Source: SDSU Extension News
Change and volatility are commonplace in today's agricultural markets. South Dakota Agricultural Experiment Station economist Scott Fausti has had a front row seat to monitor much of that change. He has been analyzing trends in cattle marketing for nearly 20 years.
Through his research, Fausti gives producers insight on marketing trends, investigates public access to reliable statistics, and tracks changes that affect small producers in an industry dominated by large operations.
Fausti has watched the industry evolve to value-based grid marketing, as well as the increasing use of marketing agreements, or contracts, between feedlots and packers.
Fausti explains that large feedlots have accepted this change because it reduces their financial risk and will guarantee a relationship where they know they will be able to sell their animals. However, this move has also caused concern over market transparency and price discovery.
Fausti's previous research documented how the 1999 Mandatory Livestock Pricing Reporting Act improved the reliability of USDA data.
His current research is focused on analyzing differences in marketing strategies and feeder cattle procurement strategies between large feedlots and small ones - those with less than 1,000 head of cattle.
Packers prefer to contract with feedlots that can provide 20,000 head rather than 500 head, Fausti explains. However, nearly 95 percent of South Dakota's 3,176 feedlots marketed less than 1,000 head of cattle, while accounting for 38 percent of fed cattle sales in 2007 - the last year these statistics were made publically available.
"Small feedlots are extremely important to the South Dakota industry," Fausti says. Nationwide, the vast majority of feedlots have less than 1,000 head capacity, according to USDA's Economic Research Service. But, USDA no longer releases statistics on feedlots with fewer than 1,000 cattle as part of the public reporting process.
This makes the watchdog role of economists like Fausti even more important to South Dakota producers.
"I hope to find out what current market factors influence how animals are sold - cash or contract market," he says. "Identifying seasonal patterns may help smaller feedlot producers design more efficient, profitable marketing strategies."
This information was originally published in the SDSU Agricultural Experiment Station 2013 Annual Report.