With grazing fees on the rise and increased fuel and fertilizer costs, Utah ranchers must look for new ways to cut corners and save money if they are to survive.
Going to market by way of video cattle auctions is one potential cost-saving measure they may want to consider, said a Utah State University economist.The popularity of video cattle auctions has grown rapidly over the past five years, and they appear to offer a viable marketing alternative to buyers and sellers, said DeeVon Bailey, Cooperative Extension economist.
Superior Livestock Auction (SLA), the nation's largest satellite video cattle auction, offered more than 760,000 head for sale in 1990. Other major video auctions include Satellite Cattle Exchange and Producers Video Auction, he said.
In remote areas of the West, he said, video auctions provide a practical alternative because transportation costs associated with marketing cattle can be high.
"If one accounts for all costs including trucking, shrink and commissions, the combined costs to the cattle buyer and seller can range between 8 to 10 percent of the value of the animals," he said.
These costs are even higher for market participants in areas isolated from the major feeding centers. As a result, a large economic incentive exists to reduce these transaction costs, he said.
Compared to traditional regional auctions, Bailey said video auctions appear to reduce overall trucking costs since the cattle are shipped directly from the seller's location to the buyer's.
Bailey said competition may be more keen for cattle sold at video auctions. More buyers participate in these types of auctions than at more traditional regional auctions.
Other considerations that make video auctions favorable to buyers include a reduction or elimination of co-mingled lots of cattle and a knowledge of the vaccination history of the cattle, he said.
Research completed at USU compared prices between regional and video auctions. Bailey said the research centered on prices received in 1987 for feeder steers weighing 600 to 800 pounds sold at SLA compared to potential prices the cattle might have received the same week at three different regional auctions.
The regional markets included Greeley, Colo.; Dodge City, Kan.; and Oklahoma City. Only cattle sold at the video auction within the market areas of one or more of the regional auctions were used for price comparisons. It was assumed a market area fell within 400 miles of each regional auction, he said.
Prices received at the video auction were adjusted for potential seller trucking costs and shrink to the regional market, different delivery dates, commissions and possible quality differentials, Bailey said.
Comparing only quoted prices and not transaction costs such as trucking, shrink and commissions, regional auction prices were found to be slightly higher than video auction prices for feeder steers weighing 600 to 800 pounds, he said.
But if transaction costs are subtracted from bid prices, then the average net prices received at the video auction by sellers were $0.95 per hundredweight above Oklahoma City, $3.36 per hundredweight above Greeley and $1.48 per hundredweight above Dodge City, he said.
These results are averages over the entire 400-mile market area. Bailey said the differences would be smaller, or even reversed, for cattle close to the regional markets. On the other hand, the differences would be larger for cattle further away from the regional center.
Sellers at the video auction, after adjusting for transaction or selling costs, can keep their cattle at home and still receive basically the same price as the Oklahoma City auction, generally considered a high price market, he said.
While these results are favorable for video auctions, he said buyers and sellers need to recognize some basic differences between traditional and video auctions.
All cattle are sold for future delivery at video auctions. As a result, video auctions are actually contract rather than cash markets. Bailey said this implies that buyer and seller compliance with contract specifications are still risks after the sale. Consigning cattle to and buying from reputable auctions that guarantee contract compliance will minimize these risks.