An Alternative to Cash Cattle Markets: Deriving Fed Cattle Values From Cutout

For more than a decade there has been a steady and rapid expansion in the percentage of US fed cattle selling on either a formula or negotiated grid, which has caused erosion in the share of negotiated live and dressed sales. This evolution in transaction types has caused a widening rift between producers who market their cattle differently. The growing level of frustration between producers boiled over in 2020, when the cattle industry saw its prices plummet while beef prices soared in the opposite direction in response to packing plant shutdowns and slowdowns during the spring Covid-19 outbreak.

Report summary

The purpose of this study is twofold: first, to look at all transaction types on as much of an apples-to-apples comparison as is possible in order to verify the price disparity claims; second, to provide an alternative to the existing market structure and offer an idea for a marketing alternative that provides a weekly base price that is directly tied to the combined value of the comprehensive cutout and drop credits.

While a weekly base price would be derived from cutout and drop, it would not take away or eliminate the need for buyers and sellers to negotiate. Those negotiations would include individual cattle quality, basis, yield variations by plant and by firm, as well as seasonal and regional variation in cattle supplies by region. It is important to note a transition to a cutout + drop base price system would make variations between transaction types moot.