SIC 5154

Companies in this industry

Industry report:

Establishments falling under this classification are primarily engaged in buying and/or marketing cattle, hogs, sheep, and goats. This industry also includes the operation of livestock auction markets. Establishments primarily engaged in the wholesale distribution of poultry are classified in SIC 5144: Poultry and Poultry Products; companies involved in the buying and selling of horses are in SIC 5159: Farm-Product Raw Materials, Not Elsewhere Classified.

Industry Snapshot

According to industry statistics, establishments of livestock merchant wholesalers numbered 8,380 in 2009, and the total number of employees was just more than 35,150. Texas led the industry with 15 percent of the establishments and 14 percent of the employees. Other top producing states included Iowa, California, Kansas, Colorado, Missouri, Nebraska, and Oklahoma, and South Dakota, which each had between 1,000 and 2,000 employees represented within this industry.

Cattle represented the bulk of the market value, and auctioning of livestock accounted for roughly one-half (49.7 percent) of the overall market in 2009. General livestock dealers represents a 30.6 percent market share, and livestock auctions accounted for 12.3 percent. Hogs represented a 4.5 percent market share, and goats and sheep each garnered a 1.4 percent market share.

Organization and Structure

The marketing of livestock in the United States is conducted by a variety of businesses ranging from the order buyer who operates out of the front seat of his car to the video auction that sells cattle by beaming pictures of them to a satellite orbiting the earth. The livestock marketing business has evolved from the days when stockmen would send their livestock to a terminal market without any idea of the price they might receive. Terminal markets and commission agents still thrive in the ever-changing world of livestock marketing, but they have been joined by modern-day merchants who use computers, video uplinks, fax machines, and cellular phones to market livestock.

Firms involved in the wholesale marketing of cattle, sheep, hogs, and goats include such diverse operations as stockyards, commission firms, order buyers, dealers, brokers, auction markets, and video auction companies.

Livestock are consigned to auctions by ranchers, hog operators, sheepherders, and other stockmen to be sold by the chant of an auctioneer. Because trucking is a costly expense, most often stockmen will send their livestock to the nearest auction market. This may be ten minutes or ten hours away by truck. These auction markets are usually individually owned--only a handful were owned by conglomerates. The owner of the auction receives a commission or a per-head fee for selling the livestock in addition to charging for the feed consumed while the livestock are in the auction yard. Typical commissions range from 2 to 3 percent per head.

One of the largest cattle auctions in the country where the cattle are actually herded through an auction ring was located in Oklahoma City, Oklahoma. Here cattle are sold nearly every day of the week. The auction in Norfolk, Nebraska, was one of the largest auctions in terms of the number of species sold. There might be a hog auction taking place in one sale ring and a dairy cattle auction in another ring on the same premises on the same day. This is an exception, however, as most of the auction yards in the country conduct sales once a week. Sheep, dairy animals, goats, hogs, horses, and cattle are sometimes offered on the same day at the same location.

Commission agents are still used at some auctions around the country--the auction at Oklahoma City being the largest. This practice is a holdover from decades ago when ranchers would send their livestock to a commission agent located at any of the larger stockyards, such as those located in Chicago. These agents would then be responsible for the care and feeding of the livestock and the selling of them once they reached the yard, and would receive a commission based on how much the animals brought at market.

Livestock is usually sold by the pound except in the case of breeding animals, which are usually sold by the head. For example, a breeding bull may bring $2,000 to $3,000, whereas a steer destined for a feedlot may sell for $60 per hundredweight. Old cows being sold for slaughter are usually sold one at a time. When a rancher sells his yearly production in the form of calves or lambs, however, the drafts may be composed of several dozen or even hundreds of head. In the latter instance the livestock are weighed and priced per pound. Steer cattle and heifers are usually sold separately, whereas a group of lambs or hogs may include both sexes.

Sitting in the auction arena are a variety of buyers who make their living attending several auction sales each week. They may be order buyers working on a per-head or per-pound fee, or they may be employees of a feedlot or a packing house. Order buyers may have several orders at the same auction sale. A feedlot manager may have called and wanted steers for the feedlot or a rancher may have phoned with an order for heifers suitable for breeding. Order buyers often represent several interests at the same sale, although they usually try to avoid having more than one order for the same classification of livestock. The order buyers keep careful track of both the number of livestock they buy and the weight, which is flashed on an overhead "scoreboard." Order buyers are highly skilled and are paid on a commission basis, which is usually "fifty cents per hundred"--this means that on a purchase of a $500 animal the order buyer would be paid $2.50.

At ringside, buyers convey their desire to bid by sending slight body signals to an auctioneer who has learned his chant at one of many auction schools. The livestock are sold rapidly with as many as 50,000 head per day being sold. In the case of video auctions, it is not unusual to see the ownership of 60,000 head of livestock change hands in a single day.

Some ranchers prefer to sell their livestock "in the country," which is the popular way of saying that buyers come to the ranch or farm and purchase the animals directly from the owner rather than from an auction market. The livestock are weighed on a ranch scale that has been checked and sealed by representatives from state or county weights and measures. In most cases the same order buyers who sit in on the auction scour the country looking for livestock to buy "in the country."

In discussing livestock marketing, a distinction must be made between classes of livestock. Feeder cattle or calves that are just being weaned are most often sold at auction. Many feeder pigs and lambs are still sold in this manner. But most cattle, sheep, or hogs that are older and ready for slaughter are sold directly to a packer buyer. Packer buyers are given "show lists" from major feed yards, and they bid on the cattle either in person or over the phone.

Often cattle and hogs are actually fed by the packing plant owner. This is known as "captive supply," and at times the captive supply of fed cattle in the United States exceeds 20 percent. This is cause for worry among independent livestock producers who feel that if the "Big Three" meat packers--Tyson, ConAgra, and Cargill--are able to feed their own cattle, they can in some way control the market price for all classes of cattle. They would supposedly do this by withholding their cattle when supplies were large and using up their own supplies when livestock in the country were in short supply.

How livestock are marketed in the United States varies depending on what species is being merchandised. Hogs, for example, are marketed in a fashion similar to poultry--the animals are raised under contract to large packers. Although feeder pigs are still sold at auction, the tendency is toward more vertical integration and more contractual arrangements. In addition to this method there are also several hog buying stations, situated primarily in Iowa, Illinois, and Indiana, to which hogs are delivered, weighed and sold to a packer.

Purebred livestock, boars, rams, bulls, and other registered animals to be used for feedstock production are sold either at auction or by private treaty. At auction the animals are usually sold one at a time, with the auctioneer being paid 1 percent of the selling price and the sales manager receiving a commission of about 5 or 6 percent. In many farm or ranch production auctions, however, there are no sales managers, so that expense is eliminated. Private treaty sales occur when a rancher goes to the farm or ranch and purchases the animals directly from the breeder who produced them.

Nearing the end of the twentieth century, one of the ways in which the livestock marketing sector responded to increased packer concentration was through the use of video auctions. This relatively new tool allowed cattlemen to offer their livestock for sale to buyers all over the country through the use of modern-day telecommunications tools. Videotaped pictures of consignments of livestock are beamed to a satellite on a predetermined sale day, and buyers can view the livestock on their own television sets, providing they are linked to a satellite dish. While they are viewing the livestock, they can call on the telephone and take part in a regular auction. This way, livestock only have to be moved once--to the new owner--thus avoiding the costly and time-consuming task of trucking animals to an auction market.

In video auction, buyers may come from down the street or across the country. The real value of video auction is the sellers have a free and open market to a much wider audience of potential buyers. The livestock are usually less stressed and healthier when sold in this manner. Descriptions of the livestock must be accurate when the buyers cannot view the animals in person. Another benefit of video auction is if a major buyer stays off the market that day, the seller does not suffer because there are plenty of other buyers to take his place.

Large video auction companies stage either monthly or biweekly sales. Western Video Market, headquartered in Cottonwood, California, is actually a consortium of auction markets that are using the video sales in combination with their own weekly, live animal sales. Superior Livestock Auction, with headquarters in Brush, Colorado, and Fort Worth, Texas, on the other hand, has more than 300 agents in the country filming consignments and delivering the livestock to the new buyers. Superior was selling more than one million cattle annually by 1994; Western Video had sold more than 60,000 head in just a single day. Superior was also selling other species of livestock, including ostriches.

Legal Aspects.
Many of the anti-trust laws in the United States were passed as a direct result of the problem of monopolization of the meat industry. On August 15, 1921, the Packers and Stockyards Administration was formed to police the livestock marketing industry. The P and S, as it is commonly called, works to insure the integrity of the livestock, meat, and poultry markets. This is accomplished through fostering fair and open competition and guarding against deceptive and fraudulent practices that could affect meat and poultry prices.

Producers, consumers, and the entire industry are protected by the P and S from unfair business practices which can unduly affect meat and poultry distribution and the price of meat at every level, from the ranch gate to the super market shelf. The P and S sends auditors to the various livestock marketing agents to review accounts and insure that the marketing agencies are properly bonded.

Commission firms, auction markets, dealers, and order buyers are required to be bonded as a measure of protection for livestock sellers. The size of the bond is based on the volume of business and is generally an average of two business days or a minimum of $10,000. A dealer in livestock must be bonded to legally operate.

It is the primary function of the P and S to ensure that commission firms, auction markets, order buyers, and dealers remain financially solvent. The administration is also called upon to rid the industry of the unscrupulous traders who occasionally surface. Rules that livestock dealers must abide by include the prompt pay law, whereby consignors or owners of livestock must be paid promptly, usually by the close of business on the day after the transfer of possession. For example, if a cow buyer sitting on the auction seat buys a load of cattle, the livestock may be loaded and sent to the packing house but the packer must legally pay for those cattle on the day after they have been purchased. Another way the P and S ensures that merchandisers remain solvent is by keeping an eye out for "check kiting," which is merely swapping checks by placing them in two or more bank accounts for the purpose of creating a "float" or inflated balance.

The P and S also ensures that all firms engaged in livestock merchandising are playing on a level playing field. Tariffs or charges must be published, and auction markets cannot legally offer free trucking, price guarantees, or discounted commissions as an incentive for a rancher to send his or her livestock to one auction as opposed to another--doing so can result in a fine of $10,000 for each infraction.

In the intricate, competitive world of livestock marketing, no single factor is as important as the accurate measurement of livestock weight. Employees of the Packers and Stockyards Administration check the scales that are used to weigh the livestock on a regular basis. Scales must be tested by an approved weigh master for accuracy at least once every six months.

A principal trade organization for the livestock marketing sector has been the Kansas City-based Livestock Marketing Association (LMA). In addition to lobbying Congress and state legislatures, the LMA is also in the insurance business and provides bonding for the various marketing agencies. The LMA's Board of Trade issues "hot sheets" notifying the industry of unscrupulous dealers and firms that are no longer solvent.

Background and Development

After experiencing declining beef demand throughout the 1980s and 1990s, the industry saw beef demand rise by 4.59 percent for the third quarter of 1999 as compared to third quarter 1998 demand, according to the National Cattlemen's Beef Association (NCBA). The annual rate of decline began to slow in the late-1980s, and started to flatten in 1996; third quarter 1999 represented the first sustained gain in beef demand, following on the heels of a significant increase during the previous quarter, as compared to the second quarter of 1998, according to the Beef Demand Index, independently tracked according to USDA data. In a presentation to the Beef Summit '99, Randy Bloch of the Denver-based market research firm Cattle-Fax attributed rising demand to increased consumer spending and per-capita consumption. A more telling revelation is the fact that consumer demand sustained growth in the face of record-high beef supplies, which drove prices up, surprisingly, in defiance of economic laws of supply and demand.

A growing trend in the beef business in the 1980s and 1990s was the custom feeding of cattle. This means that a rancher places his cattle in a feedlot and pays for feed and yardage expenses and then sells the cattle to a packer when they are ready for processing. In so doing, he maintains ownership of the cattle all the way through the feeding phase, which generally lasts from 120 to 200 days. The cattle are often sold on a grade and weight basis, meaning that the price per pound is determined by the quality of the meat carcass.

Despite a plethora of new methods of marketing livestock, the auction market remained, in the 1990s, the primary agent for assisting in the transfer of title for various species of livestock. As of the late 1990s, 1,500 livestock auctions existed in the United States according to the Livestock Marketing Association (LMA); a variety of livestock were sold on a weekly and sometimes daily basis at these auctions. In addition, the United States Department of Agriculture (USDA) identified about 19,000 livestock sellers--feedlots, farmer-feeders, auctions and dealers. Combined, beef and pork accounted for 68.4 percent of the meat market, with beef controlling the largest chunk at 40 percent.

In the 1990s, the livestock marketing industry was at something of a crossroads. Would it operate according to the rules of vertical integration, whereby livestock would no longer be sold at auction or "in the country," but instead be under contract from the day of birth to the day of processing? Or would the auction market remain intact? Though auctions have not even started to fade, contract purchases offer packers a distinct financial advantage. For example, packers spent $1.75 to $2.00 less for contract cattle per hundredweight than they did for auctioned cattle. The USDA predicted that contract purchasing would increase, especially in the cattle and hog markets.

In the area of sheep marketing, another problem had surfaced by the mid-1990s--the market had become extremely concentrated, and lamb raisers had only two or three buyers in the entire United States. This has caused the Western Organization Resource Council to call on the U.S. Attorney General and the Justice Department to investigate the situation and to enforce antitrust legislation.

Likewise, the beef packing industry had become increasingly concentrated at the end of the 1990s. In 1994, just three firms in the beef packing Industry--IBP, Monfort and Excel--processed 80 percent of all fed cattle and were increasing their market share cumulatively at the rate of 5 percent per year. When Upton Sinclair wrote The Jungle, a graphic 1906 novel that portrayed the wretched lives of workers in Chicago's meat packing plants (and the impetus behind much antitrust legislation in the food industry), the five largest meat-packing firms did not control as much of the slaughter as the "Big Three" do in the modern era. The general feeling among many livestock producer groups is with fewer buyers the lack of competitive bidding will not provide true market discovery for their livestock. The USDA has persistently urged Congress to take action against the large meat-packing companies, launching study after study to reveal their effect on livestock pricing.

On May 20, 2003, a ban was issued on Canadian cattle imports and products, as a result of a cow testing positive for bovine spongiform encephalopathy (BSE), commonly known as "mad cow disease." A report released by the USDA in April 2004 ended the ban on the Canadian beef industry and reopened the border for trade. This further prompted the USDA to investigate an identification plan in conjunction with the state animal health officials and individual livestock industry groups. This group is called the National Identification Development Team. They will be working on a country--of--orign labeling (COOL) system, or "national standardization program that can identify all premises and animals that had direct contact with a foreign animal disease within 48 hours of discovery." This would enhance the current Federal and state labeling requirements under the U.S. Farm Act.

The total number of cattle on feedlots in the United States totaled 10.6 million in 2003. That number was down from 11.6 million or 8 percent in 2002. The United States consumed 3.86 billion pounds of red meat in 2002, while the cattle slaughtered totaled 2.77 million heads. The total number of cattle and calves on feedlots as of January 2004 numbered 11.2 million. There were 6.84 million steers and steer calves that were also included in the inventory. The red meat consumption totaled 3.88 billion pounds in December 2003, while cattle slaughter totaled 97.5 thousand heads of cattle.

A USDA report of cattle on feed showed a total of 11 million head on Nov. 1, 2008, which was 7 percent below 2007 and a decrease of 8 percent from 2006. Placements for October 2008 represented a decline of 11 percent from 2007 at 2.44 million.

Another concern for the livestock merchant wholesale industry in the late 2000s besides a declining number of cattle on feed continued to be disease. Not only was BSE in cattle from Canada still an issue, but Johne's disease created another problem possibly contributing to the decline in overall cattle numbers.

In March 2007, more than 100 agricultural organizations and livestock auction yards sent a letter to the U.S. Senate trying to prevent the USDA from allowing Canadian cattle over 30 months of age into the United States because of the lingering dangers of BSE, or mad cow disease. Among the contentions by the auction yards was that cattle over 30 months have a higher risk for transmitting BSE.

Meanwhile, a National Animal Health Monitoring Systems (NAHMS) Dairy 2007 study indicated that approximately 10 percent of animals moving through livestock auction facilities had Johne's disease. The disease affected 25 percent of dairy herds and 8 percent of beef herds. Johne's disease results in rapid weight loss despite a healthy appetite, unexplained low milk production, and low calf weights. Animals with the least resistance to the bacterium causing the disease are three months or younger, but older cattle can also become infected.

Although research found that no more than 5 percent of animals progress to the point of wasting away despite a normal appetite, numerous animals in a given herd may have been infected by that point and may not produce at optimal level. As in dairy herds, animals infected in beef herds produce less milk, resulting in lighter calves at weaning.

Current Conditions

According to the P and S Administration 's annual report, cow and bull slaughter numbers rose between 1999 and 2007 and then held steady in 2007. Hog slaughter was more volatile; it increase sharply in 2003, remained stable until volumes declined in 2006. The following year volumes returned to 2005 levels and remained there through 2008. Sheep slaughter numbers decline from 1998 through 2004, increased sharply in 2005, dropped in 2006, and rose again in 2007 and 2008.

In 2009, there were 284 bonded slaughter firms, 4,529 bonded dealers, 1,225 bonded market agencies, and 1,170 posted stockyards. All of the establishments fall under the regulations of the P and S Act. Concentration within the industry remained relatively steady for cows and intensified somewhat for hogs. The top four-firm concentration within the steer and heifer concentration in 2008 was 70 percent, up from 36 percent in 1980 but about level with 81 percent in 2000. The top four firms controlled 76 percent of the market for fed beef slaughter, up from 53 percent in 1980 but down from 83 percent in 2000. Four-firm concentration of sheep and lamb slaughter was 70 percent in 1980, up from 56 percent and 67 percent in 1980 and 2000, respectively. Four-firm concentration of hog slaughter was 65 percent in 2008, up from 34 percent in 1980 and 56 percent in 2000.

In 2009 the U.S. production of beef totaled 26.96 billion pounds, down slightly from 26.42 billion pounds in 2008. Production levels were up through the most of 2010 based on strong export demand, and the U.S. Department of Agriculture (USDA) estimated a year-end 2010 total of 25.64 billion pounds. Further, the USDA forecast beef production for 2011 at 25.14 billion pounds. Pork production totaled 22.99 billion pounds in 2009, down from 23.35 billion pounds in 2008. The USDA forecasted 2010 and 2011 production levels at 22.24 billion pounds and 22.66 billion pounds. Lamb and mutton production totaled 171 million pounds in 2009, down from 174 million pounds in 2008. Totals for 2010 and 2011 were projected to continue to decline to 164 million pounds and 161 million pounds.

In 2009 the United States exported 1.43 billion pounds and imported 3.05 billion pounds of beef and veal. Pork exports totaled 3.14 billion pounds, and pork imports totaled 969 million pounds. The United States also imported 10 million head of live swine. Lamb and mutton imports totaled 202 million pounds.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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