Livestock Markets 2003 BillionPer CapPriceExport lbslbs$/cwt% Beef26.264.884.699.6 Pork20.051.839.458.6 Broilers32.781.462.0015.1 Turkeys5.717.462.108.5.

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Presentation transcript:

Livestock Markets 2003 BillionPer CapPriceExport lbslbs$/cwt% Beef Pork Broilers Turkeys

Livestock Marketing u When to sell Weight, grade, costs u What to sell Live or carcass Grade, production u Where to sell Type of market Location

When to sell u Classic production function MC=MR u Costs increase beyond optimal selling weight Costs are a function of »Genetic potential »Cost of diet »Opportunity costs of future production

When to sell u Marginal Revenue (Prices) u Uncertain about price if you wait to sell (price trends) u Function of weight and days on feed Typically animals increase the portion of fat relative to muscle produced as they get heavier. There is an optimal weight range »Discounts if too light or too heavy Optimal degree of “finish” »Different for hogs versus cattle »Both can be too fat

When to sell u Optimal is still MC=MR MC is increasing at increasing rate and is function of feed prices MR increases then decreases due to premiums and discounts associated with grades »Is also a function of seasonal price trends that could be higher or lower

Market Hog Calculator Current hog price ($/cwt)HP$47.95 Expected added wtAW15 Cost of added wt ($/lb)AC$0.37 Expected final wtFW260 Price discount ($/cwt)PD($0.75) Expected price changePC$0.00 AW*HP – (AW*AC) – (FW*PD) + (FW*PC) Expected return to selling later($0.27)

Where to sell u Terminal markets have declined u Auction markets important when assembly is needed Feeder cattle and cull cows Growing interest in fed cattle in fringe areas u Direct sales Fed cattle and hogs Feeder pigs Growing in feeder cattle where source verification is important

Feeder cattle sales u Live weight sales Various weight classes u Auction is major market Assembly function important u Video auctions u Direct trade u Premium paid for Large uniform lots Certification/verification ??????

Feeder pig sales u Price/head or live weight pound classes Weaned pigs (10-12 pounds) u Primarily direct trade Rapidly declining auctions Health and stress concerns u Premiums for Large uniform, single source Genetic history

What to sell u Live weight One average price for all live pounds Negotiated price before delivery Weighing conditions important Mud, shrink (fill, time, stress) Was most common for hogs Still common in large cattle feedlots, less in Iowa Used for feeder cattle and feeder pigs

What to sell u Carcass weight One average price for all carcass pounds Negotiated price before delivery Dressing percent (also called yield) Farmer stands risk of trimming and condemnation Common for fed cattle in Midwest

What to sell u Dressing percent DP = carcass weight / live weight DP hogs approximately 73-76% DP cattle approximately 61-64% u DP impacted by: Weighing conditions Shrink

What to sell u Value-based marketing Each carcass evaluated and priced Premiums and discounts determined ahead of delivery Base price may be negotiated or come from formula Carcasses are graded and values assigned Farmer stands grading risk Different buyers have different systems Nearly all hogs Increasingly popular for fed cattle

Value-based Hog Marketing u Two factors impact premiums u Carcass weight and leanness Fixed premiums (known dollar amount) Relative premiums (percent adjustment) Not USDA graded »Packer employee measures »Objective measures u Fat-O-Meter, ruler, ultra-sound

Comparing bids Price in appropriate $/cwt AB Bid Price (live)$ Bid Price (carcass)---$59.50 Lean premium Sort discount Dressing percentage Adjusted to live Transportation Net farm gate price$43.65$44.38

Value-Based Cattle Marketing Three factor impact premiums 1. Carcass Weights 2. Quality Grade Distribution (USDA Grader) Based on marbling, proxy for eating experience 3. Yield Grade Distribution (USDA Grader) Based on lean meat yield 4. Other specs: Product safety & quality assurance Acceptable color Youthfulness

Value-Based Cattle Marketing Common Ground for Targets 1. Carcass Weights lbs 2. Quality Grade > Se + or > Ch 0 3. Yield Grade1’s and 2’s

Where are the Grid Rewards & Discounts? u Angus America (Excel) u Premiums: Prime:$6 / cwt Certified Angus:$3 / cwt Sterling Silver:$3 / cwt Angus Pride:$.50/cwt Yield Grade 1:$5 / cwt (Ch & better) Yield Grade 2:$3 / cwt (Ch & better) u Discounts: Selects, No Rolls, Standards (Mkt Boxed Beef Prior, -$10 off Select, - $30) Off Grades (-$35) Yield Grade 4s & 5s (-$15, -$25) Heavy( ), Extra Heavy (1000up), Light ( ) & Extra Light (500 down) Carcasses (-$15, -$30, -$15, -$35)

Carcass Merit Grid and Premium Trends Carcass Merit Grid and Premium Trends

Comparing Bids Price in appropriate $/cwt AB Base bid price Prime3% Top 2/3 Ch45% Select30% Yield 1&260% Off weight3% Transportation Net farm gate price Bid A is a straight in the meat bid, Bid B is a valued-based bid.

Summary u When to sell is complicated Perishable, non-storable Rising cost and changing value u What to sell is complicated Understanding shrink Know what is under the hide u Where to sell Transportation Buyer programs Number of bidders