Marketing Methods

There are many methods used to sell cattle to meat packers.

Spot or Cash Marketing

Spot or cash marketing is the traditional and most commonly used method. Prices are influenced by current demand and are determined by live weight or per head.

Forward Contracting

Similar to this is forward contracting, in which prices are determined the same way but are not directly influenced by market demand fluctuations. Forward contracts determine the selling price between the two parties negotiating for a set amount of time. However, this method is the least used because it requires some knowledge of production costs and the willingness of both sides to take a risk in the futures market.

Formula Pricing

Another method, formula pricing, is becoming the most popular process, as it more accurately represents the value of meat received by the packer. This requires trust between the packers and feedlots though and is under criticism from the feedlots because the amount paid to the feedlots is determined by the packers’ assessment of the meat received.

Live- or Carcass-Weight Based Formula Pricing

Finally, live- or carcass-weight based formula pricing is most common. Other types include grid pricing and boxed beef pricing. The most controversial marketing method stems from the vertical integration of packer-owned feedlots, which still represents less than 10% of all methods, but has been growing over the years.

Selling Direct

The feeder needs to have knowledge of carcass beef price, the strength of the dressed beef market, and the potential quality and yield grades of the cattle owned. A 500kg steer at about the fatness of low choice can be expected to have a carcass weight of about 300kg or a dressing percent of 60%. If the price quoted is R7 per kilogram of live weight, then the carcass value is 700/60 = R11.67.

It may be advisable to sell based on live price and weight if you are concerned about the ability of the cattle to grade or when the market is strong, and competition is good.

Weighing conditions (shrink) that are fair to all concerned should be agreed upon. If you are not satisfied with the weighing conditions (shrink), you might consider a guaranteed dressing percent. If cattle are muddy or dressing percent is in doubt, then you might sell based on a flat overall carcass beef price. If you feel that the cattle are of better quality than the price offered, sell them based on carcass weight and a price schedule for different quality/yield grades.

It should be agreed upon prior to sale who stands the condemnation and bruises and if standard slaughtering and trimming procedures are followed for all cattle processed. It should be known how soon the cattle will be processed (tissue shrink probably starts after 12-14 hours off feed), what slaughter information can be obtained, and how soon payment is made.

Selling at Auction

A preferred method of selling cattle may be at a local auction barn. It is a good idea to let your local auction know when you have cattle ready and they can advise you when there will be buyers present for your type of cattle.

Click here to learn more about the different marketing methods.

Click here to learn more about how marketing is done at Sernick.

Click here to learn more about the SA Livestock Application.