How Can I Get a Better Price for My 5, 10, 20 Calves?
By Ellen H. Brisendine
“How can we get a fair price for our product, which may be a really good product, a superior product in some cases, when we don’t have any market clout?” asks Chris McClure, rancher and board member of the Northeast Texas Beef Improvement Organization (NETBIO).
McClure owns a beef cattle herd that is about the average size for a U.S. ranch. He spoke at the 2018 Cattle Raisers Convention in March about how ranchers can work together to sell their cattle and get a better-than-average price.
Knowing your buyer is a good place to start
“I want to talk about putting yourself in the boots of the person who’s going to buy your cattle. If you want to know why John Smith buys what John Smith buys, then you have to look at the world through John Smith’s eyes,” he says.
The average herd size in the U.S. is around 30 head of cows. It is hoped that most of the cows have a calf each year. The calf crop will be an average of half bulls, half heifers.
In this scenario, “You don’t have very many animals to market and so you don’t have a lot of market power. We have to establish some way for the buyers of the cattle to see what we have and to realize that we actually do have a superior product in some respects,” he says.
Editor’s note:
This is a true story. Last fall, I sat next to a rancher at the opening general session of a large beef breed association’s convention. After exchanging pleasantries, he said he recognized me as being the editor of The Cattleman and wished I would figure out how the owner of a small herd of cattle could get a better price for his calves and then put that story in the magazine.
We get this question a lot and we struggle to find the silver-bullet formula for success.
Shortly after, I was talking with Chris McClure, who told me about selling his calves through the NETBIO sales at Sulphur Springs. We invited Chris to speak on this topic at the 2018 Cattle Raisers Convention.
I have always learned more from the real-life experiences of other people than from theory. I hope you will read what Chris has learned and shared at the Convention. Maybe some of his real-life experiences will help give you a broader understanding of the calf buyer and get a better price for your calves.
“We can do absolutely everything right, have good genetics, vaccinate, have the best calves in the country, but if buyers don’t recognize all this then we get an average price or worse,” he says.
For most ranchers with herds in this average-size range, the best venue to sell the calves is the livestock auction market. “When you do that, your calves get mixed with everybody else’s calves,” and they may not have been managed as carefully as your calves.
While the ultimate customer of the beef production chain is the consumer, in practical terms cow-calf ranchers are “building a product to sell to the next guy who’s going to own that calf. The consumer affects his decision-making because ultimately that supply chain is going to lead to the consumer. But the consumer is not driving his response to the animal passing in front of him in the sale barn.”
The stocker operator or backgrounder who sent an order buyer to the auction market is in a margin business, McClure explains.
“He wants to buy low and sell high. Between those two points, he has some costs of operations. His efficiency at managing those costs affects, to some extent, how much profit he makes. When he buys that calf, that is when he makes his money 9 times out of 10. When we run our calf through the sale ring, we have to realize that the buyer is thinking, ‘I want to get this inventory as cheaply as I can.’”
The stocker operator’s margins are thin and, in general, this segment of the beef production chain is highly leveraged. “Frequently, the stocker operator has only about 15 percent equity in his inventory. That is not very much. You probably have 80 or 90 percent equity in your ranch, in your stock, in your land. If you don’t, you will have it eventually because you’re building that latent income,” McClure explains.
If the stocker operator knows that the calves he is buying are of greater value, then he will pay “a little bit more for them because he knows his return on that inventory is going to be slightly higher.”
If you have been to an auction at the local barn, consider the speed at which the cattle are sold.
“How long does that order buyer have to make a decision on that animal? 30 seconds? Maybe a minute? More like 20 seconds. The order buyers have 20 seconds to judge the value of that animal passing through the sale ring.
“They’ll look at the general breed type, they’ll give it a muscle score. They will say, ‘Okay this is a growthy-type animal, this Charolais cross is going to be heavily muscled, it’s going to weigh about 1,300 pounds.’ In that 20 seconds, the buyer decides how that animal will perform over its lifetime until it reaches slaughter.”
It is helpful to consider the stocker operators’ costs of production, McClure suggests.
“This is the area where most cow-calf operations disconnect with the buyer of their cattle. They don’t think about his costs of operations impacting what he is willing to give for your calf. They just say, ‘Hey, I got a great calf, he’s worth top dollar.’
“The guy buying your calf is thinking about that animal in a totally different way. He’s saying, ‘Is he going to get sick? What is my risk here? Was he road-weaned this morning or has he been through a preconditioning program?’”
“Road weaned,” or abrupt weaning, generally means that the calf was separated from the cow and that same day, or a few days later, was sold in the weekly auction at the livestock market.
These calves are highly likely to be sick due to the stresses of weaning and being in an unfamiliar environment.
It’s a good idea for a cow-calf rancher to expect the stocker operator and feeders buying those calves to be assume-the-worst kinds of businesspeople when it comes to the cost of owning the calves they buy.
McClure says they are asking themselves, “What are my risks of having exceptionally high costs on this animal while I own this animal?” If they don’t know otherwise, they assume the calf is probably going to get sick and possibly die.
The stocker operator or feeder has additional operating expenses, the electric bill, water bill, labor, fuel, which all come out of the gross operating profit, as do taxes and other amortizations. “His bottom, bottom line, is his net profit,” McClure says, and then digs a little deeper into the buyer’s business.
“Remember that he is trying to get a cost advantage on his inventory purchase over his competition. In the last 20 years, the average return to a cattle feeder has been $10 per head. He has a lot of money tied up over a long period of time, usually 6 to 8 months, to make $10 a head,” McClure says.
The buyer is looking for value. “If he knows that animal has been backgrounded correctly and is less likely to get sick, he’s going to pay a little bit more for it. At the end of the day, he is paid on the pounds of beef he sells. If he knows the calf has the genetics to produce a lot of meat, he is going to give just a little bit more for it. If he sees the calf was on a good plane of nutrition, he will pay a little bit more.”
The stocker operator and feeder are also watching the futures market to determine the risk of beef cattle prices falling. “The guy who is buying your calf can tell you what happened in the future’s market five minutes ago if it’s open. They are looking at the feeder cattle and live cattle futures boards. They are very sophisticated in managing their price risk. They have to be when their margin is $10.” ‰
20-second sale window
When faced with the challenge of the 20-second sale window, what can a cow-calf operator do to get more dollars for his calves? McClure says to take as much of the unknown out of the situation as possible.
“The first and most important thing is to get uniform groups of calves. That is not easy to do when you have 30 head. If you can work with others and turn those 30 head into 90 head or 280 head, suddenly you can start to get these cattle in more uniform groups.”
You are doing the sorting for your buyer, McClure says. “The buyer at the regular Monday sale at Sulphur Springs is buying calves one animal at a time. He may have an order for a truckload of 550-pound black and black baldy steers and an order for a set of Charolais heifers weighing 450 pounds.”
At regular sales, most cattle are run through the ring one at a time, so the buyer is forced to purchase one at a time, which is tedious and time-consuming. Going to three or four sales to fill the orders adds to his cost.
Providing the buyer with the opportunity to get a truckload lot is a useful service, McClure says. “A truckload is 48,000 to 50,000 pounds, ideally. Remember that the average profit for the cattle feeder is about $10 per head. He wants to fill that truck full.”
McClure gives a real-life example from his business. “We shipped 175 head to a feedyard and paid $3.60 per loaded mile. The total cost for shipping 175 animals was $3708, or $21.18 per head. If there had been only 150 animals in the load, the freight would have been $24.72 a head. We are talking about roughly $3.50 difference just by having a full truckload. Saving $3.50 out of $10 average profit is a 35 percent improvement on the bottom line. It’s important.”
Another advantage of participating in a special sale is adhering to known health and management protocols, McClure says. This turns more unknowns into knowns if the buyer knows that the consignors to special sales agree to manage their cattle according to a set of guidelines for vaccinations, preconditioning, and other factors.
“If your buyer knows that your cattle have been vaccinated, dewormed, castrated, dehorned and can verify it, he’s willing to pay you for that because it costs him money to do that very thing. The value of that is about $100 to $120 per head in performance. In our operation, we wean our calves on the ranch. It costs about $45 to $60 max to cover supplemental feed and other preconditioning costs. It’s worth that cost because of the additional dollars I can get for those animals in the long-term.”
If the buyer knows that the calves have been weaned for long enough to understand feed troughs and water troughs, that adds value, McClure explains.
“Knowing that the calves you are buying are bunk broke, that they know how to eat out of a feed bunk and how to find the water trough, is helpful for the buyer.” It is likely that the calves you sell will end up on a wheat field hundreds of miles away from your ranch. The fences may be electric wire and water may be available in troughs.
McClure says the first things calves do when they are unloaded is look for boundaries and for water.
If they have never seen a water trough before, they may go 24 to 48 hours before they find the water.
“The most important thing in getting cattle healthy after a long haul is rehydration,” McClure says. “If they’re not rehydrated they’re likely to get sick. Put your calves in a small trap where they stumble over the water trough and are able to recognize it at their next stop in the beef production chain.”
Whether these suggestions are extra effort for a rancher or are standard operating procedures at your ranch, the fact that a participating rancher is doing all these protocols has to be verified to turn the unknown into the known.
“The buyer at a special sale is a different guy than the buyer at a regular sale,” McClure explains.
The regular sales tend to draw bargain hunters. “He’s looking for deals. He wants cattle that he can upgrade. The buyer at the special sale is a value buyer. If you can create that value for him, he is going to pay you for it.”
Key roles to make a special sale a success
McClure says that organizing a special sale requires help to fill key roles.
The first key role is the auction market. “Special sales are a way to support their auction market business. They can help get the right buyers and sellers together in a venue where everybody can benefit.”
Leading ranchers can have a role in special sales. “I don’t care how big your herd is, there’s 10 to 20 percent of your calf crop that doesn’t fit and you’re looking for other avenues to market those calves to maximize returns,” he says.
Educators play an important role in special sales. McClure suggests involving the Texas A&M AgriLife Extension county agent and Extension beef specialist, who can help you put together a plan for the sale.
Veterinarians are important to special sales because they verify and certify that the health and management protocols are being carried out by participating ranches.
“Within NETBIO we have a committee of veterinarians who investigate any questions buyers have about the cattle they purchased in our sale. If they had a calf with a health problem, the question goes back to our committee. They investigate and help us enforce our requirements.
Other important roles are those of financial institutions. “They can help you get enough producers together in your area to actually have a successful sale.” Pharmaceutical companies can help with supporting educational programs for participating ranchers and promoting the special sales. “You may need to send out flyers or make phone calls. It takes work,” McClure admits, “but when you’re talking about making significantly more dollars per head that you sell, then yes, I’m willing to put in a few hours to help make this happen.”
One sale will not be enough, McClure says, because not all the calves will be ready to sell at the same time. “Plan on at least three to four special sales through the course of a year to accommodate all the producers.
He says that in 2017, “We sold almost 50,000 head through our special sales, from more than 800 ranchers from 54 counties in Texas and six states. They’re bringing cattle a long way because they know that there’s value in these sales.”
How Can I Get a Better Price was developed from a talk presented at the 2018 Cattle Raisers Convention. Mark your calendar for March 29-31 for the 2019 Cattle Raisers Convention.