Understanding How Beef Cattle Prices Are Established

 Beef Cattle Marketing
     A Country Boy's research into Beef Cattle Marketing leads to a better understanding of how Beef Cattle Prices are  established. Most of the information is directed towards commercial cattle producers but is equally important for the  Seedstock Producer. I believe we can all improve our Beef Cattle Marketing by doing a study of and the understanding of  human behavior.

      Cattle prices are determined by how much beef people choose to buy and sell in the market place. If people want to buy  more beef than is available in the marketing channel, then the price of beef is bid up rationing the beef among buyers. If  producers need to sell more beef than people are willing to buy, then the price of beef will be forced downward to move the  excess supply.

     A lot of cattle producers seem to believe all you have to know or do in the cattle industry to make a profit is to buy low and  sell high but believe me the beef industry is more than just the buying and selling cattle. Beef producers add value to their  products at each stage in the marketing channel.  Cow-calf producers sell a product called a calf. What they are really selling  is not the calf but output from the cow and bull and the grass, grain, labor, management and capital used to produce this  product called a "calf". Stocker operators buy 300 to 500 pound calves from the cow- calf segment of the industry and put  an additional 300 to 400 pounds on them, thus increasing their value to the market place.  Feedlots buy the stocker cattle,  feed grain to fatten and then sell them at about 1100 to 1300 pounds to the packer. The packer slaughters the animal and  breaks the carcass into wholesale cuts for the retailer who in turn sells the beef cuts to the final consumer. Each level within  the marketing channel takes the product from the preceding level, modifies it adding value to the product at each subsequent  stage.
 
     Marketing is then the cattleman’s way of obtaining dollars for the value he adds to the product he produces.  After combining the resources he has available to produce the calf, he receives value for the animal by selling it. Failure to successfully market  the animal is a waste of his time and the money that he invested in the production phase. Marketing can improve the situation  or it can ruin it.

     Most producers are good production people, and they dislike the hassle associated with marketing almost as much as  keeping records.  The fact remains that both record keeping and marketing provide a viable means to increase producer  profits.  It is often the difficult things in business that make the most money.  In beef cattle production, survival depends on a  producer being above average in production, marketing, and financial management.

Beef Production And The Marketing System
     The U.S. beef production and marketing system consists of production levels and marketing components. Production levels  include the cow-calf, stocker, feeder, slaughter-packer, retailer and consumer. This is the physical route the calf takes from  the producer to the final consumer. The marketing components include the cash and the futures market.  This is the economic  route the calf takes from producer through the marketing channel to the retail level for final sale.

     Each production level buys or invests in additional production inputs adding value to the animal.  The animal is then sold to  the next level in the production system or ownership is retained, where more value is added. This process is repeated until  products are finally sold to the consumer at the retail level. It takes time to learn the beef production system and how the  product moves through the various levels. Production inputs include physical items like cows, bulls, stockers, feeders,  slaughter cattle, carcasses, etc.
 
      It does take a little time to learn the marketing system and how to market beef. Marketing inputs are made up of both  information and knowledge.  Marketing information to the producer comes in the form of cash prices, futures prices, price  outlook, and the supply/demand situation.  A producer must know what marketing alternatives are available to him, how to  use each alternative, and how to interpret market signals.

     The cow-calf producer is the starting point for the beef production and marketing process.  The producer invests in land,  animals, feed and other inputs to develop his product--the calf. Typically, the cow- calf producer will wean the calf at a  weight near 400 pounds or higher.  For the spring calving herd, this weaning period is sometime in the fall of the year.

     Some cow-calf producers retain ownership of the calves from birth through the stocker phase of the production process and  even some maintain ownership through the feedlot. These producers evaluate the profit potential at each production level  before deciding to keep their cattle through the next production phase. When their profit objective is reached they sell the  cattle.  Retained ownership allows the producer the flexibility to reject the market price today in hope of obtaining a better  price at a later date. This market alternative can be successful if the cattleman can minimize the costs of growing the animals  during the extended ownership period.  Also implied in this retained ownership decision is the cattleman’s hope that the  market does not turn against him.