Cattle Price Determination
The researchers used a combination of descriptive data summaries and statistical estimating methods to identify and describe the factors that determine procurement and pricing practices used in purchasing slaughter cattle, and sources of variation in the costs of cattle purchased.
The research found that the spot market continues to dominate transactions. Small packers rely on spot markets, while the "big three" are more likely to use the alternative procurement and pricing methods. Large feedlots are also more likely than small feedlots to use the alternative methods. Procurement and pricing method influenced cattle prices. Forward-contracted cattle received lower prices than spot market cattle, while marketing agreements brought higher prices. Cattle prices also significantly reflected quality and other lot characteristics.
The research found that large packers are the major buyers at large feedlots. Large packing plants purchased nearly half of their cattle from large feedlots. Small plants, on the other hand, purchased less than a quarter of their cattle from large feedlots. Capacity utilization of the three largest packers also exceeded smaller plants. Just as large packers dominate purchases, large feedlots dominate sales, albeit to a lesser degree. While the study identified sales by over 19,000 sellers (feedlots, farmer-feeders, auctions and dealers), the 152 largest of these (less than 1 percent of the total) each sold more than 32,000 head of cattle during the study period, and accounted for 43 percent of the cattle sold. Nearly 90 percent of the sellers, on the other hand, sold less than 1,000 head of cattle each and together accounted for 14 percent of all cattle sales.
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Section 3 appendix tables 3.1.1 to 3.1.45
Sections 6 tables; Appendices 6.1, 6.2, A, and B
Figure 4.1. Percentage of Transactions by Pricing Method Conditional