Beef Cow-Calf Marketing

1. Beef Cow-Calf Marketing Derrell S. Peel Livestock Marketing Specialist Department of Agricultural Economics

3. Outline • Cow-Calf Marketing Philosophy • Influence of Price Cycles and Seasonality • Strategic Cow-Calf Management • Enterprise Alternatives • Commercial Stockers • Adding Value to Calves • Price Risk Management • Marketing Tactics • Marketing Cull Cows

4. Cow-Calf Marketing Philosophy • Commodity Business or Value-Added Business • Marketing Forage

5. Forage Marketing • Most of what we call profits in cow-calf and stocker production is returns to the forage resource • Cattle marketing is really a question of marketing forage to its highest value

6. Influence of Price Cycles and Seasonality • Persistent cycles and seasonal patterns • Implies opportunities for strategic behavior

8. Cattle Cycle • Prices for all classes of cattle tend to go up and down in each cycle • Cycles of prices force changes in level of production • Price cycles imply: • Cycles of equity change • Opportunities for strategic behavior • Cycles may be changing

9. Share of Fed Steer Value

10. Share of Fed Steer Value

13. Seasonality • Seasonal price patterns in cattle are very strong • Seasonal price patterns vary for different classes of cattle • Important for retained ownership and stocker considerations

14. SeasonalPricePatterns

15. Production/MarketingInteraction • Cattle production and marketing are interrelated unlike any other agricultural market • Changing market conditions implies changes in production • Especially for stockers

16. Strategic Cow-Calf Management • Need for strategic production focus • Cyclical herd management • Adjusting herd size and/or age • Constant dollar replacement strategy • Strategic cost management

17. Strategic Herd Management • Cyclically low prices imply less demand for calves • Value of forage for calf production is lower • Higher forage value for retained stockers • Potential to mitigate equity losses by adjusting herd size and/or age • Strategic culling/replacement

18. Strategic Cost Management • Strategic cost management may be as important as marketing to mitigate cyclical equity losses • Strategic culling reduces cow maintenance costs • Adjust timing of intermittent costs • Brush control/pasture improvements • Bull replacement • Fertilization • Adjust timing of investments • Don’t try to save money by cutting herd health or nutrition !

19. Replacement Heifers • Buy or raise? • Many producers cannot justify raising replacements • Production and marketing of replacement heifers may be a good enterprise choice

20. Enterprise Alternatives • Retained ownership • On-ranch • Replacement female development • Preconditioning • OQBN • Creep feeding • Early weaning • Spring versus fall calving

21. Retained Ownership • Different financial implication for on-ranch versus off-ranch • Ranch retained stockers provide another means to market forage • Off-ranch retained stocker or feedlot cattle is a speculative investment with higher out-of-pocket expenses • Should be evaluated as a separate enterprise • May be seen as a marketing alternative but is first and foremost another production activity • Management considerations

22. On-Ranch versus Off-Ranch • There are important financial implications of on-ranch versus off-ranch retained ownership • Retained ownership may be attractive for strategic production or tactical marketing considerations • However, off-ranch retained ownership is essentially an investment decision

24. Commercial Stockers • Separate from cow-calf enterprise but may be complimentary • Manage forage and production risk • More appropriate than own calves

25. Calf Marketing • Don’t think of calves as a single marketing group • Steers versus heifers • Heavy versus light • Feeder heifers versus replacement heifers • What is the best marketing alternative for each group of calves?

26. Adding Value to Calves • Individual animal management • Dehorn • Castrate • Vaccinate • Animal groups • Lot size • Uniformity • Change genetics • Improve muscle and frame

27. Price Risk Management • Futures/options • Retained ownership • Forward cash contracting • Options as disaster insurance • Livestock Risk Protection (LRP) program

28. Basic Forward Pricing Strategies • Simple hedge • Cash forward contract • Direct sale or video auction • Put option • LRP • Synthetic Put • Plan B or lower costs • Cash Forward contract + Call Option • Similar to synthetic put • Window or Fence • Reduce option costs and maintain some upside

29. Forward Contracting • Advantages • Simple (but written contract strongly recommended) • Less marketing costs • Disadvantages • Seller must know value and have good negotiation skills • Terms of trade very important

30. Hedging • Advantages • Simple • Relatively inexpensive • Effective for longer time periods • Disadvantages • May limit profit opportunities • Basis risk for lightweight animals

31. Options • Advantages • Relatively simple • Maintain upside price potential • More flexibility to chose level of risk protection • Disaster Insurance • Disadvantages • More expensive • Basis risk for lightweight animals • Limited effectiveness for longer time periods (more than 3-4 months)

32. Marketing Tactics • Shrink and weighing conditions • Price slides • Marketing channels

33. Market Channels • Choice of marketing channel affects information and negotiation requirements • Local/regional auctions • Video auctions • Direct sale

34. Marketing Cull Cows • Improve profits from cull cows • Utilize excess forage/feed resources

37. Cow-Calf Marketing Plans • Expected production and timing • Price target • Minimum price • Alternatives • Risk management • Market channels • Statement of actions and triggers

38. Stocker Considerations • Retained Ownership versus commercial stockers • Choosing A Stocker Enterprise • Stocker Production Flexibility

39. Choosing A Stocker Enterprise • Production flexibility is key to stocker marketing • “Most stocker marketing is in the buying…you just collect it when you sell.” • Commercial stocker producers need a set of production programs which can be matched to various market conditions

40. Stocker Production Flexibility • Animal size (beginning weight) • Rate of gain (production intensity) • Length of time • Animal quality • Total amount of gain • Ending weight • Steers versus heifers

41. Stocker MarketingPlans • Resource availability • Choice among production alternatives • Expected production and timing • Price target • Minimum price • Alternatives • Risk management • Market channels • Statement of actions and triggers

42. OKLAHOMA COOPERATIVE EXTENSION SERVICE

44. Cattle Marketing Plans2004 Derrell S. Peel Professor and Extension Livestock Marketing Specialist Oklahoma State University

45. Related Enterprises • Off-Ranch Retained Ownership • Custom stockers • Custom feeding

46. Introduction • Forage Marketing • Production/Marketing Interaction • On-Ranch versus Off-Ranch

47. Marketing Questions • What to produce/sell? • How to produce? • When to price/sell? • How to sell?

48. What to Produce/Sell? • Cow-Calf • Strategic • Long-term management and market considerations • Stocker • Strategic • Choosing among production alternatives

49. How to Produce? • Cow-calf production system is influenced by: • Production environment • Management considerations • Market requirements • Stocker production can potentially utilize a variety of production systems

50. When to Price/Sell? • Price may be established at a different time than physical marketing • Forward contract for later delivery • Forward sale with video auction • Hedging/options with later cash sale