Livestock Auction Markets Regionalize

By Kara Keeton

The Blue Grass Stockyard location in Stanford holds its first day of auctions in 2007

Kentucky livestock market operations are growing smaller in number yet broader in reach in recent years as livestock production has expanded to replace tobacco cash receipts on commonwealth farms.  Always important, the role of livestock auction markets to the modern farm economy has grown.

“Kentucky’s auction markets are a crucial segment of our beef cattle industries,” said Kenny Burdine, agriculture economist at the University of Kentucky, and livestock and forage specialist with UK’s Agriculture Extension Cooperative. “In a state where most operations are relatively small, marketing becomes increasingly important. Auction markets provide a convenient and competitive environment where order buyers, stocker operators and other downstream entities can compete for cattle and ultimately place them into the appropriate marketing channels.”

Cattle producers have only about half as many sales venues available today as 40 years ago, yet access to markets across the commonwealth is considered as good or better than it was.

“What has led to this decline in markets is that farmers have better transportation equipment,” said Jim Akers, chief operating officer of Bluegrass Stock Yards. “That coupled with the improved road infrastructure has decreased the need to have a market in every little town in the state.”

Cattle are the focus, but Kentucky’s livestock auction markets also provide producers a venue for goats, sheep, hogs and other livestock that are an expanding part of the state’s agriculture economy – which yielded $4.26 billion to $4.71 billion in cash receipts from all farm marketings in recent years.

Kentucky’s world-renowned racehorses technically are livestock but they have separate, unique sales operations.

With 38,000 beef cattle producers, the livestock industry has been an important economic driver of the state’s ag economy for decades, even more so since the 1999 Tobacco Master Settlement Agreement. Beginning in 2001, projects financed by the Kentucky Agricultural Development Fund – using master settlement proceeds – have invested millions of dollars to improve livestock genetics, on-farm facilities, forages and marketing infrastructure to assist farmers.

Kentucky is the largest cattle producing state east of the Mississippi River and has more than 1.1 million beef cows, according to the Kentucky Cattlemen’s Association.

“The livestock industry impacts virtually every farm in Kentucky, so for that reason we must do everything we can to ensure producers have competitive markets to sell their livestock,” said Roger Thomas, executive director of the Governor’s Office of Agricultural Policy. “Having regional livestock auction markets where producers can market cattle, goats, or other livestock in small numbers is important for Kentucky’s livestock industry.”

The 1997 Census of Agriculture found nearly 50 percent of Kentucky’s 91,198 farms involved in cattle. Though total farms declined to 85,260 in the 2007 Census of Agriculture, more than 50 percent had cattle production. Including equine, poultry, hogs, goats, sheep and other animals, more than 75 percent of Kentucky’s farms have livestock operations.

Sales barns regional operations today
Kentucky has 30-plus livestock auction markets across the commonwealth holding regular competitive sales. The largest is Lexington-based Blue Grass Stockyards.

“Based off of federally reported markets in the state, I am confident in telling you that (the state had) well in excess of $700 million in cattle sales through auction markets in 2010; that is based on 1.15 million head,” said Akers. “Blue Grass has roughly a 40 percent share of the cattle auction business in Kentucky, and we handled roughly $350 million in transactions covering about 550,000 head last year.”

The USDA won’t report official state 2010 farm receipts until September.
Providing customers with a regional marketing opportunity is one reason Bluegrass Stock Yards decided several years ago to expand from its original location near downtown Lexington and develop regional auction markets in the state, Aker said.

“It is really the evolution of the business and working to meet the needs of the customer base,” he said. “We decided to grow our regional presence instead of putting more cattle in downtown Lexington, which would have put more pressure on this facility, more pressure on the roads in Lexington and require our aging customer base to fight the city traffic to bring their livestock to market.”

Today Blue Grass Stockyards has six markets in central and northern Kentucky: the original 1946 location at Lyle and Forbes roads in Lexington, and regional sites in Campbellsville, Maysville, Mount Sterling, Richmond and Stanford.

“We believe very strongly in the role of those markets in those communities,” Akers said. “It just made sense for us as a business model to reach out into those communities as opposed to formulating a reason for those people to fight traffic and make it into Lexington.”

Darrell Loy, co-owner of the Russell County Livestock Auction Market, also is a firm believer that taking a regional-expansion approach benefits customers as well as his family’s business.

“Since we expanded to the Glasgow market in 2009, we have seen costs rise across the board for the producer, with transportation costs being a significant one,” said Loy. “With our markets now in Russell Springs, Glasgow and Somerset, we are able to provide our customers regional marketing options to capture the most value they can from their livestock.”

Eastern Livestock bankruptcy impact
On Dec. 6, 2010, New Albany, Ind.-based Eastern Livestock, one of the largest cattle brokerage companies in the United States, filed for bankruptcy. Eastern’s bankruptcy became headline news as it was reported the company collapsed owing more than $130 million to 743 sellers in 30 states.

Many Kentucky auction markets did business with Eastern Livestock, but producers who sold cattle to Eastern through these licensed, bonded livestock auction markets did not lose money.

“There is not a single person who lost a penny if they took their animals to a legitimate licensed, bonded, livestock auction market anywhere in the United States,” Akers said. “Those farmers in Kentucky who received bad checks were selling their animals direct to Eastern Livestock through buying stations, not through their livestock auction market.”

Selling direct to a buyer rather than going through an auction market, Akers explained, is an option that works best for some producers. But he believes the Eastern bankruptcy made more producers aware of the importance of knowing the benefits and risks associated with direct buying versus selling at a livestock auction market.

“The big difference in a licensed and bonded livestock auction market and a dealer or a buying station is that livestock markets have to operate a custodial account system,” Akers said. “Because of that custodial accounting system, we have got to have cash available to cover every outstanding check that is written for livestock in this facility. If a producer chooses to make a direct sale through a dealer or buying station, they forgo all the protections of a livestock auction market.”

Those safeguards are more appreciated today.

“I think the Eastern incident made many producers step back and look at the options they have when marketing their livestock,” said Greg Robey, a Harrodsburg producer and Kentucky Cattlemen’s Association president. “Our livestock auction markets in the state are certainly doing their best to have a true marketplace to establish a value for livestock and provide a regulated marketplace producers can feel confident to bring their cattle to for sale.”

The Eastern Livestock bankruptcy has been a lesson for the livestock industry, and as such has had a lasting impact on how the livestock auction markets in the commonwealth and across the nation do business. For example, Akers said, Bluegrass Stockyards has dramatically ramped up the registration process for buyers.

“These days it is not as simple to just walk into the market and say I want to buy a load of cattle today,” said Akers. “We had to tighten up business procedures due to the fact that the federal regulations simply do not provide the business enough protection. So we are taking steps to make sure our business and our customers are protected.”

Beyond the sales barn
“Our livestock markets in Somerset, Glasgow and Russell Springs bring property taxes, payroll taxes and more into these communities,” Loy said. “While we have the markets in these locations to meet customer demand, we are providing much more than just customer service to the individuals in these communities.”

Additionally, Akers cites UK research several years ago on the multiplier effect of dollars into a livestock market.

“If you spend a dollar at the doctor’s office or gas station, it rolls over a few times in the local economy, and we are talking about rolling a (livestock market) dollar six or seven times,” said Akers. “That is just astronomical – what an impact it has on the rural communities where these markets are located.”
In addition to tax revenues and dollars changing hands at auctions, the economic impact in communities with markets (see box on this page) is felt beyond the sales barn.
“People come to the market and before they leave they fuel up their truck. They might stop and shop and eat at a restaurant while they are here,” Loy said. “Now, we don’t see that money come into the livestock market, but it is coming into the communities where we are located.”

Livestock markets have another important role – some believe it at least as important as the economic consequences – in rural and agricultural Kentucky. They also provide opportunities for producers, buyers and agriculture leaders to come together and communicate face to face about what is taking place in the industry and in the community.

“We have farmers who no longer raise cattle who still like to come out to the market, watch the sale and enjoy a cup of coffee while talking to their friends,” chuckled Loy. “We all tend to focus on the business side of what takes place at the market, but truth is, it is also a place that brings the community together.”

Please wait...

Subscribe to the FASTER LANE business newsletter.

Subscribe and receive breaking Kentucky business news and updates daily.