The Role and Implications of Negotiation in Fed Cattle Transactions

Within the past three decades, a significant evolution has occurred in how fed cattle are bought and sold. Driven by changes in the quality of beef and consumer health preferences, the beef industry began to advocate for “value-based marketing,” resulting in the development of grid pricing and eventually formula transactions. Alternative marketing arrangements (AMAs) have become the predominant method used for the sale of fed cattle, ultimately resulting in fewer transactions in the negotiated cash market. Such market conditions have recently reignited concerns among industry stakeholders about potentially uncompetitive outcomes for beef producers, particularly after the occurrence of sequential Black Swan events which resulted in unprecedented price volatility. To improve market outcomes, attention has been directed toward improving market transparency and price discovery. Legislative and executive initiatives aimed towards improving market, or price, transparency have resulted in the establishment of new programs and reports. Alternatively, proposed legislative initiatives aimed at generating more robust price discovery involve the enactment of regionally mandated minimums. A critical part of negotiation is the bid-and-ask process which occurs between a feedlot operator and a meat processor representative. To improve our understanding of bidding and related price discovery mechanisms, a survey of feedlot operators, as identified through the Nebraska Department of Agriculture’s 2019-2020 Cattle Feeder’s Directory was conducted. The purpose of this survey was to identify topics that are important regarding the negotiation process to industry stakeholders and to establish a framework for these concepts to be tested in future research projects. Advisors: Brad Lubben and Elliott Dennis