Farm Table says:
This is a summary of a blog series on Livestock Marketing by the Farm Table.
In this series we are focusing on:
- Am I a marketer or seller of livestock?
- What are my selling options for livestock?
- Livestock Marketing Tools and Frequently Used Terms
Livestock marketing refers to the integrated process to produce, promote and price a commodity. In this first post for the week, we decipher the difference between marketing and selling livestock and outline the key steps involved in the marketing process.
What is the difference between selling and marketing livestock?
Target marketing refers to building a dedicated production plan to hit an end market of your choice. This particular blog series has been inspired by the work of Roger Sneath (Am I selling or marketing cattle?, FutureBeef ). Sneath explains the difference between marketing and selling livestock:
Selling is transferring ownership of the livestock you have produced to the meat works or saleyards.
Marketing is an overall management process of identifying, anticipating and satisfying customers’ demands, for a profit. Marketing involves identifying customers and their needs, knowing what you can produce profitably, and using feedback to refine production and services.
“It (marketing) is a far cry from spot selling, which is determined only by an individual’s wish to get rid of stock on hand. Some beef producers consider they are already committed to a particular market but in reality they are still day to day traders (i.e. spot sellers) with little or no commitment beyond the farm gate,” stated David Llewelyn back in 2003. (How relevant do you think this comment is today, fifteen years later?)
Why bother with marketing?
A marketing strategy for your livestock establishes a position and plan for your business to maximise returns. It also helps you better manage your production system and price risks.
All of the work you do in your production system is vital, including genetics, nutrition, animal and pasture management. Having an integrated and value-driven marketing approaches helps you to capitalise on all this work when animals finish their time on your property, thereby generating revenue.
Alistair Rayner explains:
I’m often asked by producers for my ideas on ways to increase the income they receive for their cattle. Sadly I don’t think there is one simple scheme, breed or idea that will guarantee you will make more money! So what should you be focussing on? The first thing is your market. Australian beef markets are well defined. If you are selling cattle to a feedlot or to an abattoir, both of these destinations can clearly describe what type of cattle they want to buy and they can say how much they are prepared to pay for those cattle.
Despite these specifications being readily available, many people don’t appreciate what a powerful tool they are in helping you make money. Specifications provide you with target weights and fatness. This helps you determine suitable growth paths on farm for your animals. It means you can use your feed reserves and make grazing decisions that will direct your animals to a market end point. This is the focus that many people need to have but often don’t.
Sadly I often see people who put cattle into a market and those animals are overweight or over fat. This creates a few problems. Firstly the animals are out of specification, and so will be valued at a discounted level. So instead of an optimum price per kilogram, it is sometime much lower than the animals deserve.
Secondly it takes your feed resources, and therefore adds to the cost of producing those animals, to get them to the weight you sold them. So not only are they worth less per kilogram, but you also wasted feed getting them to that point.
Rayner’s real life example explains this concept succinctly:
I recently worked with a client who was aiming for a specification for a feedlot. The optimum price was for steers that were 400 – 449kg. Over 450kg the price difference was 5c/kg lower. Initially this didn’t seem to bad, however we started to look at the feed resources we had to use.
The extra cost in this instance to get steers over 450kg, effectively worked out to be the equivalent of a 25c/kg discount!
We started to look at how we were growing those steers, and by aiming for an earlier turn off at the optimum weight we were able to save around $70/hd on the steers that normally would have been in the heavy category.
To wrap this story up in past years about 10 – 15 steers would always have been too heavy, so we saved around $1000 by making a few changes and staying more focused on the plan!
What steps are involved in livestock marketing?
Understanding what class of stock can you produce most profitably: Understand your cost of production for different classes of animals.
Researching what markets are available: Meat & Livestock Australia outlines some potential livestock markets in the table below.
Understanding market specifications: What are the customer requirements of the target market?
Manage livestock to meet specifications: Managing your feedbase and animal management to achieve a successful market outcome.
Meat & Livestock Australia outlines three key steps to help producers meet market specifications. These include 1) Managing nutrition, health and welfare 2) Managing livestock 2-3 weeks before sale and during mustering and transport to achieve optimal carcase dressing percentage and avoid downgraded product, and 3) Revisit decisions to be flexible to feed supply, financial situation or market price changes.
Understand your selling options: Who are your target customers and what is the best selling method to reach them? In our next post we look at the options for selling livestock.
Monitor and measure: Gather feedback and data to analyse and continuously improve how you market your livestock.
Evaluative alternative opportunities: Research market trends and movements to see if alternatives opportunities arise.
What selling options are available to you as a livestock producer?
There are both direct (buyers purchase livestock directly from producer) or indirect (movement of livestock involves the use of an intermediary, who usually receives a commission or percentage of the sale) channels.
Selling options include:
In saleyard auctions, livestock travel to a central location, are bid on in a live environment and sold to the highest bidder on the day. As the auction takes place in a live environment, prices on the day reflect supply and demand in the market. This used to be the most popular and traditional form of selling livestock. In ‘A Review and Analysis of Saleyard Marketing in Australia’ the author explained:
In the 1880’s nearly every village had its own set of saleyards where animals were sold and often killed in the backyard of the local butcher. Saleyards were often beside a pub for farmers to refresh themselves on market day, which was a big social event. On market day the women came to town, did their shopping and met friends and relatives.
Now, smaller saleyards have given way to larger regional livestock exchanges. The ABC reported in 2017 that giant saleyards are a ‘gamechanger’ for consumers, farmers and animals. Co-director Brendan Abbey of the Western Victoria Livestock Exchange told ABC, “We have an undercover area that is bigger than the MCG, to keep the animals out of the elements, so they’re not exposed to the sun or freezing cold winds. On arrival, the cattle are immediately on a soft floor and they stay on soft flooring the whole time until they’re trucked out again.” (Bridget Rollason, ABC Rural, 10 December 2017)
MLA 2017 commissioned report Sheepmeat market structures and systems investigation, stated that saleyards remain the preferred selling channel and saleyards are generally efficient, especially the major selling centres. MLA regularly reports prices of 41 saleyards, leaving approximately 120 salesyards unreported (ACCC).
The Cattle and beef market study — Interim report by the ACCC stated that small scale producers have a greater reliance on saleyards generally, particularly in Southern Australia, where saleyard auctions account for up to two-thirds of beef cattle. It stated current issues involving saleyards including:
- Concerns among many producers that there is collusion among buyers
- Conflicts of interest are common in saleyards. Livestock agents may represent both buyer and seller, and commission buyers commonly represent multiple customers.
- Concern in the industry, mainly from cattle producers, about pre-sale versus post-sale weighing for saleyard auctions
The Australian Livestock Markets Association is the peak industry body for livestock and property agents.
Find Sales dates in our Boost database.
Paddock sales refers to when stock are inspected by a buyer or agent on the vendor’s property and then sold directly from the property. Buyers tend to buy on $/head or c/kg lightweight basis and usually larger lines of stock, but prices for paddock sales aren’t often publicly reported.
ACCC reported that “live exporters primarily source cattle through paddock sales, whereas major processors tend to purchase over the hooks (OTH), and major supermarkets predominantly use paddock sales and forward contracts.”
Over the hooks (OTH)
Over the hooks sales refer to those whereby livestock are transported directly straight to the abattoir, with or without the use of an agent. The producer is paid on a price grid and usually the ownership of the stock changes hands at the abattoir scales. Roger Sneath notes that generally transport to the abattoir and the transaction levy are paid by the vendor, and you are not paid for condemned carcases or bruise trim (FutureBeef).
Direct relationships whereby a producer deals directly with a processor is growing in value and importance across the industry. Why? As Brett Johnstone, a prime lamb producer from Woodstock NSW explained to the Australian Poll Dorset Association:
I’m convinced we get a premium for our lambs. We also have built up a rapport with the processor and are getting paid for what we produce. Producing a very consistent product means a very high percentage meet required specifications. We pride ourselves on the lambs we are producing now.
AUS-MEAT accredited abattoirs can be found at AUS-MEAT.
Farmers swore it would never work, that there was no way they would ever buy their precious sheep and cattle via a website on the internet without actually seeing, touching and inspecting them first (Sue Neales, The Australian, March 24, 2018).
AuctionsPlus (originally CALM – Computed Aided Livestock Marketing – developed in 1987) is an online sales platform. Real-time electronic auctions take place that “combine the best features of the saleyard system and allow direct consignment to the abattoir or buyer”(MLA). Stock are assessed by accredited assessors and buyers must register with the system to place bids.
The Australian reported in March 2018 in the article “Online livestock trading takes over from saleyards” that:
“In the past three years, Auctions Plus has soared from a little known e-commerce internet company, set up three decades ago as an experiment in Computer Aided Livestock Marketing by the former Meat and Livestock Corporation, to one trading more than three million sheep and 400,000 cattle annually via online matching of buyers and sellers.
The value of livestock sold last year through Auctions Plus — which is now owned by the three biggest rural service companies Elders, Landmark and Ruralco — was $834 million, up 8 per cent on 2016 and tipped to exceed $1 billion in 2018.
Last year Auctions Plus also achieved another milestone. Against the early odds, it is now Australia’s largest livestock marketplace, selling more cattle in the year than even Australia’s largest cattle saleyard at Roma, and more sheep and lambs in total than at either the weekly Ballarat or Wagga sheep sales.”
Find Auctions Plus sale dates in our Boost database.
Other online options
Additional online forms of buying and selling livestock include:
- Cattlesales: Nationwide advertising portal space solely for cattle. Be sure to check out the article on founders Woods and Parker in Graziher.
- Livestock Connect: Part of the Farm Online suite.
- Online Livestock: Online livestock classifieds built by producers Phill and Kylie Moores.
- Farm Tender: founded by former Farmer, Dwain Duxson in 2011 and has evolved from a platform focussed on farm inputs. Did you catch our chat with Dwain?
- The Herd Online: website and app for marketing livestock, machinery and auctions.
- Facebook and Gumtree: Rachel Gordon of Livestock Biosecurity Network outlines the risks of buying livestock on social media and buy, swap, sell platforms.
The internet, and in particular social media, has brought with it a new method of buying and selling livestock. Buy, swap, and sell groups on sites such as Facebook, or ads on sites such as Gumtree are now a popular way to trade goods, including livestock. This ease in trading does come with certain risks though, and it can increase the opportunity for unwanted pests, diseases, and weeds to be inadvertently spread around the country. In some cases, vendors and buyers are simply unaware of their responsibilities, particularly if they are not used to trading livestock. Perhaps they just want to have a few ‘grass eaters’ in the backyard.
Direct to Customer
Marketing a product directly to the end consumer has risen in popularity in the last decade as the Paddock to Plate movement, amongst others, have been front of mind for both consumers and producers. Farmers are now selling branded produce direct to restaurants, through Community Supported Agriculture, at farm gate and through farmers markets.
As noted by the WA Country Hour (2017):
…Livestock producers are cutting out the middleman and doing it for themselves to market their own meat direct to the public.
A combination of specialist abattoirs, social media and farmers’ markets has enabled producers like Sara and Keith Wilson from Kulin in the state’s Great Southern region to have complete control over how their produce makes its way into consumer and restaurant fridges.
When speaking to the Conscious Farmer’s Derek and Kirrily Bloom, Farming Ahead noted that ‘Switching from being commodity producers to direct marketers of a specific beef
product requires guts, determination and the ability to think and adapt quickly.”
The topic of direct marketing deserves an entire week focused on the theme, so stay tuned!
Other selling methods for livestock producers are outlined by Meat & Livestock Australia:
- Meat Standards Australia (MSA) eligible sales: Cattle can only be sold only through MSA licensed saleyards or livestock exchanges. Producers and agents must be registered.
- Forward contracts: A contractual agreement between a seller (eg producer) and buyer (eg processor) to supply a given product at a future point in time for a given price. In some cases the price is fixed, thereby reducing the producer’s exposure to a fall in market price.
- Producer alliances: A group of producers working together to service market place requirements.
- Value-based marketing:Based on the principle of being paid for the inherent value (quality and quantity) of the product to the buyer and the end user, such as systems that provide clear feedback from the consumer to the producer and has a pricing system supporting these signals.
- New selling options: A payment system based on lean meat yield is available in two Australian and eight New Zealand processing plants. It rewards those producers who carefully manage stock for optimum weight , muscle and fatness of their slaughter lambs.
Advantages and disadvantages of selling options
We have discussed both advantages and disadvantages of each option in the commentary above. FutureBeefoutlines the following advantages and disadvantages of different selling options in this handy table:
MLA state that “Remaining open to and aware of alternative market options is crucial. There may be a better price to be achieved through a different option or a better match for the range of product specifications a producer can supply”(Selling Options, Meat and Livestock Australia).
MLA state that “Meeting market specifications will help producers to maximise returns and gain a reputation as a reliable supplier of livestock. Critical variables and decisions regarding the cost effective selling method vary between locations and species”(Selling Options, Meat and Livestock Australia). So, in this final post, we bring to you a number of tools that may assist you in your marketing decision and in meeting market specifications.
Online Livestock Marketing Tools
- NSW Department of Primary Industries in collaboration with Meat and Livestock Australia, University of New England, Department of Employment, Economic Development and Innovation, University of California Davis, and US Department of Agriculture Meat Animal Research Center
- Easy to use online calculator to assist producers to manage beef cattle to meet market specifications.
- Making More from Sheep
- Module 3 from Making More from Sheep looks at marketing sheepmeat and lambs.
- This module is designed to assist sheep producers to deliver quality assured lamb and sheepmeat to target market specifications.
- Compare different selling options including saleyards, abattoir and paddock sales.
- Grain and Graze 3
- Useful online tool for producers in southern and western Australia to use in viewing historical trends for common ag commodities.
- Includes feeder steers, trade steers, japan ox, cows, trade lambs, heavy lambs, mutton, live sheep, EYCI, ESTLI.
- Agriculture Victoria – Bruce Knee
- Did you know HSCW was introduced as a national standard in 1987?
- Table to assist producers to convert cattle in cents/kg liveweight to cents/kg hot standard carcase weight from Agriculture Victoria.
We also have heard amazing things about The KLR School for all things livestock marketing! My partner Hugh and I will attend a course of theirs in 2019 – will we see you there?
Frequently Used Terms
To finish off the week we have brought together some frequently used terms and acronyms and livestock marketing. This list is courtesy of Cattle and beef market study — Interim report by the ACCC and Meat and Livestock Australia:
- Abattoir: A plant or factory where cattle are slaughtered for food (also known as a processing plant, slaughterhouse, or meatworks).
- Agent (livestock agent): Acts as an agent for the producer/vendor to secure a sale and earns commissions. Agents are active in a variety of sales channels (e.g. direct sales including over the hooks), not just at auctions.
- AUS-MEAT: Industry organisation which manages a number of industry product standards and also accredits and audits meat processing plants.
- Carcase weight: Weight of the carcase after slaughter, with standard trim and offal removed. Used to determine payment based on grids for over the hooks sales.
- cwt price: Carcase weight price – the price of a live animal expressed in carcase weight (see ‘carcase weight’) or the price of animal’s carcase (per kilogram). (See ‘liveweight price’).
- Basis: The difference between the price on the physical market and the futures price.
- Co-products (also known as by-products): Products other than meat sourced from a carcase, including hide, offal, foetal blood products (used in medical research and pharmaceutical industries), gall stones and fat.
- Cold boning (quality cuts): A form of beef processing which involves chilling the carcase after slaughter, allowing the meat to ‘set’ before the carcase is processed into certain cuts. This process allows for high quality cuts of beef, in contrast to hot boning.
- Commission buyer: Acts on behalf of a third party to procure cattle. Major acquirers of cattle generally employ their own ‘corporate’ salaried buyers and rarely use commission buyers.
- ¢/kg: Cents per kilogram. Units which cattle are sold in at a physical prime market.
- Direct sale: The sale of cattle on-farm, direct to a lotfeeder, processor, backgrounder or restocker, where there has been no intermediary party or process.
- Dollars per head ($/hd): A pricing method. Cattle ready for slaughter are generally priced according to weight, and not dollars per head.
- Dressed: The removal of an animal’s head, feet, hide and internal organs during processing. The carcase is now ready for further processing, which will be dependant on its market destination.
- Dressing percentage: The percentage of an animal’s liveweight that is its carcase weight. Used to estimate a live animal’s carcase weight from its liveweight: carcase weight / final liveweight x 100.
- Eastern Young Cattle Indicator: The indicator is a seven-day rolling average produced daily by MLA’s National Livestock Reporting Service. The EYCI includes vealer and yearling heifers and steers, 200kg+ liveweight from saleyards in NSW, QLD and VIC. The results include cattle purchased for slaughter, restocking or lotfeeding and are expressed in cents per kilogram.
- Fat score: The measure of fat cover across an animal’s ribs and rump. Ranging from 1 (very lean) to 6 (very fat).
- Feeder cattle: Cattle which are suitable to be placed into a feedlot to be fattened on a high protein grain-based diet to reach market weight.
- Feedlot: Farms where cattle are fed a high protein grain-based diet to reach market weight.
- Finished: Cattle that have reached market specifications and are ready for slaughter/processing.
- Good till cancelled (GTC) order: An order that is held by the broker on behalf of the client until it is filled or cancelled.
- Hot boning (low quality meat): A form of beef processing which involves removing the bones from the beef carcase shortly after slaughter without refrigeration. The beef is then used to produce mincemeat or in the manufacture of processed food.
- Grading: Process by which processors assess quality aspects of cattle carcasses. Involves a general assessment of the carcase, by a trained assessor, who classifies the carcase based on qualities such as fat depth and colour, muscle shape and size, and any detrimental characteristics such as injury or brushing.
- Grassfed: Cattle which have been fed exclusively on pasture to reach market weight.
- Grainfed: Cattle which have been fed a high protein grain-based diet on a feedlot to reach market weight. Over the hooks (OTH): Where cattle are sold direct to the processing plant and the producer is paid based on a price grid. The weight of the processed carcase along with the carcase grade is used to determine price.
- Heavy mutton: Sheep weighing over 24kg cwt.
- Heavy export: Lambs weighing over 26kg.
- Heavy trade: Lambs weighing between 20–22kg cwt, also known as a supermarket lamb.
- Heifer: A female bovine that has not produced a calf and is under 42 months of age.
- HSCW: Hot standard carcase weight – used to describe the weight of an animal, particularly when the animal is sold over the hooks.
- Over the hooks (OTH): Where cattle are sold direct to the processing plant and the producer is paid based on a price grid. The weight of the processed carcase along with the carcase grade is used to determine price.
- Liveweight (‘over the scales’) (pre and post-sale weighing): Where cattle are sold based on their live weight of the cattle, usually in cents per kilogram. Also referred to as ‘over the scales’. Pre-sale weighing is favoured by producers, whilst post-sale weighing is generally favoured by buyers (although some processors say prices are not affected by the method).
- MSA: Meat Standards Australia – a meat grading system designed in Australia. Used to describe the guaranteed eating quality of Australian beef.
- Paddock sales: Cattle are inspected on the vendor’s property by the buyer and are sold straight out of the paddock. Price is generally negotiated on a dollars per head ($/hd) or cents per kilogram liveweight (c/kg) basis.
- Prime cattle (fat or slaughter cattle): Cattle which are ready for slaughter. Saleyards tend to have a ‘prime’ cattle sale and a ‘store’ cattle sale. Store cattle are not ready for slaughter.
- Saleyard: A physical auction market where buyers and sellers trade livestock. There are separate sales for store and prime cattle.
- Standard carcase trim (‘trim’): Trimming refers to the removal of certain fat and other layers from a carcase, prior to it being weighed and graded. AUS-MEAT Limited specifies standard requirements for trim.
- Store cattle: Cattle suitable for breeding or finishing, but bot for slaughtering.
- Transport: For saleyard sales, the producer pays the cost of transport to the saleyard and the buyer bears the cost from the saleyard. For OTH or direct sales, the producer pays the cost of transport to the processing plant.