NCBA's Cattle Marketing Committee Chairman Explores the Importance of Price Discovery, PremiumsTue, 10 Oct 2017 15:19:54 CDT
The cattle business has changed a lot in the past few decades.
“Well, you know our whole world is evolved and we've been really focused on the consumer,” said Ed Greiman, partner in Greiman Brothers near Garner, Iowa. “We've been focused on building demand with the consumer. And the consumer asking for something and then we deliver it.
“We changed the way we feed. We changed the genetics that we're buying. Our whole processes, everything we do…”
To watch a video clip featuring Ed Greiman explain how he draws on his work as chair of the National Cattlemen’s Beef Association Cattle Marketing Committee to address the importance of price discovery, click or tap the PLAYBOX in the window below.
As a result, marketing methods have evolved, too. But the way that base price is set, hasn’t kept up.
“And with value-based marketing comes more formula cattle, more contracting. It's not a bad thing,” he said. “We're all getting paid premiums for what we do. But the real question is if we get to higher and higher percentages of those cattle and we get down to 15% of the cattle are on the cash market, what do we base the cattle off of? What's the base price for the futures market? What's the base price for our value-based markets?”
USDA established Mandatory Price Reporting to provide more market transparency, but the report often finds itself establishing the cash basis. The low volume of cash transactions can be problematic….
“So, somebody trades some cattle and they're kind of heavy, or they're dirty, or they're a bunch of heiferettes, or they trade some cattle that are really good. We don't know what that price represents because we don't know what those cattle were. We can't see them,” Greiman explained. “We weren't there when they traded them. We don't know what kind of distance they're going to be traveling. Was freight paid? Was it not paid? Things like that. And so mandatory price reporting was meant to be a little bit of an indicator of what was going on, but now we're pricing cattle off of it. And we're pricing a lot of cattle off of it. And so, we've got to start to make sure that we understand what that price means.”
The feeder says producing more commodity cattle is not the solution, and quality cattle need to be sold for premium.
Signals going from the retailer back through the chain, shows how working together improves the product.
“He's saying this is what I want. He's telling the feedlot what we want. And then the feedlot's going to then tell the cow-calf man,” he said. “The cow-calf man's going to go to the seedstock producer and we're pulling through. Well, if you're going to build a program like that it's kind of hard to put them on the open cash market.”
Grid marketing has done its job: the market rewards quality.
“There's no doubt in my mind that the reason this has worked is because the consumer has been drawn to the product,” Greiman concluded. “They've gotten really good eating experiences time and time again. So that's why it's not going to go away.”
Source - Certified Angus Beef
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