The internet is bringing together cattle buyers and sellers from across the country and the globe as well. No longer is your distribution network limited by your local sales barn or the state fair. Producers as demanding high pricing for the cattle that meet higher standards of genetics or quality. Buyers also want to purchase livestock for their seed stock program or restaurant.
Sales completed outside of auctions are referred to as Private treaty sales. Private treaty sales are negotiated directly between the buyer and seller, and are generally single transactions. But before you start a new marketing campaign based entirely around private treaty, know that direct sales have their pros and cons. Producers considering private treaty as a marketing and sales channel need to research the best practices for opening up new markets and creating an efficient workflow.
Advantages to Private Treaty
Beef Origin: Private treaty sales allow for the acquisition of cattle directly from a ranch. Cattle purchased straight from the ranch may undergo less stress and disease exposure than cattle shipped to third-party feedlots or other intermediaries.
Beef Quality: The buyer can visit the ranch or ask questions of the seller directly to learn about the herd’s health, nutrition, and other management practices used with a group of cattle so that better decisions can be made on how to transition and manage the cattle on the buyer’s operation after the sale.
Pricing: The buyer and seller can use information from their discussions to better arrive at a fair market price, because more information is potentially transferred with the cattle. Although other marketing channels may provide commonly requested information about cattle for sale, private treaty sales allow for direct conversations between the seller and buyer with the opportunity to exchange additional, specific information about each grouping. Basically, the buyer can ask detailed questions about the cattle, and the seller has a chance to share detailed information to add value and address any buyer concerns.
Drawbacks to Private Treaty
There are different business aspects of Private treaty sales that may not make them the transaction choice for every buyer or seller. For best results, people entering into private treaty sales need to have sound marketing knowledge about the ideal audience for their stock. Parties should also know the current market conditions, prices and qualities of competing cattle. Understanding the positives and negatives of their competition, they then need to determine fair market values for their cattle. This often requires a detailed knowledge of genetics, conformation, and disposition for each animal. Your herd management program information should be readily available for buyers to assess.
Negotiation skills: Both parties in private treaty sales should be ready to openly discuss pricing. The buyer must have a good idea of what they want and what price consideration will be given for bulk purchasing. Private treaty sales are not publicly reported on a wide scale, so extra effort is required to determine a fair market value. Educated buyers and sellers know the market and easily come to a fair market value when the facts come to light. How delivery and payment will be handled are other items that must be well defined.
Open Book dealing: The seller should be prepared to answer any relevant questions the buyer may ask during the negotiation process as well as after the sale. Some concerns may be reasonable and legitimate, but the seller must also be ready to deal with unreasonable claims seeking to take advantage.
Documentation and Payment: By cutting out the auction you have also cut out the neutral third party that supplies documentation of the sale and helps transfer funds between each party. The seller need to be ready to create a purchase agreement and deliver all appropriate information for a bill of sale. Risk of payment collection by the seller and product misrepresentation is a real threat. Services like PaySAFE Escrow, Inc. (www.PaySAFEescrow.com) provide online escrow services to protect both parties and keep everyone honest. The escrow company collects the full purchase price upfront, so the sale is locked in and the seller knows the money is good. The funds stay in Escrow with PaySAFE until the Buyer confirms that the sales conditions have been met. With escrow, both parties are protected and the funds are never refunded or paid to the seller without both parties approval.
All of this preparation takes careful thought and time on the parts of both the seller and the buyer.