Livestock Markets 2003Livestock MarketingWhen to sellSlide 4Slide 5Market Hog CalculatorSlide 7Where to sellFeeder cattle salesFeeder pig salesWhat to sellSlide 12Slide 13Slide 14Value-based Hog MarketingComparing bidsValue-Based Cattle MarketingSlide 18Slide 19Slide 20Comparing BidsSummaryLivestock Markets 2003Billion Per Cap PriceExportlbs lbs $/cwt %Beef 26.2 64.8 84.69 9.6Pork 20.0 51.8 39.45 8.6Broilers 32.7 81.4 62.00 15.1Turkeys 5.7 17.4 62.10 8.5Livestock MarketingWhen to sell•Weight, grade, costsWhat to sell•Live or carcass•Grade, productionWhere to sell•Type of market•LocationWhen to sellClassic production function•MC=MRCosts increase beyond optimal selling weight•Costs are a function of»Genetic potential»Cost of diet»Opportunity costs of future productionWhen to sellMarginal Revenue (Prices)Uncertain about price if you wait to sell (price trends)Function of weight and days on feed•Typically animals increase the portion of fat relative to muscle produced as they get heavier.•There is an optimal weight range»Discounts if too light or too heavy •Optimal degree of “finish”»Different for hogs versus cattle»Both can be too fatWhen to sellOptimal is still MC=MR•MC is increasing at increasing rate and is function of feed prices•MR increases then decreases due to premiums and discounts associated with grades »Is also a function of seasonal price trends that could be higher or lowerMarket Hog CalculatorCurrent hog price ($/cwt) HP $47.95Expected added wt AW 15Cost of added wt ($/lb) AC $0.37Expected final wt FW 260Price discount ($/cwt) PD ($0.75)Expected price change PC $0.00 AW*HP – (AW*AC) – (FW*PD) + (FW*PC)Expected return to selling later ($0.27)Seasonal Price Index for Iowa Fed Cattle and Hogs85%90%95%100%105%110%115%Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.Cattle HogsWhere to sellTerminal markets have declinedAuction markets important when assembly is needed•Feeder cattle and cull cows•Growing interest in fed cattle in fringe areasDirect sales•Fed cattle and hogs•Feeder pigs•Growing in feeder cattle where source verification is importantFeeder cattle salesLive weight sales•Various weight classesAuction is major market•Assembly function importantVideo auctionsDirect tradePremium paid for•Large uniform lots•Certification/verification ??????Feeder pig salesPrice/head or live weight•40-60 pound classes•Weaned pigs (10-12 pounds)Primarily direct trade•Rapidly declining auctions•Health and stress concernsPremiums for•Large uniform, single source•Genetic historyWhat to sellLive weight•One average price for all live pounds•Negotiated price before delivery•Weighing conditions important•Mud, shrink (fill, time, stress)•Was most common for hogs •Still common in large cattle feedlots, less in Iowa•Used for feeder cattle and feeder pigsWhat to sellCarcass weight•One average price for all carcass pounds•Negotiated price before delivery•Dressing percent (also called yield)•Farmer stands risk of trimming and condemnation•Common for fed cattle in MidwestWhat to sellDressing percent•DP = carcass weight / live weight•DP hogs approximately 73-76%•DP cattle approximately 61-64%DP impacted by:•Weighing conditions•ShrinkWhat to sellValue-based marketing•Each carcass evaluated and priced•Premiums and discounts determined ahead of delivery•Base price may be negotiated or come from formula •Carcasses are graded and values assigned•Farmer stands grading risk•Different buyers have different systems•Nearly all hogs•Increasingly popular for fed cattleValue-based Hog MarketingTwo factors impact premiumsCarcass weight and leanness•Fixed premiums (known dollar amount)•Relative premiums (percent adjustment)•Not USDA graded»Packer employee measures»Objective measuresFat-O-Meter, ruler, ultra-soundComparing bidsPrice in appropriate $/cwt A BBid Price (live) $44.50 ---Bid Price (carcass) --- $59.50Lean premium --- +1.25Sort discount --- -.70Dressing percentage 74.5 74.5Adjusted to live 44.50 44.73Transportation -.85 -.35Net farm gate price $43.65 $44.38Value-Based Cattle MarketingValue-Based Cattle MarketingThree factor impact premiums1. Carcass Weights2. Quality Grade Distribution (USDA Grader)Based on marbling, proxy for eating experience3. Yield Grade Distribution (USDA Grader)Based on lean meat yield4. Other specs:Product safety & quality assuranceAcceptable colorYouthfulnessValue-Based Cattle MarketingValue-Based Cattle MarketingCommon Ground for Targets1. Carcass Weights 550 - 950 lbs2. Quality Grade > Se+ or > Ch03. Yield Grade 1’s and 2’sWhere are the Grid Rewards & Discounts?Where are the Grid Rewards & Discounts?Angus America (Excel)Premiums:•Prime: $6 / cwt•Certified Angus: $3 / cwt•Sterling Silver: $3 / cwt•Angus Pride: $.50/cwt•Yield Grade 1: $5 / cwt (Ch & better)•Yield Grade 2: $3 / cwt (Ch & better)Discounts:•Selects, No Rolls, Standards (Mkt Boxed Beef Prior, -$10 off Select, -$30)•Off Grades (-$35)•Yield Grade 4s & 5s (-$15, -$25)•Heavy(950-999), Extra Heavy (1000up), Light (500-550) & Extra Light (500 down) Carcasses (-$15, -$30, -$15, -$35)Quality Yield GradeGrade 1 2 3 4 & 5Prime +$$$$$ +$$$$ +$$$ -$$Choice+ and Choiceo+$$$ +$$$ +$$ -$$Choice-+$$$ +$$ Base -$$$Select -$ -$$ -$$$ -$$$$Standard -$$$$ -$$$$ -$$$$ -$$$$Out Cattle -$$$$$ -$$$$$ -$$$$$ -$$$$$ Carcass Merit Grid and Premium TrendsCarcass Merit Grid and Premium TrendsComparing BidsPrice in appropriate $/cwt A BBase bid price 112.00 111.00Prime 3% --- +6.00Top 2/3 Ch 45% --- +3.50Select 30% --- -8.00Yield 1&2 60% --- +2.50Off weight 3% --- -15.00Transportation -.65 -1.25Net farm gate price 110.35 110.16Bid A is a straight in the meat bid, Bid B is a valued-based bid.SummaryWhen to sell is complicated•Perishable, non-storable•Rising cost and changing valueWhat to sell is complicated•Understanding shrink•Know what is under the hideWhere to sell•Transportation•Buyer programs•Number of
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