ECON 337 Agricultural Marketing Chad Hart Assistant Professor

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ECON 337: Agricultural Marketing Chad Hart Assistant Professor chart@iastate. edu 515 -294 -9911 Econ

ECON 337: Agricultural Marketing Chad Hart Assistant Professor chart@iastate. edu 515 -294 -9911 Econ 337, Spring 2012

Livestock Marketing Decisions Ø Where to sell ØType of market ØLocation Ø What to

Livestock Marketing Decisions Ø Where to sell ØType of market ØLocation Ø What to sell ØLive, carcass, grid Ø When to sell ØWeight, grade, costs Econ 337, Spring 2012

What to Sell Ø Live weight ØOne average price for all live pounds ØNegotiated

What to Sell Ø Live weight ØOne average price for all live pounds ØNegotiated price before delivery or at auction ØWeighing conditions important ØMud, shrink (fill, time, stress) ØWas most common for hogs but now ØStill common in large cattle feedlots, less in Iowa ØUsed for feeder cattle and feeder pigs Econ 337, Spring 2012

What to Sell Ø Carcass weight (“in-the-meat”) ØOne average price for all carcass pounds

What to Sell Ø Carcass weight (“in-the-meat”) ØOne average price for all carcass pounds ØNegotiated price before delivery ØDressing percent (also called yield) ØImportant to compare bids ØNot important in determining value ØFarmer stands risk of trimming and condemnation ØCommon for fed cattle in Midwest Econ 337, Spring 2012

What to Sell Ø Dressing percent ØDP = carcass weight / live weight ØDP

What to Sell Ø Dressing percent ØDP = carcass weight / live weight ØDP hogs approximately 73 -76% ØDP cattle approximately 61 -64% Ø DP impacted by: ØWeighing conditions ØShrink ØFat thickness ØGenetics Econ 337, Spring 2012

What to Sell Ø Value-based marketing Ø Each carcass evaluated and priced individually Ø

What to Sell Ø Value-based marketing Ø Each carcass evaluated and priced individually Ø Premiums and discounts determined ahead of delivery Ø Base price may be negotiated or come from formula Ø Carcasses are graded and values assigned Ø Farmer stands grading risk Ø Different buyers have different systems Ø Nearly all hogs Ø Increasingly popular for fed cattle Econ 337, Spring 2012

Hog Carcass Weight Discounts Carcass Weight 145# 155# 165# 175# 185# 195# 205# 215#

Hog Carcass Weight Discounts Carcass Weight 145# 155# 165# 175# 185# 195# 205# 215# 225# Range -30. 00 -12. 90 -30. 00 -6. 02 -15. 00 -2. 58 -3. 25 -1. 50 0. 00 2. 25 4. 00 4. 50 4. 25 1. 00 IOWA/MINNESOTA DAILY DIRECT NEGOTIATED HOG PURCHASE MATRIX LM_HG 204, Fri, Feb. 17, 2012, USDA Market News Des Moines, Iowa Econ 337, Spring 2012

Hog Carcass Price by Backfat and Loin Eye Area Hog Carcass Price by Loin

Hog Carcass Price by Backfat and Loin Eye Area Hog Carcass Price by Loin Eye Area/Depth (inches) Backfat 4. 0/1. 4 5. 0/1. 7 6. 0/2. 0 7. 0/2. 3 8. 0/2. 7 0. 40 79. 00 89. 75 80. 50 90. 75 81. 50 92. 25 82. 50 93. 75 83. 00 94. 75 0. 50 76. 00 88. 75 79. 00 89. 75 81. 50 91. 50 82. 00 93. 00 83. 00 94. 25 0. 60 76. 00 88. 00 79. 00 88. 75 80. 50 90. 75 81. 50 92. 25 82. 50 93. 75 0. 70 76. 00 87. 50 76. 00 88. 00 79. 00 89. 75 81. 50 91. 50 82. 00 93. 00 0. 80 75. 00 87. 00 76. 00 87. 50 79. 00 88. 75 80. 50 90. 75 82. 00 92. 25 0. 90 75. 00 86. 50 76. 00 87. 00 76. 00 88. 00 79. 00 89. 75 81. 50 91. 50 1. 00 73. 00 84. 50 75. 00 86. 50 76. 00 87. 50 79. 00 88. 75 80. 50 90. 75 1. 10 72. 00 82. 75 75. 00 84. 50 76. 00 87. 00 76. 00 88. 00 80. 50 89. 75 1. 20 72. 00 82, 75 73. 00 82. 75 75. 00 86. 50 76. 00 87. 50 79. 00 88. 75 1. 40 68, 50 82, 75 70. 02 82. 75 72. 14 82. 75 73. 71 86. 50 75. 27 87. 50 National Daily Direct Prior Day Hog Report, Plant Delivered Purchase Data LM_HG 200, Fri, Feb. 17, 2012, USDA Market News Des Moines, Iowa Econ 337, Spring 2012

Comparing Bids ØLet’s say you raise hogs halfway between two packers (so transportation costs

Comparing Bids ØLet’s say you raise hogs halfway between two packers (so transportation costs are the same to both packers) ØPacker A offers you $65. 00/cwt. live for your hogs ØPacker B offers you $82. 00/cwt. carcass for your hogs ØPacker B will grade the carcasses, paying premiums for lean carcasses (+$1. 25/cwt. ), but charging a $0. 75/cwt. sorting discount ØYou expect a dressing percentage of 75% Econ 337, Spring 2012

Comparing Bids Price in appropriate $/cwt Bid Price (live) Bid Price (carcass) Lean premium

Comparing Bids Price in appropriate $/cwt Bid Price (live) Bid Price (carcass) Lean premium Sort discount Dressing percentage Adjusted to live Transportation Net farm gate price Econ 337, Spring 2012 A $65. 00 ----65. 00 -. 35 $64. 65 B --$82. 00 +1. 25 -0. 75 75 61. 88 -. 35 $61. 53

Value-Based Cattle Marketing Three factor impact premiums 1. Carcass Weights 2. Quality Grade Distribution

Value-Based Cattle Marketing Three factor impact premiums 1. Carcass Weights 2. Quality Grade Distribution (USDA Grader) Based on marbling, proxy for eating experience 3. Yield Grade Distribution (USDA Grader) Based on lean meat yield 4. Other specs: Product safety & quality assurance Acceptable color Youthfulness Econ 337, Spring 2012

Econ 337, Spring 2012

Econ 337, Spring 2012

Econ 337, Spring 2012

Econ 337, Spring 2012

Value-Based Cattle Marketing Common Ground for Targets 1. Carcass Weights 550 - 950 lbs

Value-Based Cattle Marketing Common Ground for Targets 1. Carcass Weights 550 - 950 lbs 2. Quality Grade > Se+ or > Ch 0 3. Yield Grade 1’s and 2’s Econ 337, Spring 2012

Carcass Merit Grid and Premium Trends Econ 337, Spring 2012

Carcass Merit Grid and Premium Trends Econ 337, Spring 2012

Grid Rewards & Discounts Ø Base: Choice YG 3 550 -900 lbs. Ø Quality

Grid Rewards & Discounts Ø Base: Choice YG 3 550 -900 lbs. Ø Quality Grade $/cwt Ø Prime: $6. 00 Ø Certified Angus: $1. 00 Ø Select -$9. 00 Ø Standard -$18. 00 Ø Other -$30. 00 Econ 337, Spring 2012 Yield Grade 1: 2: 3: 4: 5: $/cwt $2. 00 $1. 00 Par -$15. 00 -$20. 00 Carcass weights $/cwt Under 550 -$19. 00 900 & up -$19. 00

Comparing Bids ($/carcass cwt) Price in appropriate $/cwt Base bid price Prime Top 2/3

Comparing Bids ($/carcass cwt) Price in appropriate $/cwt Base bid price Prime Top 2/3 Ch Select Yield 1&2 Off weight 3% 45% 30% 60% 3% Transportation Net farm gate price A 121. 00 B 121. 00 ------ +6. 00 +3. 50 -8. 00 +2. 50 -15. 00 -0. 65 120. 35 -0. 65 120. 76 Bid A is a straight in the meat bid, Bid B is a valued-based bid. Econ 337, Spring 2012

When to Sell Ø Classic production function Ø Optimal selling weight is where marginal

When to Sell Ø Classic production function Ø Optimal selling weight is where marginal costs=marginal revenue Ø The cost of the next pound = the price of the next pound Ø Cost per pound decrease then increase with weight Ø Costs are a function of Ø Genetic potential Ø Cost of diet Ø Opportunity costs of future production Ø Price per pound increases then decreases Ø Weight discounts outside optimal range Ø Fatter carcasses are discounted Ø Adding extra weight Econ 337, Spring 2012

$ MC MR Weight Econ 337, Spring 2012

$ MC MR Weight Econ 337, Spring 2012

Market Timing Ø Cycles Ø Seasonals Ø Marginal costs and returns Econ 337, Spring

Market Timing Ø Cycles Ø Seasonals Ø Marginal costs and returns Econ 337, Spring 2012

All Cattle & Calves, Jan. 1 Inventory Econ 337, Spring 2012

All Cattle & Calves, Jan. 1 Inventory Econ 337, Spring 2012

All Cattle & Calves, By Cycle Econ 337, Spring 2012

All Cattle & Calves, By Cycle Econ 337, Spring 2012

Hogs Econ 337, Spring 2012

Hogs Econ 337, Spring 2012

Class web site: http: //www. econ. iastate. edu/~chart/Classes/econ 337/ Spring 2012/ Lab in Heady

Class web site: http: //www. econ. iastate. edu/~chart/Classes/econ 337/ Spring 2012/ Lab in Heady 68 Econ 337, Spring 2012