In recent months, there have been many conversations about how cattle are and should be marketed in the U.S. Some discussion has focused on the optimal level of cattle transactions through certain marketing channels in order to facilitate greater price discovery. In order to more fully understand these conversations and their implications, it is helpful to take a step back and look at how cattle are currently marketed in this country as well as the implications of mandating how private companies make business decisions.
There are a variety of market transactions through which cattle are marketed in the U.S. Thankfully, due to Livestock Mandatory Reporting, we have the data to be able to understand how these animals change hands and how these methods have evolved over time. There are four primary transaction types reported by USDA through LMR.
Negotiated purchases, often referred to as the “spot” or “cash” market, are where the price is determined through buyer and seller interaction on the day of sale. Forward contract purchases are an agreement for the purchase of cattle executed in advance of slaughter, where the base price is established. Negotiated grid is where the base price is negotiated between buyer and seller and is known at the time the agreement is made. The final net price is determined by applying