The Fed Cattle Exchange is a unique experiment in price transparency. The auction has faced challenges in recent years, but is in the process of reinventing itself to continue trying to improve price discovery in the fed cattle markets.
The Exchange opened in April 2016 as a joint effort by Superior Livestock Auction and Arcadia Asset Management. The point was to create an online fed cattle auction modeled on the success of Superior’s remote feeder cattle auctions. The major goal was to help improve the industry’s price discovery system.
Auctions and direct price negotiations are considered the best means of determining value. While alive and well in the feeder cattle markets, it is limited and declining in the fed cattle market. Negotiated cash fed cattle represents about a quarter of all weekly fed cattle sales across the country. It was hoped that, by creating a fed cattle auction like successful feeder cattle auctions, the decline in direct price discovery could be slowed.
It was also hoped that the Fed Cattle Exchange’s Wednesday sales would get negotiated cash fed trade happening earlier in the week. In the years prior to the its creation, most cash fed cattle trade happening on Fridays. This often restricted price discovery and forced cattle feeders’ hands on prices.
However lofty its goals, the Fed Cattle Exchange hasn’t met expectations, struggling with low consignment volume and buyer participation. At the end of July 2019, it was sold to 5150 Productions, an affiliate of Arcadia Asset Management.
“We kind of co-founded the idea of the Fed Cattle Exchange,” Jordan Levi, president of Arcadia Asset Management and manager of 5150 Productions, explained to WLJ.
“We had a great partner in Superior. However, it wasn’t gaining the traction for Superior that it needed to support itself and they came to us and asked us if we had interest in purchasing it and taking it over. So, because we believe in the product and we believe in greater price transparency, we thought it would be good to take it on.”
Danny Jones, president of Superior Livestock Auction, commented in the official sale announcement that, “The Fed Cattle Exchange was established to bring increased price discovery and transparency to live cattle trade. Our goal for the platform is, and always has been, that it would benefit the industry. We believe that 5150 Productions is uniquely positioned to make the most of the potential of the platform, so we look forward to seeing it taken to the next level.”
What comes next?
“We are eager to launch an updated business strategy to help increase broad industry participation,” said Levi in the announcement of the Fed Cattle Exchange’s sale. In speaking with WLJ, he gave some details about what that new strategy might be.
“I think our motivation is the same with respect to the Fed Cattle Exchange. The underlying goal is the same, which is to increase that transparency. I think what will change is the way in which we market the product or try to encourage others to join the product,” he explained.
“One of the most interesting ideas we have is to take the Fed Cattle Exchange and sell it to producers.”
Levi sketched out the possibility of a multi-partner partnership where participating producers would have ownership in the Fed Cattle Exchange or the holding company that owns it. These producer-owners would then market some portion of their showlist on the Exchange.
“That’s the early thought. That is all subject to change,” he cautioned. “I think the way the Fed Cattle Exchange is today will continue to be the way it is until we gauge the interest in producers to be part of the company.”
Over the past years, the Fed Cattle Exchange has struggled to attract consistent volumes of consigned fed cattle, and often saw offered cattle go unsold. When asked about these challenges, Levi said he wasn’t sure what caused the lack of volume in the past.
“I do know that part of the business plan going forward is to let people have proverbial skin in the game by letting them have ownership in the Fed Cattle Exchange, operating on the premise that people use things that they own. We think that we can help overcome that obstacle.”
He said interested producers can contact the Fed Cattle Exchange through the site’s “Contact Us” function.
“I would emphasize that we’re committed to continued price discovery. Whether or not we get traction, we’ll continue to support this platform because we think it is for the greater good,” he said.
“That’s really its motivation. It’s not for individual profit; it’s for the betterment of the industry and we’re committed to doing that.” — Kerry Halladay, WLJ editor