Cattle feeding and beef packing are both margin businesses.
In cattle feeding, the margin is the value the feedlot gets for the fed steer or heifer, less the feeder purchase cost and costs to feed the animal. In beef packing, the margin is the value of the beef cuts plus byproducts, less the cost of the fed animal and costs to slaughter and process it.
Price discovery for fed cattle begins with the market average price level. Beef packers buy fed cattle over a range of prices around the market average price. Packers do not determine the market average price because they don’t control…
