Oklahoma Farm Report - New Research Explores the Pros and Cons of Cash Cattle Markets in the U.S.

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New Research Explores the Pros and Cons of Cash Cattle Markets in the U.S.

Fri, 24 Sep 2021 10:16:16 CDT

New Research Explores the Pros and Cons of Cash Cattle Markets in the U.S. In the early 2000s half of the feedlot cattle sold in the U.S. were sold in a cash market. Today, little more than 20% of the cattle sold in the U.S. are sold that way. New research out of Kansas State University, studied the evolution of the market, especially the rise of grid-pricing of cattle. For the second day, Radio Oklahoma's own Ron Hays features comments from Dr. Ted Schroeder, one of three K-State Researchers who produced the report for the Chief Economist of the USDA. Today, we dive into the pros and cons of cash market negotiations.

"Nebraska, Iowa and to some extent, Kansas are probably the leaders in still operating in cash negotiated trade," Dr. Ted Schroeder, a researcher for the project and director of the Center for Risk Management, Education and Research at KSU, said. "Places like Texas and Colorado - really not participating much in negotiated trade and relying a lot more on formula."

Some cattle producers and lawmakers want to mandate a certain level of cash cattle trade, which will come at a cost.

"There is a trade-off," Schroeder said. "The tradeoff is if you believe that the value propositions are important for the industry going forward - and they certainly have been important drivers of prosperity in the industry over the last 15 years - (for) striving to meet longer-range supply chain value propositions, the cash-negotiated trade market is not well-suited for that."

He said years of utilization of grid-pricing systems have proved that humans do a poor job of evaluating quality in live, fed cattle and also do not reward quality well on a cash-negotiated trade basis. Additionally, cash markets do not promote market competition the way grid-market systems do, he added.

The popularity of grid markets is natural and makes sense, Schroeder said.

"The trade-off of a negotiated, transparent cash price to provide information to the industry on day-to-day price levels is that you do not have the quality signals there," Schroeder said. "The real challenge we see is how do you have both."

At this point, the research focused on identifying differences in cash markets vs. grid markets. The solution to the overall question, "how do you get both," remains unanswered, according to Schroeder. According to his research, he thinks any artificial limitations on value-based marketing agreements could be immensely costly to the industry.

If you missed yesterday's episode of Beef Buzz, where Ron introduced these findings, check it out here.

Click on the LISTEN BAR below to hear more from Ron Hays and Dr. Schroeder as they talk about the pros and cons of cash market trading of feedlot cattle.

The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR below for today's show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.