Feeding Group Looks To Cattle Marketing AlternativesFeeding Group Looks To Cattle Marketing Alternatives
A 15-state consortium of independent cattle feeders is looking to expand marketing alternatives for its members.
May 1, 2013
Back in the late ’90s, as cattle feeders in Texas and Oklahoma looked at trends and dynamics in the fed cattle market, it was increasingly evident that formulas and forward contracts, and later grids, would forever change the way cattle would be marketed.
So, as the world left the 20th century behind and stepped bravely into the 21st, a group of independent cattle feeders joined together to form Consolidated Beef Producers (CBP). Designed as a marketing organization, the idea was to consolidate groups of fed cattle into volume lots, giving independent cattle feeders the negotiating leverage with packers to maximize price on the cash market. Since it was formed in 2000, CBP has grown to include nearly 200 cattle feeders in 15 states, with a total combined capacity of more than 4 million head.
In the ensuing 13 years, not only have those market dynamics continued, but other forces have come to the fore to affect the fed cattle market – ethanol, higher volatility, a shrinking cowherd and production technologies like beta agonists that shorten the marketing window.
To adapt to an ever-changing marketing environment, CBP leaders and staff recently developed a six-point strategic initiative, which they rolled out to members during their recent annual meeting. Those six points are:
1. A customer needs assessment and communications plan. No business can be successful if it talks more than it listens, says Bruce Cobb, CBP general manager. “You have a lot of challenges and our goal is to help our group understand those challenges, then put together services and programs that address those needs and address those challenges to help you better compete in the marketplace,” he says.
A big part of that is open and aggressive communication between the CBP office in Canyon, TX, and its members, says Shelby Horn, with Great Plains Cattle Feeders in Hereford and incoming CBP chairman. While CBP does a good job already in communicating market information to its members, more can be done.
“We feel that trades happen within our membership that aren’t widely known,” Horn says. “We may make a basis trade at Great Plains, but everybody else may not know about that trade. We feel we need to do a better job communicating those things among our membership.”
2. Develop new, innovative cattle marketing options. “Competition in the spot market is becoming less and less,” Cobb says. “So we have to find ways to go back to the initial concept of CBP creating competition in the marketplace and find new ways to do it.”
However, CBP doesn’t plan on turning any cattle over to a packer that are unpriced at time of sale. “If we’re determined to sell cash at all costs on the spot market, I think we’re in a formula to not succeed,” Horn says. “So our strategy is to try to create competition from a packer at an earlier day (out-front sales) but make sure the cattle are priced and negotiated.”
3. Develop a comprehensive risk management system. “One of the things CBP has identified is a comprehensive risk management system to go along with some of the other systems we have,” Horn says. “That system will be designed to help members tract hedging and evaluate risk.”
However, CBP doesn’t intend to get into the futures brokerage business, he says. The system will simply allow members to keep track of their risk management positions and help them quantify their market risk.
“It’s pretty difficult to separate cash marketing and risk management. Whether any of us like it or not, the futures market basically prices our cattle,” Horn says. And, adds Cobb, with the velocity and volatility that characterizes futures markets, being able to better understand risk is essential.
4. Develop a comprehensive plan for CBP story beef. “Probably one of the least-capitalized advantages we have as independent cattle producers is telling our story,” Horn says. “Research continues to show that consumers want to know who is producing their food. And as independent cattle producers, we have a great advantage in that effort.”
Cobb agrees. “Consumers have a natural trust with producers. It’s the greatest unutilized and unleveraged asset in our industry today and has been for years. And I believe there’s an opportunity for us to begin tapping into that asset and leveraging it.”
Several years ago, CBP explored the possibility of developing its own “story beef” – that is, beef products with a background story to them. “We had an obstacle that we just couldn’t get through, so we set it on the shelf and waited for another day. I think that day is here,” Cobb says.
5. Explore opportunities to expand into eastern Nebraska and Iowa. While CBP has members in 15 states, it is strongest in the High Plains. “The area we’re lacking in is eastern Nebraska and Iowa,” Horn says.
Expanding CBP’s membership base into that region would benefit everyone, he says, because of the market intelligence it would create. “One of the key benefits I see with CBP is the coverage we have in the cattle market in all areas. We know what’s going on in western Nebraska; we know what’s going on in Kansas; we know what’s going on in Texas. And to be able to have one entity to assimilate that market intelligence for us as producers, having a presence in eastern Nebraska and Iowa I think would enhance that.”
6. Aggressively market feedercattlelistings.com. As cow numbers shrink, sourcing feeder cattle is becoming a greater challenge for cattle feeders. To help its members, CBP launched feedercattlelistings.com earlier this year.
It’s a lot like Carmax.com, Cobb says. A member can put in the various criteria it wants in feeder cattle, then the site searches its database and delivers listings that match. “So we’re in the process of setting up some relationships to get it populated with cattle,” Cobb says.
CBP staff and leadership will now go to its membership to hear their opinions and ideas on the strategic plan. Horn is hopeful the independent cattle feeders who constitute CBP’s base will see its value. “I think CBP needs to make a big step,” he says. “I think we’re at a point in our marketing where it’s important for us to look at all our opportunities. I think it’s going to require us to do that if we’re going to remain viable as independent cattle producers.”
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