In recent years, participation in the cash slaughter cattle market has declined significantly from 37 percent nationally in 2010, to 25 percent today. This occurred as the supply chain moved to using more formulas and forward contracts to market cattle more efficiently. This has consequently reduced opportunities for price discovery in the negotiated market.
In efforts to stem this decline, the cattle industry developed a new method for marketing slaughter cattle. Early this year, an online trading platform, the Fed Cattle Exchange, was launched for trading slaughter cattle on a weekly basis, with sales scheduled for every Wednesday. 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 cattle industry requested that USDA’s Agricultural Marketing Service (AMS) consider including these transactions in our Livestock Mandatory Reporting (LMR) cattle reports as negotiated purchases. After review, it has been determined that livestock traded in this manner would meet the definition of a "negotiated purchase" as the Fed Cattle Exchange is merely a trading platform. Negotiation does occur as buyers can bid on the livestock offered and sellers can accept or refuse the final bid. In addition, delivery must be scheduled within 14 days of the sale.
Therefore, beginning on Oct. 5, 2016, LPGMN will begin including in the National and Regional direct negotiated slaughter cattle reports, cattle purchased through the Fed Cattle Exchange by packers required to report according to the LMR Act and regulation. Based on the weekly sales activity since launching in May of this year, approximately 1,800 head of cattle per week have been offered through the Exchange at price levels in line with the current weekly reported markets. LPGMN estimates the addition of these transactions in LMR will increase the reported weekly volume of negotiated purchases from 1.5 to 2 percent.
Livestock, Poultry, and Seed Program