Education

Northeastern Auction Barns: Are They Doing the Job?

Robert J. Melchior
(Market Coordinator for the Northeast Sheep and Goat Marketing Program at Cornell University from 2000 until his death in 2002)

There rarely seems to be enough time these days to accomplish everything we need to do on a small farm. As a result many operations we all recognize as essential receive less attention than they deserve. One of these, usually low on the satisfaction scale for producers, is marketing. The simplest solution to the dilemma of the necessity of the function and distaste for spending time on it would be to hire it out. If we were to do this, the first step would be to come up with a job description or a list of the functions we want our employee to fulfill. A likely list would include;

1. Contacting perspective buyers – maintain a relationship which will allow for give and take of information
2. Presenting my product to competing customers in the best light
3. Obtain competitive prices for me and inform me of what the market is
4. Operate a reasonably efficient sale process
5. Protect me from credit risks
6. Be available to conduct the sale process when my product is at the peak of quality.

You may have a few more responsibilities you'd like to add onto this list, but for now let's move on to where we might find such a functionary. Once upon a time of small farms and numerous local slaughterhouses, individuals or organizations that filled these functions existed in most counties. You would recognize them as the local sale barn or livestock auction house. However, farming conditions are changed. Fewer potential buyers of livestock, and in many cases, fewer livestock have resulted in the disappearance of many of these operations. In addition, many of those that continue to exist may have lost the focus on why.

Livestock sale barns are a service provider. They become your sales manager and should be fulfilling the job description that you drew up for them. For this they receive an income which the producer pays. If they don't fulfill the job description, you should not be doing business with them.

Sheep and goat producers in the Northeast are producers of a specialty product. Most livestock volume is in cattle and calves, reflecting the large dairy industry. Buyers and processors of cattle do not usually bother with sheep and goats. Sale barns depend on the cattle business for the major share of their income and few have sufficient sheep or goat volume to attract enough buyers to make a competitive market. Therefore, it becomes in the producers best interest to determine if the sale barn is being successful in marketing sheep and goats before committing himself financially by shipping animals. How do prices compare with the benchmarks set by major terminal markets in the Northeast? Are prices reported? Are volumes at the sale barn of the livestock you produce sufficient to attract several buyers? Is management knowledgeable about the peculiarities of marketing your product?

Most producers focus on the commission charged by the auction barns. This should certainly be a minor consideration when evaluating whether to send your livestock. Rather one should consider the net proceeds received (sales price less commission) in your evaluation. Furthermore, does the commission schedule give the sale barn an incentive to get you a good price or will they get paid the same no matter what you receive? Flat price ($/head) commission income to the sale barn will only expand if there is a possibility that volume can be augmented. This is an indirect incentive for employees to get you a good price (other producers will bring their production in if the sale barn gets a good price for you). More appropriate is a percentage commission schedule where the sale barn directly benefits from getting you a good price. You may pay more in commission BUT if you also receive better prices you are still ahead.

Is sale barn management helpful in suggesting changes in the product you are presenting for sale? Or do they suggest that the buyers that frequent the sale favor a particular type or size animal?

Let's review our job requirements to see what the sale barn should be doing.

• Contacting buyers: Does the sale barn call buyers if they know of special animals coming in for a particular sale? Are they on the prowl for new buyers?
• Is the sale barn clean and bright and does it present the animals in a manner that they can be fairly judged as to quality. Are the weights clearly visible or called out prior to the bidding. Are the animals graded? Is the chant sufficiently clear that buyers can follow the prices?
• Does the sale receive prices for animals in line with other major sales handling your species of product? If the price is less, can the difference be accounted for by reasonable transportation costs? Does the sale barn publish the prices that it receives for animals for all to see and are the prices divided by grade and size categories for the various species?
• Is the sale process efficient? Slaughterhouses are businesses and buyers must be able to acquire large numbers of animals to keep the acquisition cost per animal low. If the sale barn is selling sheep and/or goats individually, either the buyer will spend considerable time at the sale or he might not come at all. Are other species of livestock that a typical slaughterhouse will need sold immediately before or after your livestock species or are there large time gaps which will cause buyers to sit around and lose time?
• Insulating you from credit risk; Most sale barns will be supervised under the Packers and Stockyards Act and required to post a bond with the agency. This affords some protection, but you should be alert to rumors of financial problems and react quickly by asserting claims with the USDA Packers and Stockyards Program immediately if you experience problems receiving your proceeds.
• Slaughterhouses are rarely interested in stockpiling live animals for extended periods of time. Most smaller firms buy for a weekly time frame, while larger firms may be taking delivery daily and sending out buyers all through the week. Thus, it is in the sale barns interest to provide the slaughterhouse an opportunity to buy at least weekly. If, however, this results in the sale having insufficient animals to attract slaughterhouse buyers on a regular basis, the sale barn and the producer will benefit from the sale developing a less frequent schedule that will not conflict with the sales the slaughterhouse will be using as its regular source of supply. Special sales for particular holidays and for particular runs of livestock (Fall feeder sales, Easter sales, etc.) can also be successful, if the sale management is willing to go out and solicit buyer interest. In addition to attracting buyer interest the sale must be held at times when your animals are at the peak of marketability. If sales are held infrequently, holding onto your animals will not only cost you money in terms of feed and time, but may also reduce the value of what you have to sell. This is especially true if you are targeting a particular specialty market where animals must be of a particular size or condition.

We have outlined some of the functions the sale barn should fulfill. It remains for the producer to remember that the sale barn is an independent business looking out for its own interest and profit. Success for the producer will be most assured when his interest and the sale barn's interest coincide. Thus, keep in mind that the sale barn needs a reasonably steady supply for its sales to continue to attract buyers. Determining and supplying the particular type animals that buyers at the sale are looking for will go a long way to assure your success. For example, if most of the buyers at an auction are buying for a particular ethnic or religious group and looking for a particular sized lamb or goat, selling another type of animal makes the sale barn work harder and yields you a lower return. I am always amazed during Easter sales when the buyers are scrambling to fill orders for small lambs and kids yet many producers are also shipping their cull sheep. These never do well in this situation and draw sale barn time and labor away from the high value holiday trade.

In summary, the country auction is a service business. It is providing you the service of supplying buyers for your livestock. It is providing buyers with a concentration of animals in one place at a given time. Producers must be alert to judge whether the auction is meeting their needs and quick to make their concerns known to management. Failure to do this will cost you income and over time lead to the elimination of the sale as a viable market.