Cattle video auctions gaining favor among buyers, sellers

As a buyer for Harris Ranch Beef Co., California's largest beef processor, Don Flanigan doesn't mess around.

At Western Video Market's cattle auction in July—the only one on the West Coast—Flanigan was ready to buy anywhere from 1,000 to 1,300 head of cattle. But that's nothing. Last year at the same auction, he came away with about 8,000 head.

"We're pretty active participants," Flanigan said of the 16-year-old video auction.

Held in Reno inside a large hotel ballroom, just steps away from the many flashing casino slot machines, this year's four-day video auction marketed 187,000 head of cattle from 1,325 lots with estimated sales of $125 million to $150 million, said Kevin Devine, manager of the auction.

Other video cattle auctions are held in Billings, Mont., and Amarillo, Texas.

California's only video auction operator, Western Video Market—based at the Shasta Livestock Auction Yard in Cottonwood—serves mostly sellers and buyers from the Western states. The simultaneous transmission of live video of each auction event by satellite and on Western Video Market's Web site (www.wvmcattle.com) enables participants from throughout the world to watch and listen to the auction and bid on cattle in real time.

With such a large pool of potential buyers bidding on thousands of animals a day, video auctions have become the new standard in cattle marketing, said Glenn Nader, livestock and natural resources advisor for the University of California Cooperative Extension.

In a recent study on cattle marketing through video auctions, UC researchers tracked cattle characteristics that buyers valued in the market by observing which ones received consistent price premiums.

"It's apparent that the market is always dynamic," said Nader, one of the researchers who worked on the study. "Those who are astute or observant of the changing market and get out on that new wave can reap additional benefits."

Using information from nearly 2,000 lots of cattle with average weights of 500 to 625 pounds, the researchers found that selling location, weaned calves and "natural" beef—those free of hormones and antibiotics—brought the highest prices.

Nader noted that selling location gave the Midwest nearly a 6-cent advantage over California.

"We assume that's the cost the buyers are putting in to get (California) cattle to the Midwest to the feeding facilities," he said. "So they're automatically saying 6 cents a pound is my transportation cost."

The study reported that freshly weaned calves are bringing cattle producers prices that are lower than the premiums paid for calves weaned for a longer period. Nader said buyers are willing to pay extra for weaned calves because those animals already have been through the stressful period they undergo when first taken from their mothers, and consequently have a better chance of survival.

"Over time, more people are starting to respond to that and wean their calves and hold onto them," said Nader. "But there's a lot of infrastructure cost that one has to get involved with, and that (involves) feeding calves on hay or having a separate pasture for them."

Such value-added attributes may bring a higher price, he said, but that price may not necessarily bring enough of a profit to offset the producer's added cost of production.

"I don't want to be misconstrued that that's money on the table," Nader said. "It's an increase, but each person has to prudently weigh whether it means profit in their operations."

Calves that met the requirements of the natural beef program also received significant premiums—from $1.11 per hundredweight to $2.08 per hundredweight—but the program's share of sales increased by only 13 percent from 1997 to 2003, making natural beef still very much a niche in the market, Nader said.

Sellers who respond to buyers' preferences early in the game may benefit by getting a price premium, the study noted, but that premium will gradually dwindle as more sellers join the market.

The competitive market for preconditioned cattle—ones that have been vaccinated—has shifted pricing in the last several years. Buyers' demand for preconditioned calves has increased the supply of cattle with that attribute, so much so that it has become the market standard and a requirement in some auctions, the study said.

Flanigan said he usually looks for weaned and vaccinated calves at cattle auctions.

"Being a big ranch like Harris, we're very conscientious about things like vaccines and what (the animals) had to eat," said Flanigan. "We're very conscious of breeds because we sell a lot of choice products, so we want to start out with an animal that has the very best quality."

After 25 years of buying cattle through auctions, Flanigan said video technology has made the process easier for both him and the sellers. Because everything is under contract, buyers are spared the potential of unwelcome big surprises when they finally get their cattle, he said.

"It eliminates a lot of problems," Flanigan said. "The contract is all spelled out. So if they advertise the cattle as 800 pounds, it should be that way when you get it, otherwise (the seller) pays a fee for each pound of inaccuracy."

The concept underlying video auctions arose long before application of video technology. In the 1970s, Shasta Livestock Auction Yard marketed cattle using slide shows with the idea that "you don't have to have cattle in front of you to sell," said Devine. The goal was always to show more cattle to potential buyers.

Before each video auction, sellers from throughout the country submit video footage of their cattle with descriptions for the auction catalog. During the auction, big screens flash the continuous video footage as bids are taken on location, over the telephone or through the Internet.

Many buyers and sellers still participate in live auctions, but video auctions offer another avenue for sellers to showcase their animals, Devine said. He expects to sell about 500,000 head of cattle this year through the video method.

Skinner Hardy, a representative from a ranching firm in Oregon, placed 3,000 head of cattle in 12 different lots for sale at the video auction. Hardy, a veteran of more than 20 years in the business, said he was involved in one of the first video auctions that took place in the West.

"The video concept of selling has grown in huge proportions, and it has become a proven and effective way to merchandize cattle," he said. "The concept is to expose cattle for sale to a huge buyer contingency to get as many people bidding on the cattle as you can."

The advantage of video auctions is that the rancher incurs no transportation or professional handling costs when selling his cattle, Hardy said. But some buyers can be finicky and won't bid on something they can't see in person, he added.

Devine also said that video auctions enable delivery of cattle fresh off the truck for buyers. Because the animals do not have to be transported to a video auction, they endure less travel-related stress than animals in a live yard auction.

"It's a social gathering as well," said Devine. "If you're a cattleman, this is where the fun is and you get to see all your friends."

Roger Nicholson, a seller and buyer for a cattle company in Red Bluff, said he likes to go to four or five video auctions a year "just to get a feel for who the players are." Although he still prefers to see his cattle in person, he has accepted the video format.

"Once it's demonstrated that it works, you accept it," he said.

Devine believes that the amount of cattle sold through Western Video Market has made the market more transparent.

"There's enough volume to know what the cattle are worth on a given day," he said. "It's basically the marketplace, and we're creating that marketplace."

(Ching Lee is a reporter for Ag Alert. She may be contacted at clee@cfbf.com.)