Value-added strategies for marketing cull cows

Cattle eat from a feed bunk in Iowa. Value can be added to cull cows with added weight, but the real advantage and profit margin is the improved quality grade of the non-fed beef from converting yellow fat to white fat.

A few weeks have passed with the newest direct fed cattle reports from USDA’s Agricultural Marketing Service. The reports cover base prices used in formula-priced transactions and the final net prices received across purchase types. The base prices show up thrice daily: in morning, afternoon and summary reports. Those prices are then aggregated into a weekly report. Here are some observations on the weekly reports available so far.

USDA’s Agricultural Marketing Service (AMS) announced it would issue two new USDA Market News reports based on Livestock Mandatory Reporting data, providing additional insight into formula cattle trades and to help promote fair and competitive markets. 

In looking at the new reports, I was reminded of several conversations held years ago with a local cattle feeder. He was not a fan of formula pricing. He sought premiums for the cattle he was finishing that he thought deserved a premium price, either for the way he finished them or for their inherent or underlying quality when placed. 

He thought selling above-average cattle using formulas (or price adjustments of any kind) with an unknown base price or with a base price tied to a plant or regional average price meant that he would be giving away much of the premium he sought. 

Seeing net prices, say for formula cattle, still only told part of the story. The more transparent base prices and more complete net prices seem to fill in more of the gap between the average value of average quality cattle and fair values for higher quality cattle being traded today.

The weekly formulated base, called LM_CT251 and numbered 3502, shows the formula base price across gender, general quality level and delivery type. For example, there is now a head count and price range for the base price for formula-priced steers, delivered dressed and grading 65-80 percent Choice. 

The average net price is there too; thus any major skew in the data would be easier to infer than in the past. The main averages are also broken out by state or region. It is all informative and overwhelming. However, knowing the base you are dealing with as a buyer and as a seller should mean better signals about the value of quality. 

The weekly price distribution, numbered 3492, shows the volume of head across delivery types and purchase arrangements. The average net prices have been available previously. That series was mostly useful to monitor forward net prices over time to the negotiated and formula prices. If many cattle were forward contracted during a period of higher expected prices, and prices subsequently fell, then the forward net would be much higher than the negotiated. The opposite could also happen. 

Now the volumes are available in $2 increments from the average levels. The report displays histograms of volume of cattle by live and dressed bases. Many cattle in recent weeks have traded in a narrow range of live prices and a wider range of dressed prices. 

In general, the formula prices span a wider range than the negotiated prices. Over time, one would expect the forward prices may reflect the timing of the contracting, and following a large move may also be reflected in the final distributions. — Matthew Diersen, risk and business management specialist

What do you think?

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