CATTLE MARKETING

CATTLE

MARKETING

By Jason Bradley, Noble Research Institute Agricultural Economics Consultant Dan Childs, Noble Research Institute Senior Agricultural Economics Consultant

The time and effort expended in marketing a product can pay significant dividends. This is especially true for cattle producers. There are many different avenues cattle producers have to market cattle. Some avenues that require little effort may involve just selling cattle while other avenues would exemplify marketing.

An understanding of the difference between selling and marketing will be helpful. Webster defines selling as “the act, process, or act of offering goods for sale”. Webster goes on to define marketing as “an aggregate of functions involved in moving goods from producer to consumer including buying, selling, storing, transporting, standardizing, financing, risk bearing and supplying market information”.

One can quickly see from Webster’s definitions that there is considerably more involved in marketing than in selling. In fact, selling is a function of marketing. In straight talk, selling cattle is hauling them to the local auction market, dropping them off and hoping for the best. Marketing is looking at all the angles, having plans in place and understanding the reasons behind your decisions. The saying, “You get out of it what you put in” greatly pertains to cattle marketing.

These factors include:

1. Seasonality 2. Attributes 3. Venues 4. Retained ownership

Seasonality

The first item we will discuss is seasonality.

Seasonality is the cyclical nature of something that displays a pattern year after year that makes its behavior somewhat predictable. Most commodities have a seasonal price pattern, although all commodities do not sell the same way at the same time.

Often the price responds to the supply of the commodity and the demand for its use. Cattle has a seasonal price pattern. However, the seasonal price pattern is different for different classes of cattle (i.e., calves, stockers, feeders, slaughter animals and cull cows). Knowing the seasonal price pattern for the class of animals that you are planning to sell can be beneficial.

Let’s take steer calves as an example. Using data from the United States Department of Agriculture’s Agricultural Marketing Service (USDA-AMS), we will focus on the average of the last five years of reported prices for Oklahoma City 500- to 600-pound steer calves. Actual prices are not used, but each month is indexed against the annual average price. Figure 1 depicts an example of the seasonality of a 500-600 steer calf at Oklahoma City.

Before we go on, let’s make sure we understand what is meant by indexed prices. To get the index, the average monthly prices are averaged together to arrive at an annual average. The annual average is set at 100 for its index. Then, each monthly average is compared to the annual average price to determine each individual month’s relationship to the annual average. Figure 1 shows an index of 106 for February, which implies that

the price is 6 percent higher than the average for the year. An index of 92 for October implies the price is 8 percent below the annual average. If a producer lived near Oklahoma City and had this class of animal to sell, knowing the price seasonality could change the price received by as much as 14 percent. Seasonal index charts can be developed for each class of animal up to 1,000 pounds; animals ready for slaughter and cull cows.

Attributes

The second factor of importance in marketing cattle is knowing what attributes an animal has.

Some attributes are inherent, such as hide color, frame size and gender, while other attributes can be created in cattle. Created attributes might include weaned, preconditioned calves; castrated calves; and participation in a third-party verified program such as non-hormone treated cattle (NHTC) or cattle that have been organically raised. Some attributes can be related to a certain type of production system, such as grass fed, neverever received hormones or antibiotics, and locally raised.

Capitalizing on attributes to create additional value will require knowing what cattle attributes buyers are willing to pay for and how much they are willing to pay. To do this, a producer will need to answer certain questions. If I wean and precondition my calves, will the market pay more than it costs to create those attributes? If I produce a black-hided calf, are there markets near that have buyers for the Certified Angus Beef (CAB) program? If I create a carcass quality attribute where a buyer could expect the cattle to grade 90 percent choice or better, how does one capitalize on that attribute?

The key to capturing value for attributes is to identify the attributes then search out and present the cattle in venues that value those particular attributes.

Figure 1

Venues brings us to the third item that can contribute to a successful marketing program.

In the context of cattle marketing, venue is a place, location or marketing channel where a producer chooses to market their cattle. For attributes of cattle to be recognized by the market, they must be presented in venues that value those unique attributes.

If a calf has never had a growth implant or an antibiotic, it could qualify as a never-ever or natural calf. Therefore, it could be valued higher in a venue that has a demand for natural cattle. Hauling the natural calf to the local auction market will not likely command any higher price than a calf that has received one or the other, or both.

Selling a calf that has attributes instead of marketing it would be to place the animal in a venue with commodity cattle where they would be sold without any knowledge of history or attribute claims. However, marketing cattle with attributes would entail some research and effort to identify venues that In some cases, a better price can be achieved even for commodity cattle by selecting a certain auction barn over another.

How can this be accomplished? USDA-AMS is tasked with the responsibility to report market prices at selected markets across the U.S. The market reports are public information. A producer can analyze these reports to compare prices for certain classes of cattle. A producer may be surprised to see differences in price for the same class of cattle during the same week at different auction barns in the area.

Retained Ownership

The fourth and final factor we think is beneficial to consider when marketing cattle surrounds the notion of retained ownership.

When a producer becomes a student of price seasonality and notices calf prices are lowest in the fall when they normally sell their calves, serious consideration is then given to the question of, “What can I do to move my marketing time from the

Several things happen simultaneously when calves are retained. As discussed earlier, attributes start to be created in the calves. The calves are weaned, vaccinated and taught to eat and drink from a trough; they change classes of animals from calves to stockers (also referred to as yearlings); and they gain weight. All these attributes happen during the period of time when they are being moved to a later marketing opportunity.

When contemplating a retained ownership option, there are three key pieces of information that is needed.

The first thing needed is a projection of the future value of the heavier animal at a later date in time. Such a projection can be obtained by using the Chicago Mercantile Exchange (CME) futures contract quotes for feeder cattle adjusted for local basis (the difference between the futures price and the local cash price). Beefbasis.com is a commonly used website that also can be used to obtain a projection of a future price. Once an estimate of the future price is known, then a calculation is completed to determine the value of the additional weight the retained animal is expected to gain plus other attributes such as being preconditioned.

A common mistake when analyzing retained ownership is to calculate the value of gain based on the current market. A price and expected weight at the end of the retained ownership period is necessary to correctly calculate the value of gain.

An estimate of the cost incurred during the additional time of ownership is the third and final piece of information needed.

With these three pieces of information, an analysis can be completed to determine the expected profitability of retained ownership.

Keep in mind that several benefits can be possible in retained ownership, such as alleviating the discount for bawling unweaned calves, a reduction in shrink going through the auction process if not sold in the country, heavier calves and a marketing time that is moved from the low seasonal price of the year for calves.

Helpful Resources

There are several key sources of information that can help a producer be more successful when developing a marketing plan for cattle. They will provide basic knowledge that will move a producer to marketing their cattle rather than just selling them. When marketing, knowledge is market power.

Becoming familiar with market reports from USDA-AMS, which provides price information for the various classes of cattle, is helpful. Market reports are published for selected auction barns in 31 states and can be found here: https://www.ams.usda.gov/ market-news/feeder-and-replacement-cattle-auctions.

Information gleaned from market reports can provide a producer with current market prices for the various classes of cattle. This can benefit both buying and marketing decisions. Value of gain for the different weight ranges can be calculated from the current market report, which can help a buyer determine the most economical weight class to buy. Prices from multiple auction barns can be compared to determine the most favorable place to buy or sell. The live and feeder cattle futures contracts can influence cash markets. Prices for each contract can be observed in real time throughout the trading hours and daily closes after hours via several phone apps or from their website: https://www. cmegroup.com/market-data/delayed-quotes/agricultural.html.

Beefbasis.com is a good source of basis information. If considering risk management or retained ownership, this website can estimate a future cash price for a certain weight and gender of cattle for selected auction barns in the 10 states they have in their data base.

Price slide and value of gain charts for steer and heifer calves and yearlings in Oklahoma and cow prices can be found on Noble Research Institute’s website: https://nobleapps.noble.org/ CattleData/Home/Charts/. USDA-AMS market report analysis is also available at this link. These analyses include calculating value of gain and selected auction barn price comparisons.

We hope this discussion and the information provided will encourage a cattle producer to begin marketing their cattle rather than just selling them. In the context of marketing, one really gets out of it what they put into it.