This article is in the current edition of the Tri-State Livestock News out of Spearfish, South Dakota.
Packaging calves to top the market
Dillon Feuz
Livestock Marketing Specialist, Utah State University
February 4, 2008
I am sure you have all been told in the past by some brilliant economist that you are in a competitive industry and therefore you are price takers. The message is that whatever you do with regards to your production will not impact the market price. This statement remains true for the general level of market price but not for the actual price you receive.
Put another way, the general price level for calves is determined by overall supply and demand conditions in the market place and your level of production will not alter this. However, individual prices are discovered in the market place (auctions, order buyers, internet, etc.) and your actions can have a major impact on this price discovery process.
Look at the market price quotes from any auction this week; you will find that prices for the same weight calves are similar from one auction to the next. If the ranges of prices are listed in addition to the average price, why does the range often vary by more than $10 per cwt. for the same weight and frame calf?
I have been analyzing data from Superior Livestock Auction this winter. I have data for three years on over 31 thousand lots sold. The average lot size was 98 head, a pot load, and the average weight was just over 600 pounds. Lot size varied from a few head to 900 head. Calf weights varied from less than 400 pounds to over 800 pounds. I was able to obtain all of the sale catalogue data on these cattle as well as all the information recorded at the time of sale. Breed, frame, flesh, weigh conditions, location, number of head, weight, the presence or absence of horns and several other variables were recorded for each sale lot.
Let me first tell you a few things you probably already know and then I will share some things that you may not have known. Heifers sold at a discount to steers of about $8 per cwt. There was a fairly consistent price slide that decreased with weight. The slide was about $12 per cwt for 4-weight calves, $10 per cwt for 5-weight calves and $8 per cwt for 6-weight calves.
Small frame calves were discounted about $4.50 per cwt compared to medium and large frame calves. Calves with heavy flesh received a discount of $2.50 per cwt and those with light flesh received a $1.50 per cwt premium compared to medium fleshed calves.
There were also breed differences that were significant in market price. Angus calves sold at a premium and more exotic breeds sold at a discount. These premiums and discounts are a little harder to quantify, because it matters what breed or combination of breeds you set as the standard.
Uniform lots of calves sold at a $2.75 per cwt premium to uneven lots. If the lot was at least a full pot load, there was a $3 per cwt premium compared to smaller lots. Lots from 300-500 head sold at about a $5 per cwt premium. Lots of calves with horns sold at a $3.40 discount to calves without horns.
Most of these premiums and discounts are things which you as a producer have control. Therefore, you can influence the market price you receive. The message I would like to drive home with this article is the general price level for calves, the price you can't control, will likely be lower the next few years. That price level may be near break-even for many of you. Therefore, you should begin now to think about what you can do to sell a uniformed package of calves this fall that will generate you a higher price within that general price level.
Marketing doesn't just mean weaning the calves and sending them to market. Marketing is merchandising. It is putting together a package of calves that meets some buyers specific needs. If you can do this, you will be successful and you will be one of those producers who always "get lucky" and top the market.
Packaging calves to top the market
Dillon Feuz
Livestock Marketing Specialist, Utah State University
February 4, 2008
I am sure you have all been told in the past by some brilliant economist that you are in a competitive industry and therefore you are price takers. The message is that whatever you do with regards to your production will not impact the market price. This statement remains true for the general level of market price but not for the actual price you receive.
Put another way, the general price level for calves is determined by overall supply and demand conditions in the market place and your level of production will not alter this. However, individual prices are discovered in the market place (auctions, order buyers, internet, etc.) and your actions can have a major impact on this price discovery process.
Look at the market price quotes from any auction this week; you will find that prices for the same weight calves are similar from one auction to the next. If the ranges of prices are listed in addition to the average price, why does the range often vary by more than $10 per cwt. for the same weight and frame calf?
I have been analyzing data from Superior Livestock Auction this winter. I have data for three years on over 31 thousand lots sold. The average lot size was 98 head, a pot load, and the average weight was just over 600 pounds. Lot size varied from a few head to 900 head. Calf weights varied from less than 400 pounds to over 800 pounds. I was able to obtain all of the sale catalogue data on these cattle as well as all the information recorded at the time of sale. Breed, frame, flesh, weigh conditions, location, number of head, weight, the presence or absence of horns and several other variables were recorded for each sale lot.
Let me first tell you a few things you probably already know and then I will share some things that you may not have known. Heifers sold at a discount to steers of about $8 per cwt. There was a fairly consistent price slide that decreased with weight. The slide was about $12 per cwt for 4-weight calves, $10 per cwt for 5-weight calves and $8 per cwt for 6-weight calves.
Small frame calves were discounted about $4.50 per cwt compared to medium and large frame calves. Calves with heavy flesh received a discount of $2.50 per cwt and those with light flesh received a $1.50 per cwt premium compared to medium fleshed calves.
There were also breed differences that were significant in market price. Angus calves sold at a premium and more exotic breeds sold at a discount. These premiums and discounts are a little harder to quantify, because it matters what breed or combination of breeds you set as the standard.
Uniform lots of calves sold at a $2.75 per cwt premium to uneven lots. If the lot was at least a full pot load, there was a $3 per cwt premium compared to smaller lots. Lots from 300-500 head sold at about a $5 per cwt premium. Lots of calves with horns sold at a $3.40 discount to calves without horns.
Most of these premiums and discounts are things which you as a producer have control. Therefore, you can influence the market price you receive. The message I would like to drive home with this article is the general price level for calves, the price you can't control, will likely be lower the next few years. That price level may be near break-even for many of you. Therefore, you should begin now to think about what you can do to sell a uniformed package of calves this fall that will generate you a higher price within that general price level.
Marketing doesn't just mean weaning the calves and sending them to market. Marketing is merchandising. It is putting together a package of calves that meets some buyers specific needs. If you can do this, you will be successful and you will be one of those producers who always "get lucky" and top the market.
