Davis, Ernest E.

English

Texas A&amp;M Repository

L-2225Texas Agricultural Extension Service~-..........~- p~~~ H~iN# p~~~------------'Beef Cattle Marketing AlternativesErnest E. Davis*Some cattlemen tend to overlook marketing untilthe cattle or calves are ready for market and by thenit is usually too late to do anything other than acceptthe highest bid. Cattlemen have many options toenhance the returns from their cattle: price strategies(forward contracting, futures trading and optionstrading; marketing strategies (what weight to market,when to liquidate, when to increase herd size, whattime of year to market, etc.); or marketing alternatives(electronic marketing, group marketing or integra-tion).Basically, there are five marketing methods avail-able to cattlemen with some variations within each.These marketing methods include auction markets,direct sales, electronic marketing, integration andgroup marketing.Auction MarketsAuction markets became a popular marketingmethod in the 1930's and 1940's. Several things hadoccurred in U.S. history that made auction markets apractical means of selling cattle. These included avast network of railroads, highways, trucks andtrailers, and settling and fencing of much of therangeland. Cattle could no longer be driven acrossvast ranges. Who wanted the hardship of long anddangerous trail drives anyway? It was much easier totransport cattle to nearby auction markets, wherecattle were sold, assembled in larger groups andshipped out by truck or rail. It is easy to see how localauction markets became the primary means of sellingcattle, becoming even more important than the oldterminal markets by the 1950's. Today there aresome 160 auction markets serving Texas cattlemen.Advantages and disadvantages of auction marketsinclude:*Extension economist-livestock marketing, The Texas A&MUniversity System.Advantages• Convenience. Most cattlemen have an auctionmarket operating weekly within 50 miles of theiroperation.• Fast selling. Cattle are sold on the specified saleday. The seller can deliver cattle and pick up hischeck on the same day.• Ready market for any animal. No matter whatcondition the animal is in, it will be sold at someprice.• Weighing and selling. Both are done under regu-lated and uniform conditions to guarantee fairnessto both seller and buyer.• Cattlemen have complete freedom as to when,where and what to sell.Disadvantages• No seller input in pricing-other than cattle pulledout of the sale and taken back home.• Selling cost per head may be higher. Sellers mustcheck each auction market. Marketing costsusually vary.• Encourages multiple handling. Often buyers mustgo to many sales before putting together a lot orload of similar cattle. Sometimes cattle must beheld one or two weeks in the assembly processwhich may stress or disease the cattle.• Discourages market innovation on the part of theseller because he has no direct input in the pricingprocess.Direct SalesDirect selling refers to selling cattle from one ranchto another, or from ranch to feedlot, or from feedlotto packer. Direct selling from the ranch has becomeTexas Agricultural Extension Service. Zerle L. Carpenter, Director. The Texas A&M University System. College Station, Texasmore important as buyers seek fresh, healthy suppliesof cattle with known genetic background and per-formance traits.Advantages• A cattleman can merchandise his own animals.Because he is directly negotiating with buyers, heis in a better position to point out the positiveaspects of the cattle.• A cattleman can exercise his independence to thefullest. He has unlimited negotiation or at least asunlimited as a buyer will tolerate. Also, thecattleman may trade anytime he is ready and canfind buyers.• Encourages innovation in marketing. Throughthis method a cattleman can develop his repu-tation over time, can communicate with the buyerand be in a position to better serve the buyer withthe type of cattle he wants. Over the long-run, thiscan lead to price premiums because of the buyer'sconfidence.• Lower selling costs (maybe). If the cattleman isabreast of the market, he will know if the price hereceives is competitive. If the cattleman is notcurrent with the market, he may accept a lowerprice. Su'ch possibilities may raise the selling costsabove the four percent shrink the seller usuallyaccepts as his selling costs of direct sales.Disadvantages• The cattleman has more responsibilities in com-petitively pricing his cattle. He must keep abreastof the market, properly evaluate the trends of themarket and determine the value of the cattleaccording to their grade, weight, sex, age, fleshand fill condition.• More haggling. The cattleman must be acceptableor tolerable to offering and counter-offering in theprocess of ensuring a competitive price for hiscattle.• Less market news available. This is a real dis-advantage to cattlemen. Market news or priceinformation is gathered at terminal markets andlarge auction markets. Most of the cattle solddirectly are high quality cattle bought for just thatreason. The price of these high quality cattle is notusually reported.• Wide variation in selling conditions. Even if theprice of direct sold cattle is reported, it is possiblethat it is not enough information. Usually, thereare conditions on direct sales such as weighinglocation and condition, pencil shrink, assemblyconditions and delivery location. All of this makesthe net sales price difficult to determine.Electronic MarketingWith today's modern and sophisticated means ofcommunication, more unique methods exist forputting sellers, buyers and cattle together. The tele-phone has long been used in locating and tradingcattle. Already cattle have been sold via video andcomputer methods. These techniques are still in theirinfancy but will be more important marketing methodsin the future. Cattlemen should be familiar with thesetechniques and consider them when deciding whichmarketing method to utilize. Computer marketing ona commercial day-to-day basis offers many advantagesand probably will emerge as the leading method ofmarketing feeder and stocker cattle in the UnitedStates. Video marketing is popular, but is too costlyto ever oe a day-to-day marketing method. It hasalready been demonstrated by CATTLEX that cattlecan be sold efficiently sight unseen. For these reasons,most of the following advantages and disadvantagesrelate more to computer marketing.Advantages• Exposes offering to many buyers. A computercommunication network can be linked across thenation with land lines or satellite, enabling buyersfrom many states to see the listings of cattle andbid on those they wish to buy.• Provides entry to small markets. Small and remotemarkets can list cattle over such a system andoffer the cattle to buyers not normally available.• Increases marketing efficiencies. Because deliveryschedules can be coordinated over a computermarketing system, transportation can be mini-mized, lowering transportation costs and reducingstress on cattle. Marketing costs over a computersystem also can be lowered because of potentiallarge volumes of cattle that can be sold. Buyers'procurement costs can also be cut because computeraccess cost is small on a per-head basis.• Equalizes market power. Through instant andcontinuous market access via a computer market,both market information and competition areenhanced.• Improves health conditions of cattle. Fresh countrycattle can be located via the computer market,and shipped directly to the next producer, mini-mizing disease and stress.Disadvantages• Buying sight unseen requires accurate anddependable descriptions. Much of this importantconsideration was overcome with the descriptioncriteria developed in the CATTLEX system.• Listing of small lots is difficult. This is the mostdifficult disadvantage for a computer marketingsystem to overcome unless there are numeroussmall lots of similar cattle in a rather closeproximity. The advantage goes to the larger lotsat least one-quarter truckload in size.• Needs organization to coordinate and manageover a large market area.• Requires a large initial outlay of capital.• Will displace some existing marketing institutionsunless they adopt the new technology.Marketing IntegrationMarket integration is carrying a production activityinto the next activity of preparation for the marketplace. There are many possibilities of integration. Anexample of integration is cattlemen weaning calvesand carrying them over into a stocker grazing period.Another example would be creep feeding, weaning atheavier weights and having the calves customslaughtered for local market sales. Whatever thefunction, there should be some flexibility in integratedschemes and these should be dictated by current orexpected market conditions.Advantages• Eliminates some trading points which can lowerprocurement, transportation and marketing costs.• Spreads risk from one production activity toanother and from one period of time to another.• Permits, but does not guarantee, accumulation ofprofits at each point.Disadvantages• Assumes more market risks. If not properly con-tracted or misinformed about future market con-ditions, this could possibly be adding to losses.• Requires more capital because the processrequires additional production steps.• Delays income.• Requires more management and decision making.Group MarketingGroup marketing can be as simple as poolingcattle with a friend or neighbor or as complex asmarketing with a national livestock marketing cooperative.Somewhere in between have been examples ofsuccessful group marketing ventures. Currently, theTexas Agricultural Extension Service is conducting ademonstration in group marketing for feeder, stockerand replacement cattle. The demonstration is beingconducted in conjunction with the South CentralTexas Beef Herd Improvement Program. It will includeproducer education of cattle grading, feeder-stockersales, livestock directories and electronic marketing.Anyone can participate in the demonstration andevaluate various marketing alternatives firsthand.Because stocker-feeder sales will be a major part ofthis demonstration, the following are advantages anddisadvantages of such sales.Advantages• Greater trading strength accrues to cattlemenbecause they sell as-a group.• Density of buyers is usually increased becausemore buyers are attracted to large and concen-trated supplies of cattle. Also, cattlemen can pooltheir resources and better publicize the specialsale.• Greater supplies of sorted and shaped cattle areavailable to buyers.• By sorting and shaping cattle, research has shownsellers can expect $3 to $5 per hundredweightmore for their cattle.Disadvantages• Sellers lose freedom as to when, where and whatto sell.• Sales require coordination and management.• Sales require grouping of similar cattle by age,weight, sex, quality and breed.• Successful sales require continuous producercommitment.• Sales require facilities, clerical staff support andthe services of a grader.• Sales require grouping and mixing of cattle.No one marketing method can guarantee a profit.Cattlemen must know their alternatives well enoughto make a sound marketing decision, given variousmarket situations.County Extension Office~ TexasAgriculturalExtensionServiceThe Texas A&M University Systemr-r:UThe place to gowhen you needto know ...... about agriculture, home economics, 4-Hand youth or community development. Drop byor call your county Extension office. You'll findfriendly, well-trained agents ready to serve youwith up-to-date information, advice andpublications. Your county Extension office... the place to go when you need to know!TexasAgriculturalExtensionServiceEducational programs conducted by the Texas Agricultural Extension Service serve people of all ages regardless of socioeconomiclevel, race, color, sex, religion, handicap or national origin.Issued in furtherance of Cooperative Extension Work in Agriculture and Home Economics, Acts of Congress of May 8, 1914, asamended, and June 30,1914, in cooperation with the United States Department of Agriculture. Zerle L. Carpenter, Director, TexasAgricultural Extension Service, The Texas A&M University System.3.5M-9-86, New ECO 8

Beef Cattle Marketing Alternatives.

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Beef Cattle Marketing Alternatives.

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Beef Cattle Marketing Alternatives.

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