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Navigating the marketing maze

You don’t have to be a marketing expert, but understanding a few of basics can help improve marketing skills

For many, marketing is one area of farm management generates a lot of fear and even mistrust, and yet is a large part of what we do unknowingly all the time. Marketing is a little bit about getting your name out there, a little bit about your product, a little bit about knowing costs, a little bit about knowing markets, a little bit about knowing your customers and a lot about knowing yourself. Marketing is a soft skill and it is usually easier to see the hard costs rather than the subtler price premiums, but marketing is an important and rewarding skill set to develop.

Costs

The first thing people are told in almost every marketing class is to know their costs of production. This is annoying and creates great consternation, but it is the truth. Knowing both your total and daily costs on calves is extremely empowering because it helps you avoid the psychological trap that catches so many producers.

When prices are rising, people get euphoric and hold onto inventory hoping to capture the very highest price. Once the market peaks, they hold onto inventory hoping the market has not peaked yet. Along with hope, people often also feel disgusted at missing the market high.

The inverse happens at the bottom of the cycle as people sell off due to outright pessimism.

The point is: You don’t need to top the market, you just need to be profitable. No one ever went broke making a profit. If you know your costs, you can consistently sell when the price is higher than your costs. A lot of people top the market and sell under their cost of production at the same time.

Product (Value Proposition)

Knowing your value proposition is more than just knowing your cattle, although that is part of it. Common examples of value include age verification, health status, sex, colour, weight and genetic makeup. Market timing can also be a value proposition as there are times of the year where certain classes of cattle are short, or where tax money is more readily available. If your value proposition is that the calves are produced at the lowest possible cost, then your value proposition may simply be based on acceptable selling price. These are all fine things as long as both buyer and seller understand them.

Market Intelligence

I don’t know a lot about markets, but I keep a few people on the hook who do. They send me regular market updates, ranging from daily through to weekly and monthly. It is still my responsibility to read them. You also need to keep an eye on the futures markets. That doesn’t mean you have to take a full course in hedging and options, or go out and hire a broker. Just be aware of where/when your cattle will finish. Even if you sell 500-pound calves, their price will ultimately be based on what the futures look like when they are predicted to finish.

Feed, fuel and the Canadian dollar influence the price of calves. As the dollar goes down, the price goes up (all else being equal). I don’t watch the dollar as much as I watch the price of oil. The Canadian dollar is driven by the price of oil (oil goes up/dollar goes up/cattle go down). By watching oil, we often have a day or two advance notice of the direction the dollar is heading. This has served us well in some of the very volatile markets of the last decade.

The New World Customer

Customers are changing as well. Direct marketers definitely know this, as many consumers are seeking to get to know their farmer and demanding certain assurances (and paying for them). On the commodity side, feedlots are getting bigger as they pursue economies of scale. Manny modern feedlot pens will hold 300 to 600-plus head of similar size and type of cattle. Think about that for a second. After you take out heifers, off-type cattle and replacements, it takes a cowherd of 1,500 head to fill one 600 head pen of steers in a modern feedlot. This creates an opportunity to earn a premium for those able to provide large uniform lots of cattle with similar backgrounds. We don’t all need 1,500 cows, we need friends and neighbours. This is a large part of the concept behind pre-sort sales (another topic altogether).

Trucking costs are also rising and even if you can’t fill a pen, being able to send full trucks is also a great opportunity. A truck holds roughly 60,000 pounds. The cost per head to ship 50 head of 600-pound calves is double the cost of sending 100 on the same trip. If you don’t have full loads, there are marketing opportunities to send heavier calves or truck share.

Risk premium

There is always risk with owning cattle. There are health risks, market risks, debt risk and a host of other issues. Knowing your costs and appreciating your customers’ needs allows us to abandon unacceptable risk, or demand a risk premium for our efforts. Ever wonder why really lightweight calves are often sold at steep discounts? They are at a high risk of illness or death in a large commercial feeding operation. Keeping these calves back and backgrounding them under less stressful conditions until they reach heavier weights is an example of marketing. If your cattle are stressed or their health is compromised, you will lose your risk premium, since the buyer is assuming all the things about your cattle that you are not willing to tackle.

The right attitude

We are always marketing whether we know it or not, even when we’re just having a cup of coffee and chatting with someone. Your attitude affects others and having an optimistic outlook is very important. Don’t be scared to tell people what you are doing, but make sure you focus on the positive aspects. Even your spouse doesn’t want to listen to complaints all the time.

I also feel very strongly that people should be grateful, and that this is the most important part of marketing. It is saying thank you. We can condemn the feedlots or the cattle buyers, but the reality is that we are all free to own our cattle as long as we want. When you accept a cheque you made a conscious decision to sell and it is a good thing someone wanted to buy. I often hear comments about how the buyer of a set of calves will make good money, inferring they sold “below market.” If that is true, then by knowing your costs and having some market intelligence you should still own them. It is also true if you feel you are getting screwed, and then it is time to take a long hard look at the value proposition being delivered from your own operation. Contrary to popular belief, even cattle buyers have feelings, and a heart-felt thank you will not only make both of you feel good, but it will add value to your cattle. †

About the author

Contributor

Sean McGrath is a rancher and consultant from Vermilion, Alta. He can be reached at [email protected] or (780) 853- 9673. For additional information visit www.ranchingsystems.com.

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