Avoid Common Mistakes in Marketing Cattle
By Bridger Feuz, UW Extension Livestock Marketing Specialist
In researching for his book, Extraordinary Tennis for Ordinary Tennis Players, Simon Ramo found that professional tennis players tend to earn around 80 percent of points and only lose around 20 percent because of mistakes. Ramo found that amateur tennis was exactly the opposite. Amateurs tend to lose around 80 percent of their points due to mistakes and only earn around 20 percent.
When it comes to marketing cattle, it is very difficult if not impossible for even the very best producers to sell at the top of the market every year. However, just by avoiding a few common mistakes, producers can significantly increase their annual receipts. Unfortunately, the lure of attempting to hit the top of the market every year is a trap for many producers.
I attended a grain-marketing seminar this summer where Dr. Edward Usset listed five common mistakes in grain marketing. As a cattle guy, I decided to apply the same criteria to cattle producers and come up with five common mistakes in cattle marketing. Here is what I came up with – a failure to critically sort cattle, getting in a marketing rut, paying little attention to culls and other “out” cattle, not taking advantage of risk management tools and being a passive marketer.
The first mistake is failing to sort cattle critically.
Oftentimes producers attempt to “sneak” in a few extra head that they know should have been sorted off from a set of cattle. This is usually done for convenience or with the thought that those cattle really weren’t that bad and should go with the main load.
If you are marketing 200 steers weighing 500 pounds, five of which should have been sorted off, what does it cost you? Let’s assume that because of the five head we receive a price of $255 per hundredweight (cwt) for all 200 head. If we sorted the five head off, we receive a price of $257 per cwt on 195 head and $237 per cwt on five head. Looking at this very realistic scenario we would make $1,500 more by sorting the cattle. Year after year, $1,500 adds up.
Stuck in a rut
It is also important to be cautious of falling into a marketing rut.
Market conditions change from year to year. Although market timing cycles can be somewhat similar, often taking advantage of slight differences can add two to three dollars per cwt. Just because you have always sold cattle the first week in October does not mean that is the best time to sell cattle.
Additionally, each year there can be regional differences in market price. This means the best auction barn to sell your cattle at last year may not be the best barn to sell cattle at this year. Often times the price difference between auction barns is even greater than the differences in freight and shrink.
Pay attention to culls and other “out” cattle.
Cull cow sales are approximately 15 percent of annual income for a cow/calf enterprise. Yet, cull cows are often overlooked when considering a marketing plan or strategy for the ranch. The cull cow market is one of the more predictable markets for cow/calf producers. If producers are willing to make some management changes, significant gains can be made from cull cow sales.
Dr. Dillon Feuz authored a useful bulletin titled “Marketing and Feeding Cull Cows.” It can be found at cattlemarketanalysis.org/downloads by clicking on the marketing cull cows option.
Even if a producer is not willing to make management changes to take advantage of cull cow prices, carefully watching the market can also add significant value. As I watched one of our Wyoming markets last fall, I consistently saw an every-other-week pattern on cull cows. This every other week pattern would often lead to price differences of five dollars to $10 per cwt. On 10 1,200-pound cull cows that could be as much as $1,200 just by watching the market and waiting one week to take your culls.
Another consideration is use of a risk management tool.
Often times we think of risk management tools, such as the futures and options market or insurance products, as tools to help us in downward trending markets. However, as I watch producers I am convinced these tools can help as much in strong markets as well.
Cow/calf producers have a lot of capital and labor, as well as blood, sweat and tears, tied up in each calf crop. Because of this significant investment in each calf crop, producers are extremely motivated to sell and often are willing to take the first reasonable price offer.
One strategy to improve bargaining position could be to purchase Livestock Risk Protection (LRP) Insurance. A producer using this strategy would purchase LRP Insurance essentially establishing a floor price for their calves. That floor price would be the insured coverage price minus the insurance premium. Using this strategy takes much of the stress of marketing cattle away from the negotiation. No longer is a producer compelled to take that first reasonable offer, but they are in a position to be able to focus on getting a quality price. The knowledge that they are assured a minimum acceptable price through LRP insurance gives the producer a good bargaining advantage.
Do not passively market cattle.
This last of Feuz’s five common mistakes in marketing cattle really encompasses all of the above mistakes. Producers often devote significant time and energy into managing things like genetics, range, pasture, nutrition, etc. These things are important and can lead to profitability and success. However, these same producers often market cattle based on tradition, convenience or habit. After putting all of the effort into producing cattle, a passive marketing strategy can cost producers and reduce overall profitability.
Even if it takes you out of your comfort zone, spend as much time and energy on your marketing plan as your range plan and you will reap the benefits. Actively market cattle by seeking out market data, trends and niche opportunities to capitalize on the efforts that went into production.
Bridger Feuz is the UW livestock marketing specialist and can be reached at firstname.lastname@example.org.