Today’s rapidly-changing market for beef calves is still most favorable to cow/calf operators who market calves in truckload lots. Not surprisingly, calf buyers like to purchase and transport calves in groups large enough to fill a commercial cattle truck (also known as a cattle “pot” or “pot belly”) to save on freight.
Importance of Truckload Lots
In most states, a cattle truck is legally allowed to haul about 48,000-50,000 lbs of cattle, with some states allowing 60,000 lbs or more. Therefore, in addition to the forces of supply and demand, cost of freight has a substantial affect on calf price, especially when diesel is $3 or more per gallon!
In order for one owner to market 50,000 lbs of cattle (commonly known as a “load lot”), he would need to have at least 80 calves weighing 600 lbs each. This requires a cowherd of nearly 200 cows (or more, if the lot is uniform and all the same sex). Fewer cows may be needed if calves are heavier, sold later (and are heavier), and not uniform in size, age, breed, or sex.
Despite the fact that most marketing options cater to large operators, nearly two-thirds of U.S. cow/calf producers do not have enough weaned steers to market them as a truck-load lot (65.9% own less than 200 cows). As a result, most cow/calf producers market their calves in small groups through auction markets.
Video and Internet Auctions
Historically, about 85% of producers marketed their steer calves through livestock auction markets. In 2003, a greater percentage of cattle were being sold via video and internet cattle auctions (11% and 5%, respectively) and private sales (23%). This change has primarily benefited larger producers, since these methods require that cattle be in load lots as a service to their buyers. A survey of North and South Dakota producers indicated that as herd size increased, a producer was more likely to sell calves via either a private party or video auction compared to an auction market. In addition, as herd size increased cost per head associated with selling via private party or video auction decreased.
Since small- and medium-sized cow/calf producers are facing a reduction in marketing options at weaning time, they are exposed to fewer buyers. This forces these producers to be “price takers,” rather than “price makers.” Ultimately, fewer buyers will lead to less interest in their cattle, and oftentimes a lower price.
Livestock auction markets have done a great job creating a marketplace for these producers to sell their calves. They are basically providing a chance for their buyers to pool your calves together with others’ calves to make truck-load lots. In addition, niche marketing (including freezer beef and organic beef production) has provided producers with some additional, but limited, options for marketing smaller groups of calves.
Calf Marketing Pools
To overcome the load lot ‘requirement’ that most video auctions, internet sites, and order buyers have, some cow/calf producers have developed “Calf Marketing Pools” to increase the demand and price for their calves. These small ‘alliances’ have been formal (including by-laws, elected officials, etc.) and informal. However, their primary objective is the same – to increase the number of prospective buyers bidding on their calves.
A Calf Marketing Pool will only work if participating operations have similar programs. Ideally, the breed makeup and quality of the cowherd, date of calving and weaning, and vaccination programs should be almost identical. In addition, producers should have similar marketing philosophies, know and trust each other, and commit to making a cooperative marketing effort work.
Producers interested in initiating a Calf Marketing Pool should consider these key steps:
- Initiate the pool:
- Identify possible operations
- Secure member ranches
- Form a legal partnership (is it necessary?)
- Determine cattle characteristics (breed, sex, age, size, etc.)
- Determine sale method (decide early):
- Local auction market
- Video auction
- Internet sale
- Order buyer/private treaty
- Selling the cattle:
- Timing of sale and delivery
- Determine base weight
- Decide on an acceptable price
- Cattle management prior to sale (off-the-cow, backgrounded, etc.)
- Delivery of cattle:
- Central location to haul to
- Sorting of calves
- Weighing conditions (shrink/slide)
- Handling of money
Producers who have participated in Calf Marketing Pools indicate that their key to success was in the identification of producers who were trustworthy, easy to work with, and willing to compromise. In addition, decisions were made early and regular meetings were held.
A group of seven producers in central Idaho has collectively marketed their calves for almost 10 years. The calves have been sold via video auction in late summer, for fall delivery. In general, calves returned upwards of $2-10/cwt more than calves sold at the local auction market around the time of fall delivery.
A Utah pool, which groups as few as 10 calves per owner, uses some baseline rules of operation. As would be expected, cattle that fit pre-set specifications (breed, sex, weight, etc.) are committed by each owner, video-taped, and sold via video several months in advance of delivery. At delivery time, producers haul their cattle to a central location where they are sorted, weighed, recorded, pooled, and shipped. The pool receives payment from the video auction company, and distributes funds to each participant.
Even producers who don’t quite have enough calves to successfully pool with others and sell as a load lot can benefit from pooling. Oklahoma State University data collected during 2001-2003 indicates that selling a group of 10-15 head (vs. just one head), can lead to a $2.50/cwt premium (Figure 1). Additional research done in Oklahoma and by Kansas State University indicates that the optimum size for a set of cattle to be sold at an auction market was about 45-55 head.
Figure 1. Price premiums paid by buyers based on lot size, 2001-2003 average (adapted from Ward et al., 2003)
The Bottom Line
The majority of U.S. cow/calf producers are unable to utilize the multitude of new marketing options available in the industry. As a result, these small- and medium-sized producers are receiving less income for their calves. Producers should consider working with neighbors or other local producers to decrease cost and increase revenue by forming a Calf Marketing Pool to gather and sell load lots of cattle.
If collective marketing of your calves is a success, the next step could involve the formation of a retained ownership alliance. By commingling groups of cattle from different owners, the collection of performance data (both feedlot and carcass) necessary to help make informed selection and culling decisions would be possible.