Preparation As we head into spring, a review of some of the basic principles and terms of marketing
Recently I have had a few calls on the basics of cattle marketing. As we head into the spring market and the backgrounded calves sell, it is timely to review the basic principles of marketing and to go over the terms. In all the examples, the cattle are sold direct or through the electronic auction.
When feeder cattle are offered for sale the most important piece of knowledge is the actual weight. Even if a legal for tender scale is not on site, it is important to weigh the cattle somewhere nearby or to bring in a scale to determine the weight. This accomplishes several objectives.
First and foremost, you know what it is you have to sell on an average and the high and low in a pen or set of cattle. Second, it allows you to accurately measure performance and the production cost. You can also identify individual animals and cow families that have a continuous growth curve, thus allowing for information-based decisions for culling and breeding.
All cattle are sold with a shrink that covers gut fill or a short haul. For cattle that are fed in pen the average pencil shrink is four per cent on a zero-to-50-mile haul. In addition to a pencil shrink to cover the gut fill, a buyer will also take into account the body condition of the cattle. If they are green or light in condition then the four per cent is fair to both buyer and seller.
If they are in medium or heavy condition, meaning that they are starting to deposit some fat, then the buyer will do one of two things. He will introduce a higher pencil shrink or drop the price accordingly. The same strategy will occur when the cattle carry a lot of tag — mud, manure or ice. This added-on weight is of no value.
The goal of the buyer is to pay for as little fat or tag as possible as this is negative when it comes to the future conversion on the animal. In addition, if the buyer is purchasing on order, the pay weight should match the arrival weight at the end point. As weights vary within a pen there may be a difference in the called weight and the actual weight at time of sale. This could occur out of simply inaccuracy or human error, because the cattle experienced an event that caused them to gain or lose weight or because the cattle were not lifted in time.
It is important that when cattle are sold that the delivery window be very clear to both buyer and seller. It becomes very risky for cattle to wait to be weighed for their final sale weight if they stand more than five business days. Delivery windows should be short so the cattle do not gain/lose weight that then puts them outside of the deal.
To reconcile feeder cattle weights to price a sliding scale is used. The slide adjusts the price according to the final pay weight which is always the shrunk weight. For example if the cattle are called at 840 lbs. they are expected to weigh 840 lbs. after transport and shrink. This is the pay weight. What happens when the cattle weigh less or more? The slide is used to reconcile the price to the actual shrunk weight.
Cattle called to weight 840 lbs. (shrunk weight) at point of sale
- Bid price is $130 cwt based at 840 lbs. with a $.05 slide up and down.
- If the cattle weigh 840 lbs. they are paid $130 cwt or $1,092 head.
- If the cattle weigh 30 lbs. less and come in at 810 lbs. then the price slides up to compensate for the lighter weight (30 lbs. x $05 = $1.50 cwt).
– 810 lbs. x $131.50 = $1,065.15 per head.
- If the cattle weigh 30 lbs. more at the point of sale and come in at 870 lbs. then the price will slide down to compensate for the additional weight (30 lbs. x $.05 = $1.50 cwt).
- 870 lbs. x $128.50 = $1,117.95 head.
At times when prices are volatile, the slide may not compensate for light calves and they need to be priced within the weight breaks. A $.05 to $.08 slide is acceptable on cattle that are backgrounded but for calves you need a $.08 slide to reconcile price to weight, especially on light calves. It is folly to accept a down slide only as the cattle will only be discounted if they are heavy but not compensated when they are light.
It is also dangerous to accept a large slide such as $.15 cwt unless you are exactly sure of the pay weight (not the weight of the day but the actual pay weight). In this case the cattle will be heavily discounted if they are heavy.
Direct or electronic sales
All cattle on direct or through an electronic sale should be sold f.o.b. the farm/ranch as you have no idea where the cattle will end up eventually. The cattle may sell to Ontario and it is unlikely that you would be compensated for that long haul in the bid process. Shrink will also reflect the distance to the first point of sale. Ideally, the cattle would trade on a legal for tender scale onsite.
Next to weight, the sort is the most powerful marketing tool. Sorting the cattle into same sex, same size, load lots is a surefire way to increase interest in the cattle. This visually stimulates the buyer and they are especially interested if this is done in herd as it helps project the future performance of the cattle. We know that a uniform set of cattle sells for more than a comparative group that is up and down in weight or type.
Listing the attributes of the cattle also spur the price. Non-hormone cattle now often sell for more than implanted calves as do feeder cattle that are dehorned, castrated, weaned at least 30 days, have a verifiable feeding and health protocol and are age verified. For feeder heifers there has to be some assurance that they have not been exposed to a bull.
These basic principles and terms will help you understand your electronic or direct sale. Keep in mind that you are the owner of the cattle and take a lead role in the success of the sale.