Time to Start Thinking of Next Year’s Marketing Plan
It’s the time of year when we all start comparing our calf prices to our neighbors. Some of you are probably happy, while others are wondering where things went wrong this year.
A recent survey by Colorado State University shows that the majority of producers are still selling their calves through a local market, but evidence suggests more people are starting to explore alternative marketing outlets, such as direct marketing and video auctions. Each of these options has pros and cons, and I would encourage everyone to evaluate all options.
Often, we get stuck in a rut and sell our calves through the same venue at the same time each year because it’s easy. It may be that the local sale is the best option for you, but unless you compare what you are doing to what you could be doing, you don’t know if you’re leaving money on the table or not.
University of Wyoming Extension just published a fact sheet titled “Which Market Gives me the Best Price for My Cattle?” You can find it at wyoextension.org/agpubs/pubs/B-1303.pdf or by visiting the general UW Extension publication page at wyoextension.org/publications and search for publication B-1303. There are a lot of other good resources to be found there, as well.
The new marketing publication shows how to compare both the costs and benefits of alternative markets.
The example includes a local sale barn and two different video auctions.
It is important to understand that price is not the only consideration when comparing alternative markets.
Selling costs can impact overall revenues associated with each outlet. For example, trucking costs need to be include when sending calves to a sale barn, but often video auctions result in sale at the ranch, so trucking costs are incurred by the buyer. However, often, calves do not weigh what they were sold for in the video auction, so understanding the implications of the price slide are also important.
Shrink is also an important consideration. Cattle shipped to a sale barn will inevitably experience some weight loss. However, they should gain some of that weight back once they reach the sale barn. But remember, you are also likely paying for feed once they get there.
Video auctions tend to use a pencil shrink, an agreed upon measure without an actual measurement. However, the amount of pencil shrink can vary by company, so make sure you understand what that amount will be before signing a contract.
I’ve included the table to the right from the new fact sheet for comparison. In this example, each option ended up with different weights for calves due to the timing of when buyers picked up the calves. The local sale barn did end up with the best price before accounting for all the associated costs. However, given the distance to the sale barn in our example, trucking costs to get the calves to market and increased shrink resulted in the net price being lower.
The take home point is that the outlet with the highest price may not be the best option after considering all of the associated costs. While the fact sheet uses some hypothetical markets, it does explain how to make these comparisons for your ranch.
So, when you are looking at your friends and neighbors’ prices this fall, remember, reported prices are not always an accurate depiction of net revenue. While the price is what we usually think about when comparing how we did, marketing costs can reduce the actual price by five to 15 percent. Up to 80 or 90 percent of these marketing costs come from transportation, shrink and commission.
So, understanding how different venues affect these costs is important when considering marketing alternatives. If you want to explore different marketing outlets for next year, now is a good time to start exploring your options, so you can get a good feel for differences in costs and net prices across the alternatives.