In efforts to provide more transparency and boost price discovery in cash markets, the U.S. Department of Agriculture (USDA) announced they will require meat packers to report cattle purchases made through the Fed Cattle Exchange, an online auction platform.
Meat packers such as Cargill Inc. and Tyson Foods Inc. use the USDA report to determine how much they should pay farmers for an increasing percentage of animals sold, according to Reuters.
“Price discovery is important to both the packing and feeding sectors, and we believe this move will improve it,” Tyson spokeswoman Caroline Ahn told Reuters.
Cattle sold online weekly through Superior’s Fed Cattle Exchange will be added to the USDA’s weekly price report. This will boost the volume of negotiated purchases as much as 2 percent, according to the agency.
The USDA’s Agricultural Marketing Service said participation in the cash slaughter market has declined significantly since 2010, and prices became more difficult to determine as the industry uses more forward contracts to sell cattle.
“In recent years, participation in the cash slaughter cattle market has declined significantly from 37 percent nationally in 2010 to 25 percent today,” the USDA said. “This occurred as the supply chain moved to using more formulas and forward contracts to market cattle more efficiently,” and that “reduced opportunities for price discovery in the negotiated market,” the agency said.
The cattle industry developed a new method for marketing slaughter cattle to help stop this decline, the USDA said.
“The Fed Cattle Exchange provides a web-based interface where feedlots can offer pens of market-ready cattle for sale, and packers can bid on those offerings in a timed format, similar to an online auction.”
The livestock industry requested that these transactions be included in the USDA’s reports as negotiated purchases.
Cattle purchased through the Fed Cattle Exchange will be included in the National and Regional direct negotiated slaughter cattle reports beginning Oct. 5.