– Stephen Boyles, OSU Extension Beef Specialist
Using a ‘slide’ when selling cattle adds flexibility to marketing cattle. Ohio calves are traditionally marketed in the fall and thus it is also a traditionally low point in calf price during the year. By marketing cattle during peak prices, well in advance of shipping date, producers may get a higher price. With forward contracts becoming more prevalent, sliding price adjustments in contracts provide a tool for marketing cattle at some future delivery date. A “sliding scale” adjusts price for variation between estimated and actual selling weight. A producer must have an understanding of price spreads between various weights and classes of cattle as well as knowledge of how the cattle are expected perform.
Suppose some yearling steers are forward contracted in June for an August delivery date at $.80 per pound ($80/cwt). The steers weighed 730 pounds on sale day, and it is anticipated they will weigh 850 pounds (after the 3 percent pencil shrink) on August 1 (2 lb pr day gain). The terms of the contract call for an average shrunk weight of 850 pounds with a $4/cwt. slide and a 10-pound limit on the top side of the base weights before discounts are incurred. In another words, the steers can weigh up to 860 pounds without a price discount.
Let say the cattle actually weighed 870 pounds instead of 850. The result is a 20-pound difference. Your contract allowed for calves to be 860 pounds without a price discount. Therefore, we will use 10 pounds (20-10=10) for our adjustments to the slide price. The following is an example calculation:
10 lbs. X $.04/lb = Price Discount of $.40/cwt (Take a moment to notice where decimal points are placed and the units for each number)
Original Price – Discount = Actual Sale Price
$80 /cwt. – $0.40/cwt = $79.60/cwt
Selling cattle on a sliding scale can add flexibility to a marketing plan. It allows producers to sell cattle in advance of delivery dates. It will allow sellers to be more of a price setter rather than simply a price taker. It can also allow buyers to schedule a supply of calves and attain some assurance of type, size and value of the product. All parties need to have an understanding of price spreads for size, sex, and class of cattle. Producers also need to know the breakeven prices required to be profitable. These same procedures should be used when evaluating other management practices such as creep feeding.