Dale Miller, Richard Lichtenwalner, Roger McCraw and Beecher Allison
Extension Animal Husbandry Specialist
North Carolina State University
 

 Marketing options for producers are more numerous if the entire production program has followed prescribed management practices. These practices include sound selection decisions to produce desirable feeder cattle, a restricted breeding/calving season to increase uniformity in calves, good forage management, and an appropriate herd health program. Assuming a producer has made reasonable efforts to incorporate these practices, several options are available for marketing his feeder cattle.

 The first and most common is the weekly livestock auction. Approximately 25 different sale facilities exist in North Carolina which hold a sale of this type. These auctions operate year round with some concentration of cattle numbers sold in the Fall months and again during late Winter and early Spring. During emergency situations such as Summer droughts, numbers at such auctions may increase substantially. While weekly auctions provide the facilities to process, weigh and sell cattle, they also act as middlemen in the cattle distribution system within the United States. These auctions repackage a wide variety of cattle including bulls, cull cows, and processed and unprocessed calves, into more uniform lots that are more acceptable to buyers. These buyers include commercial cattlemen, order buyers, packers and traders. Weekly auctions operate on a commission basis which generally ranges from two to four percent of the sale value of individual animals. The number of cattle sold through weekly auctions vary considerably between location,  which influences the number of prospective buyers and ultimately the prices paid for cattle at a particular market. A weekly comparison of numbers sold and prices paid for various classes of cattle at these auctions is available from the Markets Division of the N.C. Department of Agriculture.

 A second sale type available to producers are the North Carolina Graded Feeder Cattle Sales. This is a cooperative effort by the N.C. Department of Agriculture, the N.C. Cattlemen’s Association, the N.C. Cooperative Extension Service and participating livestock markets. In these sales, cattle are sorted into uniform lots based on sex, weight, grade and breed. Feeder cattle grading standards developed by the USDA in 1979 are used to assemble similar cattle types with a maximum weight spread of 100 pounds. The purpose of graded sales is to group similar cattle into uniform lots, allowing buyers to minimize assembly and transportation costs, thus increasing their relative value. These sales have operated in North Carolina since 1952, providing small cow/calf producers an auction alternative with a strong educational component. Cattle producers see their feeder cattle graded and realize the financial impact of producing desirable cattle types. Cattle sold through these sales have consistently brought premiums of $5.00-7.00/cwt. over similar cattle sold through weekly auctions.

 A third sale option which has recently increased in popularity are direct farm sales. This option is the most desirable to many cattle buyers because cattle are offered in 48,000 to 50,000 pound lots, the most efficient size lot for transportation. These cattle are from a single large farm which has sufficient cow numbers to produce large numbers of calves similar in type and size or from a backgrounding operator who has purchased the cattle over some period of time. Health risks for potential buyers are usually minimized due to co-mingling, sorting and vaccination of these cattle prior to sale. These cattle are usually heavier than individually sold  feeders, accustomed to eating grains from a feed bunk, and adapt quickly to a feedlot environment with little stress or weight loss. Farm direct cattle typically command price premiums ranging from $2.00-6.00/cwt. over cattle sold through other marketing methods. In 1996, these premiums increased to even higher levels.

 Several types of direct farm sales are available to producers with adequate cattle numbers. Tele-auction sales are held via conference telephone calls where sellers and buyers hold a private auction. Buyers base their decisions on a written description of each lot, developed by a reputable agent who has seen and evaluated the cattle. Video and satellite auctions incorporate video footage of each lot sold, along with a written description developed by a qualified representative. Although premiums are not assured, these sales have the advantage of commanding large audiences of potential buyers where other sale types may be influenced by a limited buyer audience.

 Once a method of sale has been determined, feeder cattle prices are heavily influenced by weight, lot size, sex, breed, grade and condition. In general, per hundredweight prices paid for lighter feeders are higher than per hundredweight prices for heavier feeders. Prospective buyers of feeder cattle estimate future costs of gain on each set of cattle. The lower the expected cost of gain relative to the expected future sales price per hundredweight, the higher price buyers are willing to pay. Alternately, as cost of gain rises due to rising feed prices, these price premiums for lighter feeder cattle decrease. In 1996 when corn prices rose drastically, these premiums for lighter feeders almost completely disappeared.

 A 1993 survey of cattle sold through Tennessee livestock auctions emphasizes the economic importance of several of these factors. Data were collected on over 52,000 head of feeder cattle by the Tennessee Department of Agriculture and analyzed by the University of Tennessee Agricultural Economics Department. Of all lots sold, 87% were sold individually, 7% contained two head, and 3% contained three head. The presence of two head in a lot added $.65/cwt., while the presence of 60 head in a lot raised the sale price $3.81/cwt. compared to similar cattle sold individually. On 500 pound calves, the latter price premium for lot size amounts to $19.05/head. Keep in mind this premium would only be available to the producer willing to control his breeding program.

 The survey also compares selling bull calves versus steers. Thirty-nine percent of the male calves sold in this study were bulls which were discounted $2.09/cwt. compared to similar steers. Using the same 500 pound calf example, the discount  associated with selling bull calves totals $10.45/head. Although intact bulls do gain faster than steers, they also add management problems as bull and heifer calves approach puberty. Heifers also sell at a discount to steers of the same description due to performance differences. Heifers gain at a slower rate than steers, thus prospective buyers discriminate against heifers. The lighter the feeders, the more these performance differences affect returns and the greater the heifer discounts.

 Breed, breed combination or color of feeder cattle has a substantial impact on price. In North Carolina, black and black white faced cattle typically sell at the top of any given feeder market. Exotic cross feeders sell at $3 to $5/cwt. discounts to blacks and red cattle may be discounted $5 to $10/cwt. Zebu influenced feeder cattle sell at similar prices to red feeders. This situation is not necessarily true in other parts of the country but seem to be consistent in the Southeastern U.S.

 A third aspect of the Tennessee survey evaluates frame size discounts. Small framed cattle in these sales were discounted $16.97/cwt. compared to similar, medium framed cattle. This differential exceeds discounts from North Carolina graded sales where small framed cattle typically average about $10.00/cwt. less than similar weight medium framed cattle. This $10.00\cwt. discount equates to $50.00/head in a 500 pound calf. A difference which the profit minded producer cannot afford to overlook.

 A final point from this survey details a muscling discount for feeder cattle of less than average thickness (USDA No. 2’s). These cattle were discounted $11.58/cwt. compared to similar, thicker muscled cattle. Again this difference seems large, as we typically expect a $5-8/cwt. discount for thin muscled cattle in N.C. graded cattle sales. Producing and selling thin muscled feeder cattle  cost producers $25 to $50 per head compared to producing average or better muscled cattle. With only these four factors included: lot size, sex, frame and muscling; a producer can vary his expected gross returns by $100.00 per head.

 Flesh and weighing conditions of feeder cattle are also critically important to a backgrounder or feedlot operator. Within reasonable limits, decreasing amounts of flesh or body condition make feeder cattle progressively more attractive to cattle buyers. Cattle with less flesh often gain weight at a faster rate than fleshy cattle. Alternately, healthy, parasite free cattle grazing good quality pastures and supplemented with high protein and energy rations may gain weight rapidly and become over conditioned, or fleshy, creating buyer resistance. Small framed cattle are especially prone to over-fleshing. Subsequent daily gains of fleshy feeder cattle are generally lower than gains from moderate to light fleshed feeders.

 Most feeder cattle sold direct from farms are weighed on the truck, shrunk by two percent, and the resulting weight multiplied by the agreed price. This weight adjustment is intended to account for gut fill in cattle from grass pastures. Most buyers will also request that cattle be penned and held off feed the morning of shipment. Shrinkage in transit is reduced under these conditions compared to shipping cattle soon after feeding. Under certain conditions, a shrink adjustment is not warranted. For example, cattle that must be penned in several locations and transported to central loading facilities will loose a considerable amount of gut fill and will be relatively empty at the time of weighing. The price of these cattle may also be adjusted up or down for differences in estimated weights versus actual weights at time of loading. This adjustment is known as a “slide” and, depending on the price and weight of the cattle, may range from $2 to $8/cwt.

 A final combination of issues to consider are the cattle cycle and the seasonality of cattle prices. Because the consumption habits of today’s consumers are relatively stable, the supply of beef has a large effect on beef prices. When net returns to domestic cow/calf operations are relatively high, producers expand their herds and total cattle populations begin to rise. This increase in cattle numbers results in increased beef supplies, which eventually reduces retail beef prices. Resulting net returns to cow/calf producers recede and cattle numbers begin to decrease. Due to the relatively slow reproductive rate of cattle, these cycles usually range from 8 - 12 years in length. Numerous other factors such as grain prices, exports, weather, and government programs affect the cattle market, but usually lack the significance of cattle numbers on resulting beef supplies. Figure 1. shows the cyclical nature of domestic cattle inventory.

Figure 1. 

 

 
 In any given year, the supply of feeder cattle fluctuates in a somewhat predictable pattern. Most calving is concentrated from Fall to Spring, thus most feeder cattle are weaned and sold the following Fall as 8-10 month old feeders. The local demand for grass type cattle; cattle weighing less than 600 pounds, is generally greatest in the Spring when grasses are most available. This is also a time when available supplies of feeder cattle are low. Consequently, the cattle market typically peaks in the Spring (when demand is high and supplies are low) and bottoms in the Fall (when demand for grass cattle is low and available supplies of feeder cattle are abundant). This seasonal trend is somewhat predictable but not assured. A recent 10 year study by Lichtenwalner at N.C. State evaluated average feeder prices by month and developed a price ranking system. Average prices for each month were ranked from 1-12, with 1 being the month in which prices are lowest for that year and 12 when the prices were highest in that year. This study compiles monthly prices for one complete cattle cycle and confirms the predictability of seasonal price fluctuations. As shown in Figure 2., prices for 500 pound feeders are highest in March and April and lowest in October.

 Figure 2.

 An earlier study by Futrell at Iowa State University showed similar results. A price index and variability of price was determined by month for each of four classes of cattle; commercial cows, light weight feeders, heavy feeders, and slaughter steers. Futrell found that commercial cow prices were highest from March through May and had moderate to high price variability. Light weight feeder steers (400-500 lb.) were highly variable with March through May, again, having the highest prices of the year. Heavy feeder cattle (700-800 lb.) showed little seasonal variation with February through May slightly above the annual average. Slaughter steer prices were higher from April through July, with May being the peak month. Variation in slaughter steer prices was moderate.

 Figure 3. shows average price differences in N.C. between cattle of the same weight sold in the three Spring months versus the three Fall months. For 500 pound calves, this difference averaged $14.10/cwt. for the ten year period. The seasonal variation that exists for prices paid for feeders makes the winter stocker enterprise an attractive alternative to producers with available feed resources, facilities and labor. Knowledge of these patterns and the factors which affect them is critical for informed marketing decisions.

 
 
Figure 3.

 Factors affecting the overall beef market can be quite complex and fluctuations difficult to anticipate. Climatic conditions in other countries can influence grain prices and result in significant, unpredictable swings in cattle markets. Supplies and prices of competitive meats can also change unexpectedly and impact the beef market. However, seasonal price patterns for cattle tend to be somewhat predictable. Producers familiar with these patterns can alter their production and marketing programs to take advantage of these patterns and substantially increase net returns to the beef enterprise. Conversely, failure to recognize these patterns and alter their marketing plans will require producers to accept existing prices which in peak marketing periods may be below their cost of production.