Beef producers face many uncertainties, from weather to market fluctuations. Profit margins are thin or even negative. All that risk and uncertainty can make it difficult to develop a good marketing plan or know when to tweak marketing strategies.
But unexpected events are one reason producers need a good plan, says Anne Wasko, a market analyst with Gateway Livestock Exchange and beef producer.
“Each producer needs a business plan,” says Wasko.
The business plan will be a little different between cow-calf producers and feeders, but it should address things such as production, goals and number of calves born. It should also include inputs, looking at factors such as the potential cost of feed, and what to do if there’s a drought or an exceptionally long winter.
The third piece of the plan is marketing.
Brian Perillat, manager and senior analyst at Canfax, says marketing should be a planned process rather than an event.
“It’s not just weaning in October, bringing calves to the auction and getting whatever the price is that day, or preg-checking cows and selling the open ones at the lowest price point of the year,” he says.
“A business plan needs to be tweaked every year,” Wasko adds. “Then we don’t get into a rut, thinking this is how we did it last year or how Dad has always done it. I’m not against continuing to do things that work, but they need to be revisited continually, whether you are just starting out, or have been ranching a long time. If you haven’t looked at different options before, maybe it’s time to do that when making your new plan.”
It’s also impossible to make a good plan until you have the necessary information to make those decisions, with good records on previous marketing, inputs and production. How detailed the records will be varies from one operation to another. But you need records about production and costs to build a business plan and then make a marketing plan. You see what went right, or wrong, and why.
“You don’t need a computer and a fancy program. A person can also keep good paper records,” Wasko says.
Perillat says we need to look at how and why we do things, and question ourselves to try to see if there’s a better way or a better market.
It’s always good to have some options. Some producers only watch the markets a couple of weeks before selling calves, then decide which week to haul them in, says Perillat. But if you watch the markets and the dollar regularly, you could use the lower dollar to your advantage, he says.
It pays to be aware of what’s happening. “There are different ways to do it, such as looking at the futures market and trying to lock in dollar value, thinking ahead. Basically, we follow the Canadian dollar and cattle futures,” says Perillat.
Produce what the market wants
Wasko says we often concentrate on measures such as production, weaning percentage, weaning weights and input costs. But with marketing, we have to think about what we are selling, where those cattle fit into the market and whether there are ways to add value by changing timing of marketing, or even changing the type of cattle we raise.
“We’re getting some clear messages from the North American market in terms of marbling, high-grading cattle, etc.… Is the market sending messages I’m missing? Consumers give us messages, and sometimes they are mixed, but we need to produce what the consumer wants,” she says.
To find out what the market wants, you can visit with buyers or other producers, Wasko adds. You might see something someone else is trying, and it might also work for you.
There is not one way to market cattle; not all consumers want the same thing. High-end, high-marbling grids and programs pay good premiums, says Wasko, but there are also specific export markets looking at different things. Some want natural programs, she adds.
Some people earn a living by buying odd lots of cheap cattle, then selling them after adding value to them. Thin cattle that simply need more feed can be profitable with the proper care.
“There are often opportunities you might not have tried before. Some people are married to their cows, while others will sell any animal on the ranch when it becomes more valuable, and buy cheaper ones that can be made more valuable. There are many ways that cattle producers can improve their marketing,” says Perillat.
Weigh the risks
“You need to know how much risk you can withstand, and how much cash flow you need,” says Perillat.
If you need to make payments because you’re expanding or just starting, your marketing decisions need to meet your cash-flow needs. But even someone with plenty of equity should try to avoid too many big mistakes, says Perillat.
“On a year like this, if you backgrounded your calves last year and didn’t use price insurance or do any risk management, you could lose a lot. There are guys selling cattle this spring who could have sold them last fall for just as much money — and not have all that feed expense for four or five months,” he says.
There are different tools available, Perillat adds, such as Canadian dollar futures, cattle futures, price insurance and contracting. Western Canadian producers can purchase price insurance for calves through the Western Livestock Price Insurance Program (WLPIP) between February and May. Producers in Ontario and Quebec also have access to price insurance through the Risk Management Program and the Programme d’assurance stabilisation des revenus agricoles, respectively.
“People who run yearlings can also put price insurance on them or contract them,” adds Perillat.
Price insurance will “put a floor on the price of your calves. Unfortunately, this has been an unusual year and futures have dropped significantly as a result of COVID-19. Protection has dropped, and has become more expensive because of the volatility,” he says.
That said, a rebound in the futures or a continued softer dollar could see protection improve.
Some people see price insurance as all-or-nothing, says Perillat.
“Even if they have several hundred head, they try to pick that one day and buy it all — or watch the market go up and then it starts coming down and they buy some insurance or buy it all. But you can insure one calf, or 10, or a hundred calves. If it goes up, you can insure some more, and if it goes down, at least you have some of them insured at a higher price level,” he explains.
Study the markets
“Beef demand is high. Beef is flying off the shelves, packers are killing a lot of cattle and making money, but cattle prices and futures are way down. Cattle prices in Canada flow with the futures market. Sometimes the futures drop really low, but sometimes they overshoot and get very high,” he says.
Keep track of markets and consider managing price more proactively.
“Maybe the folks who presold calves on a satellite sale in July for October delivery did better than you did, by five cents per pound,” says Wasko.
Some producers might find niche markets that could fit their situation without much extra cost and effort. It might be grass-fed, natural or some other certified program.
“Here in Canada various supply chains are showing some returns in value on those calves,” she says.
Each producer needs to figure out whether a certain program is doable and profitable for their own situation. That might mean watching video sales to get a feel for what’s going on and whether it might work for you, says Wasko.
“A person has to be proactive in seeking out the markets that might be best for them. Markets have been adapting to increased demands from buyers,” she says.
Relationships with buyers
A big issue in the beef industry is that we really don’t know whether we have efficient cattle unless we know how they perform all the way through the supply chain. Calves might look good at weaning, but you don’t know how they are going to do in the feedlot or how they will grade.
It helps to get feedback from the buyer or feedlot on how they do. This can guide you for future production.
“If you build a relationship with the buyer and he knows your cattle, if they are good, he’ll be willing to pay more for them the next time,” says Canfax’s Brian Perillat.
“We work on thin margins, but if you can pick up another $50 per head, that creates a better profit. Building relationships and following your cattle through the supply chain can help. If they aren’t good, you can work on improving them. The majority of producers don’t know how their cattle perform.”
He does some marketing workshops with cow-calf producers.
“I ask if they’ve thought about marketing their calves before they are born. Many farmers contract and market their canola, wheat or other crops before they are planted. The same opportunities exist with cattle,” says Perillat.
After all, a buyer who likes your calves might be interested in contracting for your next calf crop.