Marketing of Your Livestock – The Eight Ways to Effective Promotion

The Washington Simmental Association held a field day in May, 2011. Mr. Carlos Guerra of La Muneca Cattle Co. in Texas was our featured speaker. The lesson I took home from his presentation was that if we want to sell our cattle, we must actively promote them and keep promoting them. My favorite quote from Mr. Guerra was:

No See, No Tell, No Sell!

This got me thinking about effective marketing practices. A rancher can produce the best livestock on the planet, but it does little good if no one knows they exist! Promotion means getting them seen. This can be accomplished several ways. For marketing of your livestock — the eight ways to effective promotion are listed below:

1) Exhibit your livestock through the show circuit. Either show your own animals or sell to juniors who are active in the show ring. If you want to attract young showmen, actively support junior activities through prizes, support money, or event sponsorship.

2) Hold a field day or other event on your place and have your livestock on display. This requires the host to clean things up, prep the cattle, and provide excellent hospitality. Don’t make the event all about your operation. Provide an educational speaker and other activities to entice people to attend.

3) Display your livestock at outside activities such as breed sales or other field events. Again, the cattle must be prepped – clipped, worked with, and in good condition.

4) If you have some expertise, become a speaker or judge. Not only do the livestock have to be seen, but so do you!

5) If you don’t want to speak to the public, write for a newsletter, magazine, or blog. Be sure to include your contact information and/or a link to your website.

6) Be active in your state breed association and other related groups. This will keep you up to date in the industry and promote your operation indirectly. It benefits the organization as well. An organization is only as good as its best members.

7) Network and build relationships. People aren’t just buying cattle. They are buying your program and you. I am much more likely to buy from someone I know, admire, and trust than from a stranger. I am also more likely to recommend them to others.

8) Develop an internet presence. In this day and age, if someone wants to find you or check you out, they go to the internet. An eye-catching, user-friendly, and search engine optimized website will make a world of difference in your visibility and sales. If you don’t feel comfortable doing this on your own, find some help.

Marketing doesn’t happen unless you actively engage in the process and keep doing it. It also doesn’t happen overnight. It requires time, energy, resources, and commitment. Develop a marketing plan. Work with your family and employees to brainstorm ways to promote your cattle program. For marketing of your livestock — the eight ways to effective promotion can help you reap bountiful rewards.

Whether you are a rancher in the beef or pork industry or a seasoned speculator, the livestock futures contracts traded at the CME provide market participants with a liquid and transparent way to manage risk or speculate on price movement.

It is important to note that trading in this market involves substantial risks and is not suitable for everyone, and only risk capital should be used. Any investor could potentially lose more than originally invested.

What are the livestock futures contracts?
A livestock futures contract is a legally binding agreement for delivery of livestock in the future at an agreed upon price. The contracts are standardized by a futures exchange as to quantity, quality, time and place of delivery. Only the price is variable.

Market Personality

The meats have long been considered one of the more volatile markets because they have been known to be lock limit up and down in the same day. This usually happens on days where there is USDA report. This is not to say that the meats don’t trend, but on any given day the markets can be extremely wild.

Hedgers and Speculators

The primary function of any futures market is to provide a centralized marketplace for those who have an interest in buying/selling physical commodities at some time in the future. The meat futures market helps hedgers reduce risk associated with adverse price movements in the cash market. Examples of hedgers would be food processors, ranchers and the food service industry.

Hedgers take a position in the market opposite of their physical position. Due to the price correlation between futures and the spot market, a gain in one market can offset the losses in the other.

For example, a rancher who is looking to sell his cattle sometime in the future is worried that prices will drop, and that he will get a lower price for cattle. So to ‘hedge’ himself, he will sell futures that will make money if the price of cattle drops. But if the market moves up, he will lose on the futures position but will make money on the sell of his cattle.

Contract Specifications

There are four different markets that trade livestock at the CME. They are: live cattle, feeder cattle, pork bellies and lean hogs.

Live Cattle
According to the CME, the live Cattle contract reflects current supply and demand for competing meats and feed grains, along with long term cyclical patterns for meat supply and consumer preferences.
Live Cattle is traded in dollar and cents per pound and one contract controls 40,000 lbs. If the current price is $0.90 per pound, the total value of the contract is $36,000. For example, if a trader was long one contract of live cattle at $0.9260/lb and sold at $0.9500/lb, they would make a profit of $960 ($0.95 – $0.926 = 0.024, 0.024 x 40000 = $960). On the other hand, if the trader had sold at $0.90, they would have lost $1040 ($0.926 – $0.90 = 0.026, 0.026 x 40000 = $1040).

The minimum price movement or tick is $0.00025 or $10 per contract. The exchange also has a daily limit that is the allowable daily move in a market. For live cattle, it is $0.03 or $1200 per contract.

The most active months traded (according to volume and open interest) are February, April, June, August, October and December.

The exchange will set position limits to maintain an orderly market, to make sure no one market participant has too many positions on at any one time. There will different limits for speculators and hedgers.

Live Cattle delivered in numerous places around the US in Syracuse, KS, Tulia, TX, Columbus, NE, Dodge City, KS and Amarillo, TX.

Pork Bellies

Frozen Pork Belly futures contracts are for what is essentially bacon in storage.

Frozen Pork Belly contracts are traded in cents per pound and one contract is for 40,000 lbs of cut and trimmed pork belly. Much like live cattle, each penny move equals a change in $400 for each contract. .

The tick size is $0.0025 or $10 per contract. The CME’s daily limit for pork bellies is expandable, but starts off at 3 cents.
The most active months for delivery (according to volume and open interests) are February, March, May, July, and August.
Pork belly contracts, like live cattle, also have position limits set by the exchanges.
Delivery for pork bellies are at CME approved warehouses ‘east of the western boundaries of North Dakota, South Dakota, Nebraska, Kansas, Oklahoma and Texas (CME Rulebook).’

Feeder Cattle

Feeder cattle represents living cattle to be placed in the yard for fattening. Feeder cattle is a derivative of live cattle.

The feeder cattle contracts are very similar to the live cattle contracts, the only difference being the size of the contract. Whereas the contract size for live cattle is 40,000 lbs, the size is 50,000 feeders. For example, if a trader was long from 105.50 and sold at 106.50, they would have made $500 (106.50 – 105.50 = 1 cent, $0.01 x 50,000 = $500).

The minimum tick is still $0.0025, but in feeder cattle that equals $12.50 per tick. The daily limit is $0.03, or $1500 per contract.

Feeder Cattle is traded in January, March, April, May, August, September, October and November.

Position limits apply.
Feeder Cattle is cash settled so there is no delivery.

Lean Hogs

Lean hogs trade similar to live cattle and pork bellies, in that one contract equals 40,000 lbs. and it is traded in cents per pound. So every penny move in hogs equals a $400 change in each contract. For example, if the market moved from 58 to 60 cents, that is a move of $800 per contract.

$0.00025 is the same minimum price move like the others ‘meats.’ Lean Hogs are traded in February, April, May, June, July, August and October. Position limits also apply.
Lean Hogs are also cash settled meaning no delivery.

Conclusion

The meats offer investors a lot of opportunity as they tend to feed off of grain prices and (lately) mad cow disease. Also, I would be aware that these markets are still pit traded which has its own inherent pitfalls. Any investor looking to profit from the meats needs to be aware that there are risks investing in such a volatile market.

Alpacas As an Alternative Livestock Investment

We are currently witnessing a huge turmoil and downward trend in the worldwide credit and stock markets. There are millions of people, who will read the quarterly reports on the losses inflicted in their 401K savings. Many people fear that the traditional investments in stocks, bonds, and real estate will get much worse before they get better, and that we all may be teetering on the edge of a multi-year worldwide depression.

Against this economic backdrop, the investment that I made five years ago in starting an alpaca ranch looks pretty darn good. Since that time, I have “diversified” my investment by adding miniature llamas and dairy goats. I can confidently say, that not only have I been able to sell alpacas and llamas every year that I have been in business, but I continue to get inquiries from well-qualified customers, who want to know how to start an alpaca ranch and how to make money with an investment in alternative livestock. Indeed, I get more inquiries that I have livestock to sell.

Unlike stock and bond prices, which can fluctuate up and down (mostly down these days!), investments in alternative livestock have remained fairly stable because alternative livestock are rare commodities. That is, unlike millions of heads of traditional livestock, such as cattle and sheep, there are less than 200,000 alpacas and 300,000 llamas in the USA. For miniature llamas, there are fewer than 700 in the USA! So demand still outstrips supply for these animals.

Active or Passive Investment

Before investing in alternative livestock, you must consider if you want to go in as an active or passive investor. An active investor is one, who actively participates in the management of the animals. Usually this means that you own an alpaca ranch and manage the day-to-day operation of the herd. However this could also include, who board their animals, yet still participate in management aspects, such as breeding decisions, shearing, and monthly worming. Passive investment means that you board the animals and leave all the animal management to someone else. For passive investors, the profit comes mainly from the sale of animals and their offspring and the animal by-products.

If you are going to be an active investor, that is become an alpaca rancher, then this is probably going to mean a major lifestyle change. In which case, you will need to educate yourself about all the ins and out of alpaca and llama ranching. This is not an impossible or even a difficult task, but there is a learning curve. You’ll need to know about alpaca health and nutrition issues, breeding and birthing, optimizing pasture grass production, alpaca fiber, and marketing fiber and yarn. In addition to visiting alpaca ranches and asking questions, you’ll also want to take some workshops and read about the alpaca and llama industry in books, such as the Start Raising Alpacas Guide Book.

Product Potential of Alternative Livestock

An important consideration for investment in alternative livestock is understanding what potential products can be harvested from the animals. Then you need to create your own vertical market, where you harvest the raw fiber and add value to it to create end-products that you sell for greater prices. That is, you take the raw fleece and have it spun into yarn. Then you have the yarn made into apparel and home decor items. There are buyers of the fiber at every step from raw fiber to a finished apparel, but the profit margins increase with every step towards the finished luxuriously soft apparel.

The market for llama fiber is a little different than for alpaca fiber. Llama fiber tends to be coarser than alpaca fiber, but the really coarse hairs can be “dehaired,” or completely removed, in the yarn spinning process. However there are still many wonderful products that you can create with llama fiber, such as outer garments that do not touch the skin, bags, rugs, etc. I like to combine my coarser alpaca fiber from the leg and neck area with my llama fiber, which I spun into bulky yarn for rugs.