Buyers' Market

I've had a half-dozen phone calls from feeders in the last few weeks telling me about cattle they've purchased and naming producers they will or won't do business with in the future, says Phil Schooley, owner and manager of the Bloomfield Livestock Auction, Bloomfield, IA. So goes the auction business in an industry quickly evolving from the average production and marketing of individual producers

I've had a half-dozen phone calls from feeders in the last few weeks telling me about cattle they've purchased and naming producers they will or won't do business with in the future,” says Phil Schooley, owner and manager of the Bloomfield Livestock Auction, Bloomfield, IA.

So goes the auction business in an industry quickly evolving from the average production and marketing of individual producers toward the coordination and marketing of similar cattle that fit a handful of value-added specifications.

Schooley explains cattle feeders are keeping track of whose cattle work for them and whose don't, evaluating them against specific pricing grids and value-added systems.

“Cow/calf people are being put on lists, and I'm sure they don't even realize it,” he explains. “The same thing happened in the hog business between five and eight years ago.”

The concept of bringing buyer and seller together to decide the price of a product at a given time and place through competitive bidding — the quintessence of supply and demand — is still as simple and powerful as when Adam and Eve set the first market on fig leaves.

“True price discovery comes from the auction way, it sets the market every day,” says Max Olvera, manager of Cattleman's Livestock Auction, Gault, CA. “As long as people raise cattle, auction markets will still be in business. These producers have to have an outlet for their cattle, whether they have 10 head or 1,000.”

Buyers' desires, however, tend to fashion and forge the tools and services that sellers need to accommodate those desires. That's a facet that's changing rapidly these days.

The industry's focus is shifting toward providing consumer-friendly beef products that are convenient and brand worthy, says Ken Jordan, executive vice president of cattle operations for eMerge Interactive. As a result, “retailers, packers and processors want more predictability, and that shifts the kind of cattle that fit these programs. It changes the way we have to market the cattle and the services we have to provide,” he says.

Selling Predictability

Basically, the industry is evolving away from its traditional commodity status, Jordan explains.

“The picture is not 100 percent clear yet, but the direction is becoming more evident every day, and it's beginning to snowball,” he says. “Some feedyards are beginning to require process verification for any cattle they buy; others already require that calves be weaned and preconditioned.”

At eMerge, Jordan says the number of verified weaned and preconditioned cattle selling through their premium auction sales tripled the last two years. Calves in these sales are electronically identified, commingled and sorted into load lots with no more than a 75-lb. spread from top to bottom.

Compared to other cattle selling in the same auction markets at the same time, the cattle continue to bring an $8-$14/cwt. premium (basis 500 lbs.).

“The people on the cutting edge are not only talking about health programs, they're wanting to know if there is information on the cattle,” says Schooley. The information demanded includes everything from process verification to verified genetics, he adds.

Schooley organized the Iowa-Missouri Beef Improvement (IMBIO) program in 1995. The program allows area producers to commingle and market cattle verified for both health and genetics that fit predefined criteria.

About 100-150 producers participate in the program each year. About 10% of all cattle marketed annually through the Bloomfield market are IMBIO calves, and they typically bring a $3-$4/cwt. premium, depending on weight and season.

Besides being the product of specific health, genetic and process verification requirements, the cattle are commingled, graded and sorted into loads representing 50-lb. weight increments.

“Before last year, some of the participants were maybe going through the motions or doing it because I asked them to. Now, they realize that, while this may not be the perfect system, it's the right direction to go,” Schooley says. “At the very least, now they're a candidate for something bigger and better down the road because they understand the principles involved.”

Among the principles: buyers pay more for larger load lots, information and calves with lower health risk.

Even in areas where producers haven't yet demanded specific new services, markets are beginning to position consignors to take advantage. For instance, Olvera encourages consignors to vaccinate their calves. His market also offers consignors the chance to commingle cattle to increase the lot size and uniformity coveted by buyers.

“The days of just opening the gate, cattle coming in and the auctioneer beginning his chant are pretty much over,” says Olvera. It used to be that calling order buyers to let them know when the sale was and how many would be offered was enough, he says.

“Now, they want to know how many five-weight calves there will be, how many six-weights, how many black-hided cattle, who they're from, how many have been vaccinated. They want to know about the cattle,” Olvera says.

Coordination Is Key

Knowing isn't enough, however. Schooley says that if producers aren't coordinating their efforts so buyers can scoop up load-lots of similar cattle, the benefits of preconditioning and verification can be diluted to nonexistence.

“Even if you have a herd of 500 cows, you'd be fortunate to have two pot loads of uniform steers or heifers. With 500 cows, you probably couldn't fill one pen at the feedlot,” explains Schooley. If feeders can't fill loads and pens with value-added calves, they bid the same for them as everything else, he points out.

Following the same path, Schooley explains the industry push for carcass data might make sense, but what it can accomplish is limited if producers continue to work on their own.

“People think if they have their own house in order they'll be O.K., but nothing could be further from the truth,” he says. “We are going to have to learn how to cooperate, work together and be part of organizations and cooperatives willing to do things in a like manner if we are going to gain leverage in the market place. We can't continue to market mixed fruit if we want to gain market leverage.”

Schooley believes that — within five years — if a cow/calf producer isn't part of a health program and isn't working with genetic and management parameters bigger than his own operation, “it will be pretty scary to just have a set of cattle to sell.”

What's more, Schooley believes auction markets can either be part of this coordination or be bypassed completely. “You have to be willing to be an organizer and a coordinator, putting people together. Because if these people put themselves together, they won't include the auction market.”

As intrinsic as auctions are to establishing the foundation cattle market, business has already been tough during the last decade. Declining cattle numbers, higher labor and maintenance costs and competition from other marketing methods have created defacto-consolidation where fewer markets are absorbing more of the cattle.

“I think auction markets will get off their duffs and do some of these things or be left to sell commodity cattle,” Schooley says. “And, I think there will be such a difference in price between commodity cattle and these others that it will be tough to stay in business.”

“In the auction business, volume is the key. If you can organize your customers a little bit and get them on the same page, then there are opportunities to add value to the product,” he adds.

Service Is Still Central

Just like the producers they serve, it's true some auction markets have been more eager to fight against change than embrace it. But it's also true that auction markets in general are often unfairly derided as the industry culprit when it comes to higher risk, put-together cattle. In fact, there's no question that for a majority of cow/calf producers, local auction markets still represent a primary consultant for management and genetic selection decisions.

Although Olvera expects tools and services offered by his market and others to shift with demand, he believes survival mostly revolves around good-old fashioned service.

“The relationship you build with your customers goes way beyond sale day,” says Olvera. “We pride ourselves in service. If you don't take care of the buyers and sellers, there won't be any.”

Olvera says his firm is coming off two of its most successful marketing years in its 35-year history. They marketed about 100,000 head each of the past two years.

For the producers and auctions that adjust to shifting demand, these market operators believe the future can be brighter than the past.

“I'm more optimistic about the beef business today than I've been in the last 30 years,” says Schooley. “There will be all kinds of opportunities. It's just a matter of who will be willing to step up to the plate and take advantage of them.”