Beef Cattle Marketing

1. Beef Cattle Marketing Derrell S. Peel Breedlove Professor of Agribusiness and Extension Livestock Marketing Specialist

2. Outline • Cow-Calf Marketing Philosophy • Influence of Price Cycles and Seasonality • Strategic Cow-Calf Management • Enterprise Alternatives • Commercial Stockers • Adding Value to Calves • Price Risk Management • Marketing Tactics • Marketing Cull Cows

3. Cow-Calf Marketing Philosophy • Commodity Business or Value-Added Business • Marketing Forage

4. Forage Marketing • Most of what we call profits in cow-calf and stocker production is returns to the forage resource • Cattle marketing is really a question of marketing forage to its highest value

5. Influence of Price Cycles and Seasonality • Persistent cycles and seasonal patterns • Implies opportunities for strategic behavior

6. U.S. Beef Cow Inventory1920-2015

7. Data Source: USDA-AMS, Compiled and Forecasts by LMIC Livestock Marketing Information Center

8. Cattle Cycle • Prices for all classes of cattle tend to go up and down in each cycle • Cycles of prices force changes in level of production • Price cycles imply: • Cycles of equity change • Opportunities for strategic behavior • Cycles may be changing

9. Data Source: USDA-AMS & USDA-NASS, Compiled and Analysis by LMIC Livestock Marketing Information Center

10. Production/Marketing Interaction • Cattle production and marketing are interrelated unlike any other agricultural market • Changing market conditions implies changes in production • Especially for stockers

11. Seasonality • Seasonal price patterns in cattle are very strong • Seasonal price patterns vary for different classes of cattle • Important for retained ownership and stocker considerations

12. Data Source: USDA-AMS, Compiled & Analysis by LMIC Livestock Marketing Information Center

13. Strategic Cow-Calf Management • Need for strategic production focus • Cyclical herd management • Adjusting herd size and/or age • Constant dollar replacement strategy • Strategic cost management

14. Strategic Herd Management • Cyclically low prices imply less demand for calves • Value of forage for calf production is lower • Higher forage value for retained stockers • Potential to mitigate equity losses by adjusting herd size and/or age • Strategic culling/replacement

15. Strategic Cost Management • Strategic cost management may be as important as marketing to mitigate cyclical equity losses • Strategic culling reduces cow maintenance costs • Adjust timing of intermittent costs • Brush control/pasture improvements • Bull replacement • Fertilization • Adjust timing of investments • Don’t try to save money by cutting herd health or nutrition !

16. Replacement Heifers • Buy or raise? • Many producers cannot justify raising replacements • Production and marketing of replacement heifers may be a good enterprise choice

17. Enterprise Alternatives • Retained ownership • On-ranch • Replacement female development • Preconditioning • OQBN • Creep feeding • Early weaning • Spring versus fall calving

18. Retained Ownership • Different financial implication for on-ranch versus off-ranch • Ranch retained stockers provide another means to market forage • Off-ranch retained stocker or feedlot cattle is a speculative investment with higher out-of-pocket expenses • Should be evaluated as a separate enterprise • May be seen as a marketing alternative but is first and foremost another production activity • Management considerations

19. Data Source: USDA-AMS, Compiled and Analysis by LMIC Livestock Marketing Information Center

20. On-Ranch versus Off-Ranch • There are important financial implications of on-ranch versus off-ranch retained ownership • Retained ownership may be attractive for strategic production or tactical marketing considerations • However, off-ranch retained ownership is essentially an investment decision

21. Commercial Stockers • Separate from cow-calf enterprise but may be complimentary • Manage forage and production risk • More appropriate than own calves

22. Calf Marketing • Don’t think of calves as a single marketing group • Steers versus heifers • Heavy versus light • Feeder heifers versus replacement heifers • What is the best marketing alternative for each group of calves?

23. Adding Value to Calves • Individual animal management • Dehorn • Castrate • Vaccinate • Animal groups • Lot size • Uniformity • Change genetics • Improve muscle and frame

29. Price Risk Management • Futures/options • Retained ownership • Forward cash contracting • Options as disaster insurance • Livestock Risk Protection (LRP) program

30. Basic Forward Pricing Strategies • Simple hedge • Cash forward contract • Direct sale or video auction • Put option • LRP • Synthetic Put • Plan B or lower costs • Cash Forward contract + Call Option • Similar to synthetic put • Window or Fence • Reduce option costs and maintain some upside

31. Forward Contracting • Advantages • Simple (but written contract strongly recommended) • Less marketing costs • Disadvantages • Seller must know value and have good negotiation skills • Terms of trade very important

32. Hedging • Advantages • Simple • Relatively inexpensive • Effective for longer time periods • Disadvantages • May limit profit opportunities • Basis risk for lightweight animals

33. Options • Advantages • Relatively simple • Maintain upside price potential • More flexibility to chose level of risk protection • Disaster Insurance • Disadvantages • More expensive • Basis risk for lightweight animals • Limited effectiveness for longer time periods (more than 3-4 months)

34. Marketing Tactics • Shrink and weighing conditions • Price slides • Marketing channels

35. Market Channels • Choice of marketing channel affects information and negotiation requirements • Local/regional auctions • Video auctions • Direct sale

36. Marketing Cull Cows • Improve profits from cull cows • Utilize excess forage/feed resources

37. Data Source: USDA-AMS, Compiled & Analysis by LMIC Livestock Marketing Information Center

38. Data Source: USDA-AMS, Compiled and Analysis by LMIC Livestock Marketing Information Center