A.M. Edwards and J.W. Wilton
Centre for the Genetic Improvement of Livestock
Department of Animal and Poultry Science, University of Guelph

Summary

Ontario beef producers have two options for marketing their cattle: through an auction barn where price is based on the live weight of the animal, or directly to a packer where price is based on the carcass weight. Prices paid on a live weight basis showed a preference for large framed cattle, whereas rail pricing showed no preference for one breed type over another in steers weighing greater than 454 kgs. When rail pricing was closely examined, despite carcass weight discounts, producers were paid more for their product on the rail than through an auction barn.

Introduction

In Ontario, cattle are sold either through an auction market or directly to a packer. Prices at an auction market are based on the live weight and condition of the animal, whereas rail prices are based on the hot carcass weight. Cattle are priced and sold by the pen or lot. All animals within the pen are priced according to an average quality or finished animal within the pen. When cattle are sold directly to the packer, the carcasses are priced according to their weight, the agreed sales price minus any applicable weight discounts. Since cattle sold on the rail may be discounted, it is believed that cattle sold through the auction markets obtain higher prices.

The Ontario commercial beef industry recognizes two breed types, the large frame and medium frame breeds. Animals are classified at the auction market as large or medium framed by the auctioneer or the sales ring attendant. Classifications are subjective and are based on breed and size of the individual or lot (Table 1).

Current breeding decisions depend on beef cattle marketing practices and breed type. Therefore, a clear understanding of marketing practices is required to define breeding objectives for current and future beef markets. The objectives of this study are to outline the two methods of marketing beef cattle in Ontario and to determine price differences among different breed types.

Materials and Methods

Packers have stated that no bias or preference exists for one particular breed type. Each breed type is priced according to its dressing percentage and finish. At auction markets, cattle buyers are expected to estimate dressing percentages of the cattle and pay according to the rail prices set by the packers. Therefore, live cattle prices should reflect the rail prices.

Data from 14 computerized cattle markets in Ontario was used. The weighted average price per kilogram live weight for slaughter cattle were used to examine differences among breed types and marketing methods.

Results and Discussion

Cattle sold in the auction ring are sold as a group and priced according to an average quality animal within that group. This pricing method often results in discounted top quality cattle and premium priced poor quality cattle. It also limits the carcass information feedback to the producer regarding an individual's performance, since the sales receipt only records the average price and weight of the lot sold by the producer.

Carcass pricing or rail pricing was incorporated in the early 1970's in an attempt to price carcasses objectively and according to their carcass value. Animals are priced before arriving at the plant. Carcasses are weighed and graded after slaughter, and discounts are charged according to carcass weight and grade. This method of pricing involves less risk to the packer since the producer bears any discounts and the price is based on actual carcass weight. The live pricing method places the responsibility on the packer since the buyer estimates the yield and therefore carcass weight, and bases the pricing decision on the current rail price and yield estimate.

Rail prices were consistently higher than live prices converted to a rail equivalent price when live auction prices were compared to rail prices (Table 2). A correlation of 0.54 between the reported rail price and the live price converted to a rail equivalent price demonstrates the need for an accurate pricing mechanism. If cattle buyers were accurately estimating carcass yield from the live animal and basing prices on the current rail price, then the correlation between the reported rail price and converted live price should be close to 1. The moderate correlation demonstrated that auction barn pricing did not reflect the true merit of the cattle sold. Value based marketing; a proposed method of pricing cattle which would pay producers on an individual carcass basis and would accurately reflect carcass value. Value based marketing would also encourage information flow from packer to feedlot producer, through to the cow-calf producer.

Packers have stated that no preference or bias exists for one breed type over another. Table 3 outlines the mean price paid for large and medium framed cattle from 1987 to 1994. A significantly higher price paid for large framed steers over 454-kgs and large framed heifers over 408-kgs showed that a preference existed for the large framed cattle. However, when live auction prices were converted to a rail equivalent price, no preference for breed types in steers over 454-kgs was observed, although large framed heifers over 408-kgs remained the preferred heifer breed type. Medium framed steers weighing less than 454-kgs and medium framed heifers weighing less than 408-kgs was however preferred over their large framed counterparts.

Conclusions

This study demonstrated current pricing trends on a live and dressed basis in Ontario. It was shown that no differences existed on a rail basis for large framed steers but medium framed steers and heifers under 454-kgs and 408-kgs were paid premiums over their large framed counterparts. On a live basis, the large framed cattle commanded a higher price and were preferred over their smaller counterparts. This may the large framed and heavier carcasses seen in Ontario, since producers are encouraged to produce more beef for more money/kg. However, when rail pricing was closely examined, despite carcass weight discounts, producers were paid more for their product on the rail than through the sales barn.

Today’s pricing systems, both live and rail, are based on the average of a group of cattle. It continues to encourage producers to raise as large a carcass as possible with little or no regard to quality traits and future niche markets.

Significance to the Industry

Value based marketing is the next logical step to improving the beef cattle pricing system. This system would potentially price each carcass based on its weight, retail yield, marbling content and longissimus dorsi muscle area. The producer would receive a record stating the animal’s identification, its weight, marbling level and longissimus dorsi muscle area along with the price and any pertinent discounts. This information would be available to the producer and could be used for future breeding decisions and identification of superior breeding bulls and dams within the herd.

Acknowledgements

Funding from the Ontario Cattlemen’s Association and the Natural Sciences and Engineering Research Council of Canada is greatly appreciated.

Table 1.    Breeds used to define frame sizes¹

¹ Source: Ontario Stockyards Incorporated.