Cow Slaughter Levels and Calf Prices Another relationship may also help us understand why prices react as they do to market forces. This is the relationship between cow slaughter numbers and calf prices. As cow slaughter levels increase, calf prices decline. That’s right. Low levels of slaughter indicate a healthy cow-calf segment within the beef industry. Cattle producers are making a profit; consequently, they will retain cows and heifers in an attempt to build the herd and have more animals to sell. A Beef Cattle Marketing Plan Enhances Alternatives A cattleman’s beef cattle marketing plan starts with the production of the animal. A solid production program is the basis of the cattle producer’s marketing plan. The cattleman must use his knowledge of animal production to produce a product that is acceptable to the market. He must also produce this animal in a timely manner in order to minimize production costs. The cattleman’s knowledge, timing and effort are essential in the production of the animal. Knowledge, timing and effort do not guarantee a profit, but they improve the odds. Knowledge, timing and effort are also essential for a good beef cattle marketing plan. Marketing, therefore, is a systematic approach toward achieving a reasonable return for the producer’s money, labor, management ability and other resources he has invested in the production of his animals. Marketing requires detailed planning and the estimation of costs and prices. Simply put, marketing involves knowing the alternatives, what the alternatives offer, how the alternatives meet the goals of the operation and how best to use each marketing alternative. What marketing alternatives are available to the cattle producer depends upon the stage of production. Some alternatives are used more often at one production level than another. There are profitable alternatives available at every production level. The cattleman’s job is to find each alternative and evaluate its ability to make his operation produce a profit. Some Cow Calf Marketing Considerations Producers may choose to market their weanling calves through a local or regional sale, sell to an off the farm buyer, or forward contract with a buyer for future delivery. It is also possible to use the futures markets to market weanling or stocker calves. The objective is to market grass pasture, labor, capital and management by selling calves, cull cows and cull bulls. Most producers attempt to satisfy this objective through their local auction barn. They do so for various reasons including closeness to the farm, small number of animals to market, time it takes to evaluate other markets and the fact that the local auction is a form of entertainment. The local auction is also the most cussed form of marketing in the cattle industry. Many producers’ say they have taken their animal to the local auction barn only to get ripped off. The fact is that the producer frequently does not know the market and is not willing to gain an understanding of the market. With a little knowledge the producer would start to see what he can do to improve his situation. By evaluating market alternatives, including the profitable use of a local auction, he can improve the profit from his beef operation. All this needs to be included in any beef cattle marketing plan. Another cash market option available to producers is retained ownership. It can be used for his annual calf crop or stocker operation. It can also be used for the “best” of his heifer and bull calves destined for sale to other producers as replacement animals. The market price target is useful in evaluating whether or not the producer should participate in retained ownership. Retained ownership decisions compare the sale of the calf today with a future sale at a heavier weight. Several factors come into play in this decision. The producer must know the prices for the light weight calf and the expected price for the heavier calf. In addition he must know the cost of producing the weanling calf and the cost of carrying it the additional days. A good producer marketing strategy is to establish a reputation for producing above average stockers or breeding stock. Development of a sound production program requires a long-term commitment on the part of the producer. Good breeding stock or the development of a quality stocker program does not occur overnight. A good producer should take advantage of his “good name”. Surveys of cattle buyers indicate that an important criterion in price determination is the producer’s reputation. A good reputation normally brings buyers to the farm eliminating the need to sell at auction. Having buyers come to the farm to purchase cattle provides a marketing opportunity for both buyer and seller. The seller can reduce shrink and avoid commission costs. The buyer obtains an animal that has a known parentage and production philosophy, and minimal stress. On farm sales are a good opportunity for cow-calf producers to market their animals and build a reputation with buyers. The producer can also use the futures market to lock in a price or shift the chance of an adverse price change. However, futures contracts are not readily adapted to lightweight calves. The difference between the futures price and the local price for these lightweight calves can be quite large. This wide difference makes if difficult to accurately fix a price. Choosing the right market to meet your objective can be difficult. This is where the development of a good beef cattle marketing plan becomes important. The producer has some bench mark to evaluate local market prices against what it costs him to produce the calf. Two things have been accomplished: first, the producer is capable of evaluating the price the local market is paying for calves similar to his and, secondly he is able to really understand if this marketing alternative can successfully play a role in his overall beef objectives. We have considered many factors that are integral components in developing a successful beef cattle marketing plan for cattle producers. It is now time to put these factors into a plan of action and show how a beef cattle marketing plan is actually developed. The marketing plan does not need to be complex but it does need to be well thought out and adapted to meet the needs of your cattle operation. Clearly, the plan should suggest what you want out of your involvement in the beef cattle business and how you intend to get there. There are many ways to classify a market plan but, here is a useful and simple approach. Six Steps to Develop a Beef Cattle Marketing Plan
You should never try to second guess your decision, if you do well keep the same type of plan for next year. If it did not pan out then scratch this alternative and go on. You learn from your mistakes and every year is different in the cattle business. Marketing is a planned event that is reviewed every year, changed if necessary, but constantly improved. In the end we all know that the most successful will understand cattle marketing and put a good beef cattle marketing plan in place.
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