Sometimes, building a better mousetrap has more to do with the bait than the mechanism itself. Just ask a growing number of livestock auctions that are helping consignors attract more dollars - and buyers attract more value - by sticking to the proven price discovery basics of competitive bidding, while working closer with other industry segments.
"We can talk about demand, new product development and other important factors, but I believe the most critical thing in our industry today is price discovery. If you don't believe that, go ask a hog producer," says Jon Schaben of Dunlap Livestock Auction in Dunlap, IA. If you can find one.
Schaben's father, Jim Sr., established this market 49 years ago. Since then, the Schaben crew - including Jon's brothers, Jim Jr., and Jay - has seen firsthand the downside of industry consolidation.
"It wasn't too long ago there were significantly more pork producers than beef producers in Iowa. Now, it has flip-flopped," says Schaben. "If you look at the hog industry, everyone says the reason they went to $9 last fall is because there wasn't enough shackle space for them. It's true there wasn't enough room for the independent producer because of contracts, but that also left no competitive mechanism for the industry to determine price."
Although cattle have always been their bread and butter, in 1979 the Schabens built a separate auction barn to accommodate all of the hogs, a long-standing backbone of Midwest markets. By 1995, they had to close it.
"As livestock market operators we are terribly concerned about integration in the hog industry. We're convinced it was to the detriment of producers ... We're concerned the same thing could happen in the beef industry," says Schaben.
While apples-to-apples numbers are hard to come by, there are fewer livestock auctions today than 10 years ago (Table 1), according to USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA). Fewer cattle are being traded on a commission basis, too (Table 2), although John McBride, director of information for the Livestock Market Association (LMA) points out, "Our members still sell the majority of feeder cattle in this country." In round numbers, 800 livestock auctions count themselves as LMA members.
"One of the changes is that you're losing customers, and you're losing them because they're getting older or because they have to go out of business," says John Cline, an owner of Manhattan Commission Co., Manhattan, KS.
Cline's business has increased in the last decade. His firm will market 95,000 head of cattle this year. But, he says the growing number of marketing options for calves and feeder cattle is making it tougher to grow consignments.
That's why a growing number of livestock auctions are teaming up with other industry segments to give buyers and sellers added value with competitive bidding.
"All my life I made a living and everyone else in the cattle industry made a living playing hide and seek, everyone lining up to cheat each other. It's come around to where we have to come clean with each other and let each other know what we're getting," says Jackie Moore, who owns the Joplin Regional Stockyards at Carthage, MO.
With that in mind, two years ago Moore started helping his customers get involved in various certified calf health programs. Since then about 200,000 of these health-certified calves have made their way through his sale ring.
"One thing I like about value-added programs is that we tag the cattle so we know where they came from. If there's a problem, we can trace them back to the original owner ... The only thing I try to sell is a product where the customer knows exactly what they're getting health-wise," explains Moore. These certified calves command an average $2-4/cwt. over market.
Likewise, Schaben says, "We've been promoting our preconditioned calf sales stronger than ever. We sold over 20,000 of those calves last year because we realize that is what a cow/calf producer can do to receive full value."
These are calves that qualify for sales sanctioned by the Western Iowa Feeder Cattle Producers. Every buyer receives a signed affidavit explaining where the calves came from and health regimen.
Rather than something new, Schaben explains they've sold these certified calves for more than 20 years. "It's been fantastic for our producers and for us as a market," says Schaben.
Along the same lines, a few years ago, Cline began holding special feeder calf sales for the customers of Fink Genetics, a local Angus seedstock supplier. He explains, "We knew if we could get that many cattle of the same kind together, regardless of breed, you'd get more buyers." Typically, the sales feature 1,000-4,000 head and generate premiums for customers.
"The more programs we can do to help the cow/calf industry be profitable, the better it is for them and the better it will be for us," says Schaben.
"For us, the name of the game is paying the bills. It's just a matter of trying to get that last dollar out of them," says Alfred Weiss of Weiss Ranches Inc. at Moffat, CO. He and his brother Wayne run 300 cows for the family operation. Until this fall, they always stripped the calves off the cows and shipped them to the sale barn.
The Win-Win Approach On the other side of the fence, Jody Peterson says, "Our family has been in this area for five generations. Our philosophy is to work hard and survive during the tough times. We work hard because these people (customers) are our neighbors and we want them to be able to survive during the tough times." She and her father, Paul Reed, own and operate Monte Vista Livestock Auction (MVLA) at Monte Vista, CO.
In between is Rick Hunt who owns Hunt Limousin Ranch at Elizabeth, CO. He says, "They (MLVA) want their customers to profit. They have a desire for them to profit, and so do I. Between the two of us, we work to make it happen."
The culmination of these desires is a strong working partnership between Hunt and MLVA that is helping both of their customers take advantage of value-added markets.
This spring, Hunt took the Monte Vista crew to Lexington, KY, to learn more about Laura's Lean Beef (LLB) and how their customers might benefit from it. LLB utilizes high cutability cattle, including Limousin, that meet their label's all-natural specifications. The net result so far is a $4-5/cwt. increase in butcher bull prices, with hopes of a similar boost in the calf market this fall.
In fact, Weiss is counting on it. He has purchased bulls from Hunt for several years and has the genetics that will work for LLB. Now he's prepared to add the extra management the LLB program requires, including weaning and preconditioning.
"We've had some good calves that brought the money, but everything has changed so much ... You've got to learn to change your operation," says Weiss. He and other producers can take their calves to the sale barn, or sell them there as part of a regular MLVA in-house video sale.
"With Laura's Lean, we're looking for new directions all of the time to make the market better, especially for calves," says Peterson.
Frankly, until she and her father bought the barn a few years ago, the market was so soft most cattlemen here in the San Luis Valley would truck their offering east over the mountains.
"I never used to sell cattle here," says Reed, who was a lifelong cattleman before buying the barn. Since then, MLVA has tripled its volume to approximately 50,000 head each year, making it the fifth largest market in the state. What's more, relative to freight costs, cattle here sell neck and neck or ahead of those offered in larger Colorado markets.
"The only thing we sell is service, and we provide the most service we possibly can. Our major philosophy is that in every sale, no cattle will bring under the market," explains Reed. Services like their video auction and link to LLB are attracting more customers, but communication is the key.
MLVA sends its weekly market report to their customers, as well as Hunt's. Often, Hunt includes some of his own information as well. Moreover, both auction barn and seedstock producer travel to see both firms' customers (consignors), typically more than once each year. While not necessarily expected, such interest is a pleasant surprise to many producers.
"We've gotten along with them. They've treated us well and right. They take an interest in what's going on here, and I like that," says Weiss. Like other producers, however, his main concern revolves around price performance.
Weiss explains, "When we go to the sale in the fall, we're trying to produce something the customer wants. We want to be in the upper 10 percent of what the customer wants, but our top concern is to get all of the dollars out that calf that we can possibly get."