Volatile cattle markets have impacted the industry over the past year. To help the situation, industry leaders have tried to shorten the trading hours and address high frequency trading. A group of cattle operators are doing business a different way in an open cash market with an online live auction.
The days of record high cattle prices seen from 2013 to 2015 are now more like memories to producers but the impacts of the volatility still sting.
“I think people are a little more optimistic but I think we’re also cautious because we got burnt so bad with the price drop,” said Mike Martz, a producer from Maple Park, Ill.
During that time, a group of producers, with the help of Superior Livestock Auction, decided to take charge by establishing a realistic base price for the market. That idea is now the Fed Cattle Exchange.
“With additional negotiated trade on a transparent platform like the Fed Cattle Exchange, we can help eliminate some of the volatility we’re seeing in our market, both on the cash side and futures side, to allow us to be more effective producers and more effective risk managers,” said Jordan Levi, developer of Fed Cattle Exchange.
The Exchange is an online auction, similar to an E-Bay for cattle. For $1 per head, producers can set a floor price and are not forced to sell if the price is not met. Bids come from packers in 25-cent increments.
“The neat thing about the platform is that you can do it online or from your mobile device,” said Levi. “If the feed yard manager is there, he can take three pictures, fill in the relevant information as it relates to the livestock. [Then you can] post it on the website before noon on Monday for a sale that will commence Wednesday at 10 a.m. CT.”
The transactions take place on a computer screen in real time, something that wasn’t possible a few years ago.
“It’s about knowing where the cash market is at all times and that you can help you make a lot of decisions on your own, no matter what part of the industry you’re in,” said Sam Hughes, manager of the Fed Cattle Exchange.
The Fed Cattle Exchange took off when USDA included sale results in the Livestock Mandatory Reporting Program in October. Now, the average sale volume is roughly 6,500 to 7,000 head each auction.
Producers, major packers and regional packers are using the site. Packers can visit the cattle before the sale since producers may post pictures online several days ahead of the auction.
“The smaller producers benefit as well,” said Hughes. “There are producers in the north, such as South Dakota, who are farmer-feeders. They have really good cattle—a lot can be home-raised. [This includes] cattle that are high quality as any others in the country. These guys benefit from the buyer exposure they wouldn’t usually get.”
“[The Fed Cattle Exchange is] trying to define the value for different classes of cattle in different regions during different marketing fundamentals,” said Levi.
Even though the Fed Cattle Exchange is only a fraction of the U.S. herd, both Levi and Hughes believe it’s created a more level playing field.
“It’s made a tremendous impact on the amount of volatility in the markets as far as creating more data points for the industry to trade their cattle,” said Hughes.
“As far as the market transparency goes, this is a phenomenal step in the right direction,” said Craig VanDyke, risk manager with Top Third Ag Marketing. “If we can continue to move it forward, we will have a lot of potential there for both the market and producer guys.”
VanDyke watches the online auction from his office in Chicago and believes it’s a good start to improve the cattle market.
“If you pull up the auction, pull up the futures at the same time; there’s no doubt in my mind it’s watching,” said VanDyke. “You can see the futures reaction as price changes.”
Producers hope for more of that transparency to erase the wild swings in the cattle trade.
“Before it was almost a phone call or word of mouth asking what you received in cattle,” said Martz. “Now it’s out there and everyone can see it.”
Levi proposed the idea of an online auction at a committee meeting back in 2015. The idea grabbed the attention at the National Cattlemen’s Beef Association (NCBA)’s annual meeting in 2016, which is when Superior Livestock decided to participate and create a platform. The auction is held Wednesday mornings.
Oklahoma State University contributed to this report.