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
Custom Marketing: The seller has significant control over presentation of their livestock. Sellers can point out positive aspects of livestock and talk up the outstanding features of their animals.
Showcase Quality/Breed: Showcase your herd’s genetics, origin and/or unique characteristics.
Expanded Markets: Attracting a large audience to spur buyer competition is the burden of the prospective seller when using private treaty. Print advertisements or trade associations and trade papers, word of mouth, internet marketing, media, and other promotional efforts may be needed to attract customers and capture their attention and drive sales. Buyer contact lists should be maintained for follow-up with customers to generate repeat business and positive word of mouth about customer’s experiences with the operation. Customer service reps may also be needed for answering phone calls from prospective customers and returning emails with additional information in a timely and correct manner.
Creating a reputable Brand: Over time private treaty sales help producers build the reputations of their operations. Buyers not only view the livestock, but they also get to see the facilities and other aspects of the operation to get a more complete picture of the operation. Open conversations allow sellers and buyers to develop valuable and long-term business relationships.
Custom Terms: Private treaty allows sellers to be flexible in creating a sales contract that meets everyone’s needs. A private treaty transaction can have any terms and conditions as long as both parties agree. The buyer can negotiate certain specifications, and the seller has the option of passing up a customer who is not willing to agree to certain terms in the hopes of a later buyer doing so. The seller has even more leverage in this process when the product is unique and in high demand. Under these circumstances, premiums can be realized. Those premiums can be worth it if other traditional broker fees are nonexistent.
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.
New markets = More profit
New online marketplaces are changing the aspect of livestock selling. Every industry evolves and demands new business practices to compete. These markets offer tremendous potential for cattlemen who are willing to invest the necessary effort into making it a profitable marketing channel for their business.