Profitable cattle marketing involves more than just getting the highest price. It involves producing the type of calf the market desires, marketing that calf through the best outlet and at the best time. Unfortunately, most cow-calf producers simply sell their calves. They produce calves that are the easiest to raise, sell at the most convenient market outlet and sell at the most convenient time. As a result, they are price-takers.
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The first step in any successful marketing plan is to know the unit cost of production (UCOP). In fact, for many small or medium-size cow herds, the cost of production is a larger profit determinant than the marketing method. Regardless of the size of the herd, for cow-calf producers this means knowing the cost per pound of calf sold. The best way to make this determination is to begin with a budget similar to the one shown in Table 1.
Returns above total costs (ROTC) is the measure of the long-term economic sustainability of an enterprise. Total costs (TC) include not only VC but also fixed costs (FC) such as depreciation, cost of capital, management, taxes, etc. FC are those costs that occur regardless of the number of head produced. Some people also refer to FC as overhead or indirect costs. Regardless of the terms used, the total cost (TC) per hundredweight is the price a cow-calf producer must average in the long run if they want to remain in business.
Knowing the VC and TC per hundredweight allows producers to set target prices and evaluate their costs in relation to the market. While weather and input costs can be volatile in the short term, which will impact cost per hundredweight year-to-year, producers who consistently have break-even prices above market prices will need to find ways to lower their costs in order to stay in the business.
There are around 17,000 cattle producers in Georgia with an average herd size of fewer than 50 head. With so many small producers, it is natural that most Georgia feeder calves are sold through local auction markets.
While there are definite segments to the beef production system, the important point to remember is that the consumer eventually makes the final pricing decision. The retailer wants a certain type of product because the consumer wants it. This is relayed back to the packer, who relays it to the feedlot, who relays it to the feeder cattle producer. The "relay" for all these messages is the price. Unfortunately, because of all the messengers in the market, the signals sometimes get mixed or muted. However, if we pay close enough attention, we can recognize them. By understanding how the beef cattle markets work, feeder cattle producers will be better able to recognize changes that may make a higher profit.
While it is the cost and return from finished cattle that give feeders their value, it is the overall supply and demand for beef that determines fed-cattle prices. Figure 3 illustrates the factors that affect fed-cattle prices. It is important to note that there are many things that affect the price of cattle and beef that cow-calf producers cannot control. However, by being aware of these factors, cattlemen can have some idea of expected prices and plan accordingly.
Webster?s Dictionary defines "marketing" as the process or technique of promoting, selling and distributing a product or service. It is important to keep in mind what your product is. Ultimately, a feeder calf producer's product is beef. Georgia feeder calf producers have three major marketing decisions: what to produce, where to market their product and when to price their calves. While some or possibly all of these decisions are set for the producer, alternatives most likely exist. The selection of these alternatives will have a dramatic impact on the profitability of the cattle operation.
The cow-calf producer influences the marketability of his cattle the day he selects his breeding stock. While it is true that almost any type of cattle can be sold at a price, the Georgia cattle producer should be raising the most profitable cattle. There are many factors that determine the value of a feeder calf. Some of these factors can be influenced through an operation?s breeding and genetics program and others through good management practices. These factors include:
No. 1. Feeder cattle that possess minimum qualifications for this grade usually display predominate beef breeding. They must be thrifty and moderately thick throughout. They are moderately thick and full in the forearm and gaskin, showing a rounded appearance through the back and loin with moderate width between the legs, both front and rear. Cattle show this thickness with a slightly thin covering of fat; however, cattle eligible for this grade may carry varying degrees of fat.
No. 2. Feeder cattle that possess minimum qualifications for this grade usually show a high proportion for beef breeding and slight dairy breeding may be detected. They must be thrifty and tend to be slightly thick throughout. They tend to be slightly thick and full in the forearm and gaskin, showing a rounded appearance through the back and loin with slight width between the legs, both front and rear. Cattle show this thickness with a slightly thin covering of fat; however, cattle eligible for this grade may carry varying degrees of fat.
Preconditioning programs involve a series of management practices on the farm to improve the health and nutrition of calves. Preconditioning adds value to calves for buyers. When preconditioned calves are marketed in a system that recognizes the value that has been added, cow-calf producers benefit from the higher prices.
Preconditioning is not a new idea, but has received considerable attention in recent years with interest in value-added programs for cow-calf producers, beef quality assurance programs and strategic alliances in the beef industry. There are various preconditioning programs with different names and management requirements. Most programs require a 45-day post-weaning phase with a sound nutritional program, specified animal health procedures, dehorning, castration of bull calves and bunk feeding. The purpose of preconditioning programs is to reduce stress from shipping calves at weaning, improve the immune system, and boost performance in postweaning production phases (i.e., stocker production and cattle feeding) and in carcass performance (i.e., higher grading carcasses with fewer defects).
One common question is whether or not preconditioning programs add sufficient value to feeder calves to offset the added cost. Common preconditioning programs cost cow-calf owners about $60/head, depending on the cost of the ration, health of calves and length of the preconditioning program. As a result, cattlemen will need to receive in excess of $60 (or their cost) per head to make pre-conditioning pay. It is important to remember that the additional revenue can come from reduced shrink and/or a higher price. The main point is that those producers considering preconditioning should not focus just on receiving a higher price.
The addition of these management practices to a producer's operation means there is a need for adequate facilities to perform them. The ability to safely and efficiently pen and restrain calves to perform preconditioning tasks is vital to achieving their maximum value.
Georgia cattle producers have several market outlets. No one system fits every producer?s needs, so there will continue to be many alternatives. The market outlets available to you will depend on the number and uniformity of cattle you have to sell at one time. This generally is the key ingredient in gaining higher prices through different marketing methods. Figure 4 shows the price premiums that larger uniform groups of similar cattle could be expected to bring. This chart is based on survey data collected from Kansas auction markets.
Graded and pooled selling is the combination of small lots of livestock into larger, uniform lots of animals. This can be done informally by people "pooling" their animals before selling or through more formal arrangements. For example, area livestock producers may organize to develop a graded and pooled sale.
A tele-auction is the use of a telephone conference call to allow separation of livestock, buyers and the auction process. Producers with truckload lots of cattle can be sold directly from the farm. Producers with partial truckloads can be matched with other producers "on paper" and sold together. The tele-auction could also be used with a pooled arrangement for smaller producers.
Georgia producers have a long history of using feeder cattle tele-auctions. In fact, Georgia cattlemen have been using tele-auctions since 1977. Since that time, advances in technology have made it possible to utilize videos in the marketing of cattle. Even so, many marketing agencies still use the telephone when taking bids for cattle.
DIRECT SELLING TO CONSUMERS:Many producers look to improve their bottom line by marketingdirectly to consumers. Direct-marketing can be a way to addvalue and increase profits. It also involves additional productionrisk, expense and management.
While a full discussion of direct marketing is beyond the scope ofthis publication, producers interested in this possibility shouldconsider not only the current value of the animals, but alsothe additional production costs and chances for death loss. Theyshould also have a very good handle on their target marketand know what this market will pay and compare that price tothe overall breakeven price.
Private treaty selling of livestock was widely used in the early 1920s when many country buyers operated throughout the state. As auctions became more prevalent, producers shifted to auction selling. Private treaty selling is a closed-sale method; it is a private negotiation between seller and buyer. The price and terms of sale are usually known only by the seller and buyer. 2ff7e9595c