Introduction to Livestock Marketing

 
 
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Introduction

To the astute livestock producer/marketer, marketing means more than just selling. Astute marketing involves the entire planning process required to produce, promote or merchandise and price a commodity.

The first step in the marketing process is producing the type of stock - hogs, beef cattle, or sheep - that the livestock producer wants to produce. Of course, thought, the producer must produce the kind of animals that the market place wants. It is often a costly lesson to produce an animal that the market place doesn’t particularly want.

Other essential components of the production and marketing process include: estimating production costs, calculating cash flow needs, knowing what type and quality of animal has been produced and which buyers will be interested in that type of animal. A final, and equally important, step in the plan is evaluating the pricing and delivery alternatives.

Once the final sale has been made, it’s very important to review the marketing process to determine what worked well and what needs to be improved.

This module outlines how the marketing process can be organized into a number of very logical steps. The “Livestock Marketing” section of the marketing manual contains relevant modules that focus on these individual marketing steps in more detail.

Steps to Livestock Marketing Success

1. Estimate costs
The first step involves accurately estimating costs of production and cash flow needs. This step is listed first because it is vitally import. Even though figuring costs and cash flow needs can be done at any time, it really is best to complete this step as early as possible.

By estimating both production costs and cash flow requirements, a producer can decide what type of animal to produce and when it will have to be sold to meet payment schedules. These estimates, along with price forecasts, should be used to determine how the animal will be marketed. (See Breakeven Analysis for Feeder Cattle).

A producer who knows his or her past production costs and future price forecasts, can also determine when to retain female stock for breeding expansion or when to cull more heavily. Breakevens or production cost estimates are critical in setting a series of target prices that should be watched for in the changing market.

2. Gather market information, including market outlook
Following market trends and projected livestock prices helps a livestock producer decide what to produce in order to bring the greatest return. For example, deciding whether to sell weaned calves, yearlings or slaughter cattle depends upon the market outlook for each of these animals. A producer may follow the United States market for price signals that may relate to our market. By following the US market, a producer may detect a market trend or even identify an export opportunity to a US market. For example, a decision could be made to finish animals to specifications required by an American buyer.

3. Know your product
The quality and type of livestock for sale must be assessed before a producer can seriously evaluate the various pricing and delivery alternatives. A producer that knows exactly what kind and quality of animal he or she has for sale, can contact buyers with the information they need. If there are premiums offered in the market for your type of cattle or other livestock, you will be better able to capitalize on them.

Knowing your product also involves presenting them favourably. Sorting animals into lots of similar size and weight will make them more attractive to buyers. Selling clean and healthy animals helps in reassuring buyers they are paying for a quality product.

4. Set several target prices
Setting target prices is a big help in making livestock marketing decisions. However, a livestock producer can only set target prices by knowing actual or accurately estimated production costs. A marketer must also know what the market is paying, or is expected to pay. The level and timing of these target prices should be set based on quality market outlook information, cost of production figures and cash flow needs rather than expected profit levels. The advantage of setting several target prices rather than just one price allows a producer room to respond to changing market trends. Staying in touch with the market is crucial when trying to hit a target price.

5. Evaluate pricing and delivery alternatives
Producers should evaluate all available alternatives for pricing and delivering their livestock. Each alternative has specific features that may make it more suitable than another in certain circumstances.

There are several livestock pricing choices available for any strategy. A forward contract offers a producer an opportunity to lock in a price for his livestock ahead of an expected sale date. Other alternatives are available for pricing livestock. They include open bids at auction markets, producer or breed association sales, video auctions, satellite and internet auctions, direct sales to packers, sales to livestock order buyers or using the futures market and a hedging strategy. Producers should keep their target prices in mind as they consider each pricing alternative.

There are a variety of pricing methods for the market delivery alternatives listed above. These pricing methods determine such things as whether an animal is sold live or rail graded and whether it is sold with a pencil shrink or not. All aspects of a pricing agreement will have a direct influence on the final return a producer receives.

When evaluating marketing alternatives, producers should keep in mind how their animals will be delivered to the buyer and if this delivery method will influence the settlement price. The method of transport includes both the operating costs of the truck and the costs of lost weight or quality of the animals. These factors should be considered as producers decide how and where to have their livestock priced. Pricing and delivery decisions are typically made together when selling. The pricing decision will sometimes dictate what the delivery method will be. However, both pricing and delivery methods can often be negotiated when reaching a settlement price with a buyer. A producer, who knows production costs and cash flow needs, can better determine if the price being negotiated is suitable for the producer’s business needs or personal profit goals. A producer, who knows current market conditions, can better determine if an offered price is reasonable for current conditions.

6. Stick to your plan
A livestock marketing plan involves all the steps listed above. Producers, who follow these steps, will have a thorough understanding of how their business is functioning. They will also have the confidence to stick to their plan as they watch the market change daily. Changing plans on the spur of the moment can be as bad as having no plan at all.

7. Evaluate your plan
All plans must be evaluated to determine what worked and what needs be improved on in the future. The need for evaluation also applies to the seven-step marketing plan. A producer, who looks back on livestock sales and how the returns received matched the needs of a business, will continue to learn more about what factors influence his operation. This learning process will provide opportunity for growth in the future.

Marketing is more than just selling. For your farm to be a successful business, it must include marketing as part of the overall farm management operation.

Additional Information

The Livestock Marketing section of the marketing manual expands on the topics that have been mentioned in this module. Livestock producers are encouraged to look at other modules in this Marketing Manual for further information. Also check the many other sources on Ropin’ the Web, at http://www.agric.gov.ab.ca.
 
 
 
 
For more information about the content of this document, contact Chris Panter.
This document is maintained by Magda Beranek.
This information published to the web on November 14, 2006.
Last Reviewed/Revised on October 31, 2012.