Education

Establishing a Price for Your Livestock

by Robert J. Melchior
Market Coordinator
Northeast Sheep and Goat Marketing Program
at Cornell University 

A local goatherder recently justified her requested price of $.95/lb. for some 70 lb. kid goats by explaining that her neighbor had shipped similar goats to New Holland and received a dollar per pound. Let's examine the logic of her position.

First of all, New Holland Sales Stables is the major sale market in the East, with great depth of buyer interest and the largest supply of any market in this part of the country. Goats, unlike sheep, cattle or hogs, are sold by the head at New Holland and so it is likely that the neighbor's price was actually a guess, unless someone weighed the goats prior to the sale. Let's assume, however, that the $1.00/lb. is an accurate assessment of the average price that the neighbor received. Commissions and yardage of $4.25/head can be expected to eat up 6-8 cents/lb., and transportation to the sale barn, even more. A recent offer of $5/head for transportation from Central New York seems representative. This would add another eight cents per pound and assumes pick-up at your farm. If you need to deliver at some central point, you should allow for the cost of operating your vehicle and even for your time. Finally, a cost few farmers take into consideration is shrink. Shrink is the loss of weight from your farm until the time of sale. A 250 mile road trip and standing over night in a sale barn with limited feed and water can sometimes add up to a shrink of 10%. Good management on a shorter trip will still cost 3%, or for our example, the loss of two pounds at 3-4 cents per pound.

So now let's find an equivalent farm door price to that $1/lb sale:

So much for that premium terminal market price of $1.00/lb. But there are other factors to consider as well. Shipping to the terminal market does not assure you of a set price. In other words, even as an informed producer, you gamble with your output when shipping to a sale, as opposed to selling for a pre-fixed price at the farm gate. On the other hand, a short receivable period and relatively little credit risk in dealing with major sale barns should be balanced against the payment arrangements you make for sales from the farm. Also, consideration should be given to the convenience of scheduling pick-up at the farm as opposed to the fixed schedule of the terminal market and trucker. If you must take time off from an off-farm job to make the delivery, a cost for lost income should be put in the mix as well.

To summarize, our goatherder would have done just as well as her neighbor receiving only $.83/lb. at the farm with less inconvenience and no price uncertainty. Her $.95/lb. is actually quite a bit higher than what the neighbor received.

Let's change the parameters of our sale a little and assume our goatherder has contacts with a slaughterhouse in New Jersey. She has made arrangements to ship with the local trucker for $5/hd. What should she ask for her goats? Using the example above, she has the alternative of shipping to New Holland with a net return of $.83/lb. Adding back in the shipping cost to New Jersey ($.08/lb.), she must get $.91/lb. to equal what she could get in New Holland. If the slaughterhouse in New Jersey is also buying his supply in New Holland, his alternative cost will be the $1.00 purchase cost at the sale, plus the cost of an order buyer and transportation. Let's assume these will come to $.03/lb., giving a total of $1.03/lb. We have now established the maximum that our goatherder can charge the slaughterhouse without his saying that he will just buy at the sale. Our goatherder can set her price between $.91/lb. (what she would get in New Holland) and $1.03, the price the slaughterhouse will pay for New Holland goats.

In order to establish a price for your product when dealing locally, you must be aware of the market around you. If neighbors are marketing the same product to the same consumer that you are dealing with and you decide you want twice the price for which the others are selling, you are going to sell few goats. On the other hand, you should be selling for at least as much as you could get by sending your animals to an accessible sale. Consider also whether you are selling retail or wholesale. When selling through a sale barn, you are making a wholesale transaction with the convenience of selling numerous animals and the possibility of selling with some reasonable frequency. When selling one or two animals to an individual, you do not have this flexibility and are making a retail transaction. All the efforts that go into making the transaction a success (many of them non-monetary) will have to be repeated over and over again to sell other animals, and so you should be looking at some form of premium for handling these sales.

Some efforts at marketing are as necessary to successful livestock production as good nutrition or efficient handling techniques. Failure to make these efforts can easily offset whatever gains you may be making in productivity and can severely impact your profitability. Marketing responsibility can be turned over to another entity for a cost, as when you sell to a dealer, but this should be done as an informed decision, recognizing the responsibilities being relinquished and the cost being paid. This cost can only be ascertained if you are aware of your alternative opportunities in the marketplace. Thus the first step when contemplating marketing specific animals is to know what the major market is for that particular type of product.

More information on marketing through different channels is located under "Methods and Strategies" in the Education Section of this web site. Spreadsheets to help you determine the returns from various market channels are available under "Marketing Spreadsheets".