of their products.

The implication was that since the natural position of buyers is to purchase any product or commodity for as little as possible, that prices were being pressured by allowing buyers to purchase cattle for less than would be the case if all cattle prices were negotiated every week.




A little-used segment of the whole buying picture has become more prominent in the last year and now tends to run just below the percentage of fat cattle sold to packers in any given week.  Forward contracts, which once were barely above grid pricing in popularity, now represent nearly 20% of weekly sales to packers.

At the same time, formula pricing, in which the prices of cattle in one week are governed by the negotiated value of cattle the previous week, appear to have peaked in popularity in 2013 at just over 70%.  Since then, they have dipped to less than 50% on occasion and most recently have been near 60% of total sales.

Source say forward contracting, in which the price of a future delivery of cattle is set through negotiations, have risen in popularity as packers try to concentrate more on program cattle, those that are targeted at specific marketing programs, such as non-antibiotic or non-hormone cattle.

It’s difficult to tell whether the forward contract will become a major player in the way cattle are sold to packers since it removes the weekly give-and-take of buyers and sellers to work out a price for fed cattle, but it does involve them in some form of active negotiation.




Cash cattle markets Monday were quiet with bids of $150 per cwt on a live basis meeting asking prices of $155.  On a dressed basis, cattle were priced at around $250 with no countering bids.  Last week, cattle sold at $152 to $155 live and $242 to $244 dressed.

Boxed beef prices Tuesday were up, with the USDA listing its choice cutout at $249.47 per cwt, up $2.14, and the select cutout at $242.56, up $2.10.  Volume was light with 86 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $226.69 per cwt, up $0.83.