New Fed Cattle Exchange owners have changes on the menu
Without the smell of manure, sawdust and cigarette smoke, is it even a real cattle auction?
More and more cattle are bought and sold over the phone or internet, leaving the the industry straining to somehow bring back the days of auctioneer chants and buyers who evaluate critters and compete against one another to claim the group of animals when the crack of the gavel is heard.
The Fed Cattle Exchange is an online bidding platform that, for the last four years, has given cattle feeders the option of listing pens of cattle for a Wednesday bidding contest. The consignor submits a minimum value for the cattle and potential buyers can bid upward from that price.
Central Stockyards recently announced its purchase of the Fed Cattle Exchange. Central Stockyards is not a physical set of cattle pens but an entity comprised of financiers whose investments have thus far been mostly in farmland, said Forrest Roberts, the group’s president and CEO. The investment firm is based out of Omaha but Roberts and the other staff member, Surcy Peoples, both work out of Texas.
Roberts, a former CEO of the National Cattlemen’s Beef Association, said Central Stockyards wants to give cattle feeders more selling options, to help improve value discovery for fed cattle.
“We think it will be a huge win for our industry long term, if we can provide a robust form of price discovery. We have to start somewhere,” Roberts said.
“There are a lot of people frustrated beyond what I’ve seen in my entire life,” he said regarding the lack of cattle pricing information.
Troy Stowater, Diamond 6 feeders of West Point, Neb., said the Fed Cattle Exchange is a tool he has used to list cattle, partly in an effort to achieve more transparent value discovery.
“There are a lot of us who have worked on trying to get robust price discovery. This is one of the tools being used to try and achieve that,” he said. Three of the approximately 10 pens of fats offered for sale last week on the Exchange belonged to Diamond 6.
Stowater said he sells around 350-400 head per week, and lists a percent of them on the Fed Cattle Exchange. Most of the rest of his cattle are sold on the cash market via phone conversations with packer buyers.
While the fed cattle industry, nationwide, is known to have moved significantly more in the direction of formula agreements for fed cattle marketing, Nebraska and Iowa feeders sell a higher percentage of cattle in cash agreement deals than feeders in the other big feeding states — Colorado, Kansas, Oklahoma and Texas. In formula agreements, the cattle are sold ahead of time, often with the price being dependent upon the “market” at the time the cattle are delivered. With only about 20 percent of fed cattle nationwide being sold in cash deals, cattle feeders are saying they don’t know what the “market” is at any given time. Even out of the approximately 20 percent sold on the cash market, many of those sales are not reportable because of confidentiality rules that protect the buyer.
Roberts said Central Stockyards has some changes in mind for Fed Cattle Exchnage, which has continued to operate since they bought it about a month ago.
About 100,000 head of cattle were offered for sale in calendar year 2020, which is a sliver of the approximately 500,000 head of cattle slaughtered on a weekly basis (pre-COVID).
Soon the Fed Cattle Exchange will offer more options than just the current “bid and buy” option, with a few small photos of the pens of cattle on the website.
Central Stockyards is nearly ready to roll out a negotiated grid or “bid to grid” option for sellers and buyers.
The grid will be loosely based off of 2021 Chicago Merchantile Exchange specifications.
Under the grid option, cattle will still be sold in a bid-and-buy scenario, but premiums and discounts will apply when the packer returns carcass data to both parties.
“Once the cattle are harvested, that performance will be applied to the grid and discounts or premiums will go back to the seller,” he said.
Roberts said in their grid concept, Certified Angus Beef premiums will be supported, which is a “huge deal.” Also, he said dressing percentages will not be compared to the industry average, but will be compared to plant averages, which can vary significantly.
Stowater said some plants tend to have lower dressing percentages, and others tend to report higher dressing percentages, so it will be more fair to compare pens of cattle to each particular plants’ dressing percentages.
Roberts said soon sellers will also be able to provide more information about their cattle, including videos, testimonials from the cow-calf producer, feed details and more. While Central Stockyards is committed to remaining neutral on cattle policy issues, Roberts did say that the birthplace of each pen of cattle will not be kept a secret.
“If there is a set of Mexican origin cattle, we will notate that. There will be absolute integrity. We will make sure it is known so the buyer has full transparency,” he said.
“Every listing will have the country of origin of the cattle that are being marketed,” he said. And the feeding location of the cattle will be “obvious,” he said, explaining that an online map will display a “pinpoint” to show the exact location of the feedyard, which will help not only buyers but truckers locate the cattle.
Roberts reported that eventually the Fed Cattle Exchange may provide selling options for feeder cattle and bred cattle as well.
Stowater said he expects to list more cattle with the Exchange when the grid option becomes available.
“The incentive right now to list cattle is to get robust price discovery,” he said.
While northeastern Nebraska is a region known for significant cash sales of fed cattle, often there are only one or two packers participating in the purchasing, which precludes those sales from being made public, he said. Under the USDA’s 30-70-20 rule, three packers have to be involved in the bidding, in order for the sale information to be publicly available.
“We are trying to make sure everyone wants to participate,” Stowater said.
“I’m on the working group for NCBA. A lot of us have been very committed to getting robust price discovery,” he said. “Hopefully this one of the tools to help us get there. If we don’t get there voluntarily, we’ll have to look for regulations or legislation to help us get there.” ❖
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