Price discovery is an on-going concern to many in the livestock industry. Similarly, price discovery has been a topic of research and extension education at Oklahoma State University for more than two decades.
Price discovery is frequently confused with price determination.
These are two related but different concepts that need to be understood.
Price discovery involves the process of buyers and sellers arriving at a transaction
price for a given quality and quantity of a product at a given time and place.
It involves several interrelated concepts, among them market structure (number, size,
location, and competitiveness of buyers and sellers); market behavior (buyer procurement and pricing methods); market information and price reporting (amount, timeliness, and reliability of information); and futures markets and risk management alternatives.
Low (and high) livestock prices are related to price determination factors,
not price discovery factors. Low (and high) prices result from supplies that
are large (small) relative to current demand conditions. Variation in week-to-week
or daily prices across sale lots of livestock, both above and below the market
price level, result from many factors directly affecting price discovery, and which
include pre-committed supplies, market information, and buyer concentration.
Livestock firms can do little about the broad forces that affect price level
(price determination), but they can take steps that affect prices paid for individual
sale lots (price discovery).
Dr. Clem Ward has spent much of his career
studying distinguishing features of price determination and price discovery.
Publications and presentations listed in these pages include information related
to understanding the mechanics of how meatpacking firms price livestock and meat.
Much of the most recent work has focused on grid pricing.