UNDERSTANDING CATTLE MARKETING

PART 1 of The Series: A LIVING WAGE FROM COMMERCIAL CATTLE

AUTHOR'S NOTE - All of the premises presented in this series of posts are solely based on personal experience as a livestock producer and strictly as a cattleman (I have a basic understanding of farm commodities markets, but no real experience with such, and cannot speak with much authority from the farm side of things; Though I would think there are going to be some similarities). The information represents my opinion and is based on personal experiences. Any factual information may or may not be referenced, but be aware, the majority of the content is personal conjecture. Dialogue and comment are welcome.

 "A cattle auction is a place where honorable men try to swindle each other out of their herd." (an observation from my late Grandfather, who was an agricultural commodities buyer)


 An Introduction to the Various Methods for Selling Cattle

The marketing of livestock in the United States is conducted by a variety of businesses and individuals. The participants range from the order buyer who operates out of the seat of a pickup truck, cattle "buying stations" or "auction barns", and now video auctions that sell cattle via satellite television. The livestock marketing business has changed dramatically from the days when stock producers would send their livestock to a terminal market and totally blind of the price they might receive for their stock. Terminal markets and commission agents are still major players, but they now compete with modern day merchants who use computers, video broadcasts, fax machines, and cellular phones to market livestock. The current participants involved in the wholesale marketing of cattle include such diverse operations as feedlots, auction barns, order buyers, dealers, brokers, and video auction companies.

TERMINAL MARKETS and COMMISSION AGENTS

The term "Terminal Market" comes from the days when cattle were taken to the nearest train stop, or terminal, via trail drives and later by truck. Terminal markets usually provided a large area of livestock pens, also known as stockyards. The large meat packing firms would have buyers present to purchase the "meat on the hoof" and then arrange to ship the animals by train to the packing plants located in large metropolitan areas "back east."

 The use of commission agents dates back to the early days of trail drives when ranchers would send their livestock to an agent located at any of the larger stockyards, such as those located in  Chicago, Kansas City, and Fort Worth. These agents would then be responsible for the care and feeding of the livestock and the selling of them once they reached the yard. The agent was paid a commission, by the cattleman, based on how much the animals brought at market.

The Auction Barn
Livestock are consigned to auctions by ranchers, to be sold by an auctioneer. Because transprtation is a major expense, most often the producer will send their livestock to the nearest auction market. These auction markets are usually individually owned, though a few are owned by large food conglomerates. The owner of the auction receives a commission or a per head fee for selling the livestock in addition to charging for the feed consumed while the livestock are in the auction yard. 

In an auction livestock are typically sold by the pound except in the case of animals being sold strictly for breeding. Breed stock are usually sold by the individual head. For example, a breeding bull may bring as much as $2500 or more, whereas a steer destined for the feedlot is sold by weight "on the hoof". Simply put, a buyer  purchases the animal by the pound.

Sitting in the auction arena are the" buyers". They make their living attending  auction sales throughout the week. They may be order buyers working for  a single rancher or a buying syndicate, or they may be employees of a feedlot or a packing house. Order buyers are very knowledgeable and highly skilled at what they do. They are paid on a commission basis, and are responsible for purchasing hundreds (sometimes thousands) of head of cattle each week.


CUSTOM FEEDERS
A growing trend in the beef business in the last 30 years is the custom feeding of cattle. This means that a rancher contracts to have his cattle placed in a feedlot. He then pays for daily feed and yardage (cost of using the facilities) expenses. He then sells the cattle to a packer when they reach the weight required for processing. This method allows the rancher to retain ownership of the cattle all the way through the feeding phase. The cattle are then sold on the projected grade of the beef as well as on a weight basis. Simply put, the price per pound is determined by the expected quality of the meat.

PRIVATE TREATY SALES 
Some cattle producers like to sell their livestock through private treaty or "in the country," which simply means that buyers come to the ranch or farm to purchase the animals directly from the owner rather than from an auction market. 


SATELLITE VIDEO AUCTIONS
This relatively new tool allows cattlemen to offer their livestock for sale to buyers all over the country through the use satellite television technology. A video of a group of cattle pictures of  a particular

ranch's consignments of livestock are broadcast on the scheduled day, and buyers can view the livestock on their  television, via a broadcast subscription service. While they are viewing the livestock, they can make bids by telephone or internet to purchase cattle through this high tech version of an auction.  


PART 2: A Living Wage From Commercial Cattle
Life at the "Craps Table".