The vast majority of cow-calf producers normally sell their annual calf crop in the cash market. It has been estimated that a  high percentage of the calves sold are through local cash markets. However, cow-calf producers can and do make use of the futures market as an information tool in making marketing decisions without formally entering into a futures contract.  The  futures market does provide information to the producer about expected market prices and price trends.

     Slaughter cow sales volume is greatest during the fall and winter of any year. After calves are weaned cow productivity is  generally evaluated. Poor performers are generally culled from the herd to avoid the costs of carrying an open cow through  the winter. The availability of pasture and feed sources may create a plus or minus level of activity for this category of cattle.

Stocker Producers
     Stocker cattle can be defined as weaned calves that are placed on small grain pastures or placed in feedyards and  backgrounded. Beginning stocker cattle weights are normally between 350 and 500 pounds. Finished stocker cattle normally will weigh between 600 and 800 pounds.  Stocker operators provide an interim step in the production process--taking these  lightweight calves, growing them on cheap feed correcting for any problems that happen at or before weaning.

     The stockering phase is not a large part of the cattle industry in many parts of the country. Inexpensive forages, made  available because of rotation requirements with other agronomic crops and by- products from other livestock enterprises,  makes stockering attractive when readily available to beef producers. Marketing opportunities available to stocker  operations are similar to those at the cow/calf level.

Processor-Packer
     Processor-Packers buy finished beef cattle, process them and sell the carcass or boxed beef to retailers.  This segment of the beef industry is concentrated in the Midwest among major packing companies, it is estimated that a small group of packers  process over 80 percent of the industry's finished beef.

How The Market Determines Cattle Prices
     The driving force behind this price discovery process is profit. Every stage of the production marketing channel wants to  provide the consumer with a safe, quality product that adds value to the consumer’s decision to buy beef.   Each segment of  the channel adds value to the calf produced to satisfy this consumer need, but each segment also must make a profit.

     It is this dichotomy within the industry needing to work together but also each separate segment forced to being profitable  that muddies the signals. The poultry industry solved this problem with vertical integration.

     Is the market offering a reasonable price? When should cattleman price their cattle? Knowing how prices are determined  may help producers, feeders and packers answer these questions and take advantage of the highest possible price.

     Most people get frustrated when economists say that "the forces of supply and demand" determine prices, and as you might  suspect, these economists are only partially correct. If supply and demand were known, prices would be easily determined.  The fact is that supply and demand are not known.

     In reality, expected supply and demand determines price. Economists refer to beef demand as the amount of beef that will be bought at various prices during a certain time period.  As the price of beef increases, the amount bought normally declines.  Or, as the price of beef declines, consumers are willing to buy more meat. Thus demand is made up of various components,  including quantity and time. Other factors that may affect price are consumer income levels, number of consumers in the  market, and prices of related products such as poultry and pork.

     Supply also has the two components of quantity and time. Supply is the quantity supplied at various prices during a certain  time period. As price increases, producers are willing to produce more and sell more beef. As the price declines, producers  are reluctant to sell more beef and over time, will produce less.

     So how are prices really determined? Prices are determined by negotiation. These negotiations take place simultaneously at  every level of the marketing channel.  Consumers have money to spend and they want to purchase beef.  But, consumers  only have a limited amount of money to spend and they like other goods and services as well as beef. They decide what  amount of beef they buy based upon the amount of money they have to spend, the price of beef and their desire to eat beef  compared to other food items available to them.

     The retailer at any point in time has a certain amount of meat to sell. The retailer puts a price on the meat. The higher the  price, the less meat he sells. The lower the price, the more meat he will sell. A price is basically established over time  between the consumer and retailer when the amount of meat bought equals the amount the retailer puts in the meat case.