Beef Cattle Marketing Derrell S Peel Breedlove Professor

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

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

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

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

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

U. S. Beef Cow Inventory 1920 -2015

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

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

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

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

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

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

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

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

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 !

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

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

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

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

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

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

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?

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

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

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

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

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

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)

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

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