Beef Buzz News
Understanding Price Discovery Is The Key To Improving It Says Texas A&M Economist David AndersonWed, 16 Sep 2020 08:22:22 CDT
There has been a lot of discussion in the cattle industry about improving price discovery, either by legislation or through the market process. Dr. David Anderson, Extension livestock market economist at Texas A & M University, believes we need to first understand what price discovery means.
Anderson was a featured speaker for the 2020 Virtual Cattle Raisers Convention underway online this week. The virtual conference replaced the Texas Southwestern Cattle Raisers Convention cancelled in March.
How does a buyer and seller agree on terms? Anderson asked.
Improving price discovery is a worthwhile goal, he said.
If we improve price discovery, we may not get a higher price if fundamentally there are a lot of supplies, Anderson said.
Discovery and determination are different things but closely related he said.
The number of actual transactions is key to determining price discovery.
The idea of how much is enough, how many cattle need to be traded to discover price, Anderson stated.
Research would suggest it may not take many transactions for a good price discovery, he said.
Particularly if the cattle being traded are relatively the same quality.
Volume is not everything, as we have seasonal and cyclical cattle supplies but the quality of cattle in a negotiated format is important too, Anderson said.
We want to be comparing apples with apples, Anderson said.
Transparency and the ability to balance the number of cattle with packer and feedlot capacity, go into the equation of an adequate price discovery.
We know we need more price discovery but how do we fix it, Anderson said.
There are various proposed legislative fixes but as an economist I tend to want to move towards a market solution, Anderson said.
Click on the LISTEN BAR below to hear more comments from Dr. David Anderson.
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