“If you want to learn about this, it’s going to get more confusing before it’s going to get simpler, and do not hold yourself back from the potential which you could understand the marketplace because you’re fearful of looking silly. That doesn’t do anybody justice.” -ShayLe Stewart

Cattle market talk might seem like a foreign language when you don’t understand how it all works. The intimidation factor is very real, and there are barriers to understanding certain terms, ideas, and trends if you’re just starting out; Google isn’t exactly a friend when it comes to searching your most important questions. It’s not only understandable, but completely acceptable to have questions about how the market functions, especially in a pandemic when there is a lot of uncertainty effecting the industry.

Price discovery, cash markets, formula pricing, forward contracts…these are all important aspects of cattle markets, but as you start out in the beef and cattle industry, you may not have a clue as to what any of this actually means. Becoming familiar with the jargon, and the trends, can have a positive impact on your operation.

If you haven’t already heard of ShayLe Stewart, allow me to introduce you to a woman who knows what she’s talking about when it comes to the cattle market. As the Livestock Market Analyst For DTN/The Progressive Farmer, the host of Cattle Market News, and a cattle rancher herself, she has a lot of knowledge of how markets in the cattle and beef industry.

Common Industry Terms

Stewart and I discussed some of the most common terms you might here, or read, regarding the cattle market. Terms such as “price discovery, formula price, forward contract, and fat versus grid cattle are a few you might run into in normal conversation, or while reading the latest market updates.

According to Stewart, price discovery is like the entrepreneur of the market. “It’s nothing that you can physically hold or touch, but it’s the momentum of cattle being bought and sold that either pushes the market higher or pulls it lower.”

If you take your cattle to the sale, price discovery could be the absolute high of the market, or it could be the absolute low, but it’s visible and people are active in it. The reason why price discovery is so important is because it’s what moves the market. However, this isn’t something that is always available to sellers.

Other terms that you might see a lot of, and that tie into price discovery are:

• Open Market- this refers to something that everyone can see, everyone can buy in, everyone can sell in, and everyone can see what prices cattle are going for.

• Formula cattle- bought and sold cattle between a producer/feeder and packer, that are later paid for based upon how they yield and dress (essentially their performance once they are cut up). With formula cattle, it’s a closed-door sale, and producers aren’t necessarily aware of what the prices some cattle are going for. 

• Cash cattle- fat cattle that have gone to the feedlot and are ready to be slaughtered that sell in an open market. They are not grid, or formula, cattle. A cash cattle market means a packer can come to me and offer me a price for my animal, but I can negotiate and get a higher price.

• Formula(grid)cattle- are first killed and then they are paid on a percentage with discounts and premiums added based upon how they yield. This is a private agreement between the buyer and the seller.

• Feeder cattle- 6-8 weight cattle, meaning they are 600-800 pounds, that are ready to enter the feedlot. They can be considered cash cattle if they are sold on open market, where anyone can see what the prices are. 

• Grid cattle are fat cattle that are sold on the grid. They are paid upon their performance on which they kill.

• Forward contracts- regarding feeder cattle means that a country buyer, someone that feeds for feedlots or is a feedlot himself and offers a price for a future sale.

• Formula Price- Their base price is based off cash cattle but are given premiums and discounts based on how the cattle kill.

• Bearish and bullish- bulls go up and bears go down- discusses how the market is acting.

• Boxed beef- when you sell a steer, it is cut up into individual cuts of meat, and it is graded based upon its quality. This is a way for packers to individualize the different cuts of an animal and sell them accordingly.

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There are plenty of terms not covered here but educating yourself about the market is a process you should take step-by- step. As Stewart explained at the beginning, it gets harder before it gets easier.

“If you threw yourself into the market for 30 days, I promise you, you’d have more questions at the end of the 30 days than you did when you started because each and every day you’re going to hear different terms. But the only way to get through that confusion is to submerge yourself in the conversation.”

“The more conversations you have, the more you read, and the more you piece it together yourself,” Stewart explains, “the more you’ll understand.”

Resources to build upon

If you’re feeling overwhelmed with the information, know that you have plenty of resources that will help give more insight into the markets. Stewart offers some excellent beef market experts, including herself, that will help you in your journey to understanding the beef industry. These include:

• Thebeef.com by Cassie Fish. Every day at 12pm mountain time, she releases a blog. Although technically complex, she is objective and doesn’t have an agenda. She is a great place to start piecing together how the market functions.

• Cattle Market News- Stewart began these market updates to bridge the gap between producers and market analysts and gives transparency in the marketplace. These videos, recap what’s happening and highlight and will help people understand the basics. You can find these on the Cattle Market News Facebook page, as well as the DTN/The Progressive Farmer Facebook Page

“There are cattle producers that don’t understand the market that they are a part of. There’s this brick wall for people and they needed somewhere to go where they can quickly and easily get market information and have someone break it down. I saw a need for people to understand the complexities of the market.”

• Feeder Flash- Corbitt Wall brings in years of experience and breaks down day-to-day basics in his market videos found on nationalbeefwire.com

• Beefbasis.com- Run by Brett Crosby, this website has a lot of tools, like price forecasting, and will be offering educational opportunities in the future!

• USDA reports- anyone can become an analyst if they can learn how to read these reports, Stewart states.

Drovers Magazine- this publication can also provide a look into markets, and will send emails with the most recent market updates.

Know your commodity, know your market.

Markets vary, because there are different seasons and trends for different areas. So, prices are different depending upon the area of the country you’re raising cattle. As Stewart explains, “There is not sweet tea in the north because they don’t drink sweet tea, there is sweet tea in the south because people drink sweet tea.”

Similarly with cattle, there is a demand for high-quality, commercial, seedstock raised cattle in the north, whereas the south prefers eared, heat-tolerant cattle and because they get hot and don’t feed as great in the south, you might find there are more feeder or stocker cattle in the South.

2020 Cattle Market

While 2020 has been a rough year for the market, it’s important to know that we came into this year with a much brighter outlook than what was actualized after coronavirus hit. While slaughter facilities have been backlogged, producers were seeing lower prices for their animals, and customers are saw higher prices at the meat counter, it’s not a true reflection of a normal market year, and things are starting to go back to normal.

Even if this year is an anomaly, it’s important to understand how the market works, in general, in order to prepare for the next inevitable crisis, and be business savvy. Understanding the market isn’t required to start a cattle operation, but it could be the make or break factor that determines the success of your operation. Be sure to utilize your resources, and don’t be afraid to ask questions when you have them, becoming an expert in the marketplace means you must begin somewhere, why not right here, right now?