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Education

Selling Smart

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

Farmer education courses always emphasize two ways to increase profits; reduced cost and improved efficiency. An alternative would be raising prices. This is not normally pursued because farmers are typically commodity producers with little market power to influence prices. Even in this situation, livestock producers are able to position their output to gain premium prices in the market place.

Utilizing lambs as an example, many producers in the Northeast have long bred their ewes to lamb early in the year in order to take advantage of the specialty demand for small "hot house" lambs at Easter. These lambs (in 2002) typically sell for $1.50 - $2.00 per pound for a 40 lb lamb, yielding $60 to $80 -- or about as good a return as provided by a lamb born in April and sold in October as a feeder. These producers have positioned their product in a certain time and weight range to improve the price they receive. This takes understanding of special marketing opportunities, in this case Easter, and the flexibility and control necessary to produce at the special time required to service that market.

Well, we can scour the calendar for other dates and other special situations where well-positioned production can bring premium prices and, in fact, our Holiday Calendar, will direct searchers to holidays with specific livestock requirements.

Other marketing strategies can also be employed to accomplish higher prices. Knowing the pricing cycles that exist for your livestock is probably the easiest. Others would include selling further down the marketing chain, establishing marketing relationships where your product will receive preference over the general market, and targeting the type or size livestock you produce to that demanded by a particular market.

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The pricing cycles for lamb and goat are similar. They are influenced by demand (when is the product consumed) and supply (when does the product become available to the marketplace). Typically prices for an eighty pound lamb reach a low point between September and November (supply heavy), begin to rise after Thanksgiving (consumption increasing-supply decreasing), and reach high levels February through May (low supply). June, July and August prices reflect a thin market (light supply and light demand) and can be volatile with a downward bias. These price trends can be influenced by many other factors including weather, the incidence of holidays, and the economy or public confidence. By positioning when on the calendar your product will be available, you increase your chances of receiving improved prices.

One point should be added to a discussion of timing your deliveries into the market. That is that quality will almost always command a premium. Quality is enhanced the younger the lamb is presented to the market. Conversely it is not wise to "store" a lamb for a better market later on because what you gain in market timing you more than lose in quality.

A typical lamb or goat can be handled many times on its path to the consumer. Each handler provides a service and gets paid. Generally if the producer can eliminate several of the intermediary steps (and is willing to assume the functions fulfilled by these market participants), he can expand his share of the proceeds. A typical market chain for lambs in the Northeast is as follows:

Obviously by selling directly to the consumer the producer has the potential to maximize his proceeds. However, it should not be assumed that this is necessarily the most profitable or most efficient sales procedure. Other participants in the market chain are specialists in their particular function and should be able to provide that function at a lower cost than the typical producer. A retailer, for example, doing a volume business should be able to provide distribution more efficiently (lower cost per unit) than the typical farmer. Producers, therefore, need to evaluate which functions they can assume based on their special advantages and interests.

Other industries have long known the advantages of relationship transactions. Service industries with little product differentiation have long relied on this method of selling. If you are consistently working with a marketer and providing a significant volume over the course of the relationship, you frequently will receive superior treatment. For example, if you are dealing directly with a retailer and providing a large portion of his requirements and he is not in an extremely competitive position, market price movements can become less relevant and you can hold prices while the market has fallen or perhaps is nonexistent. Another example would be where a retailer has a continuous demand for a normally seasonal product like hothouse lambs. If you maintain a relationship with the retailer you will be in a position to supply that product on a continuous basis even though the open market price for those lambs has dropped or is nonexistent. It is also important to remember that retailers, slaughterhouses and sale barns are in business 52 weeks a year. While business volume may ebb and flow, these firms need product on a continuous basis and your relationship and importance to your customer will be enhanced to the extent that you are supplying when others are not.

Another suggestion for marketers is to note that all ethnic groups seem to have different preferences for the size and type of lambs and goats they prefer. Being aware that demand for a certain weight of animal will keep prices for that product at a premium to others can be an important factor in maximizing income. For example, in the Northeast, due to ethnic demands, light lambs (60-80 lbs) sell at a premium to heavy lambs (100-120 lbs), a category where we compete with Western and import production. Raising lambs much beyond the eighty pound range, while it might be psychologically satisfying, is likely, in the current environment, to actually reduce the total dollars that you receive.

In summary, marketing can be complicated and that is one of the reasons why specialists like dealers and distributors exist. It is imperative for producers to know some of the basics about the market they service in order to plan production and perhaps genetics to meet the requirements of that market.