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Web Tools: Online feed purchasing: An emerging marketplace

PD Editor Walt Cooley Published on 28 June 2012

webtools

Within the last year, two new websites have established online domains to connect dairy producers directly to feed suppliers.

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Both were inspired by their sponsors’ own experiences in trying to broker or purchase feed. They both aim to grow the number of dairy producers and vendors using their sites.

Getting the whole picture

One year ago Tom Wedegaertner, the director of cottonseed research and marketing for Cotton, Inc., needed to purchase a load of cottonseed for his checkoff program’s recent video promotion contest winner.

Wedegaertner was surprised to find a $12 spread between the highest and lowest bidders for a ton of similar quality cottonseed delivered to the same location.

Simple math, he says, proved that spread multiplied by several dozen loads over a year could quickly add up to significant savings for dairy producers.

Last year, Cotton Incorporated launched a website (click here to view) detailing how cottonseed is produced with nutritional information about feeding the unique byproduct

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Wedegaertner was, and still is, most excited about the site’s new online marketplace that connects producers with cottonseed suppliers.

“We didn’t really want to manage transactions,” Wedegaertner says. “We just wanted to facilitate communication between buyer and seller.”

After providing basic contact information, dairy producers using the site can specify how much cottonseed they are interested in purchasing and when and how they would like it delivered.

After submitting the request, the form hits the inboxes of cottonseed suppliers signed up for the program who can choose to respond to the request with a bid. Vendors usually answer with a bid and some form of contact information – email, phone or both.

“We wanted the site to be a one-stop shop for feeding cottonseed to dairy cows,” Wedegaertner says. “So far, it’s meeting those expectations.”

Dennis Oechsner of Oechsner Farms in Brownsville, Wisconsin, was one of the first dairymen to try the site. He says he’s completed more than a half-dozen sales through the site since it launched.

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“What I like about it is that you can see the competition out there,” Oechsner says. “When you put the word out that you’re looking for a price quote, you have the ability to shop around.”

At first, he used the site to discover cottonseed prices before buying feed from his traditional sources. But now the site has replaced using a mill or a broker as his primary way of contracting cottonseed for his 525-cow dairy. He contracted the cottonseed he’s been feeding this summer through the site at $315 per ton this past winter.

Wedegaertner says the website launched with about 15 to 20 cottonseed vendors onboard. That’s only a quarter of the total vendors who sell the byproduct nationwide. One of Wedegaertner’s goals for the site is to increase participation.

“There is reluctance among the old-timers in accepting an electronic way of communicating with their customers,” Wedegaertner says. “We could now use a few more merchants participating, but we don’t need all the merchants in the country to participate for the site to continue working.”

Dairyman Matt Plowman of Yelm, Washington, is one dairyman who used the cottonseed site when it first launched. He was intrigued by the idea of being able to send out a single request for a cottonseed bid, but he was disappointed when he got only one reply.

“The one response I got was from a vendor in Idaho who said his company doesn’t service western Washington, where I’m at,” says Plowman, who operates a 650-cow dairy. “It would be nice to get more service in my area.”

He continues to use a local broker who bundles the purchases of cottonseed for several dairies in the area. The quantity they order together is usually large enough that the cottonseed is delivered by rail car. He recently paid $365 per ton for cottonseed with a $12-per-ton hauling charge to get it from the rail site to the dairy.

Yet, still willing to give online feed price discovery and purchasing a try, Plowman recently signed up for a new feed website – feedpail.com – that offers somewhat similar features to wholecottonseed.com

Request a bid or bid yourself

Before starting off on his own, founder Ryan Cooney’s last job was purchasing bulk feed ingredients. For years, he saw the need for technology to speed up the way producers discover prices of their feed ingredients.

“Wheat mids, distillers, soy hulls, byproducts, animal proteins … the way all of that is traded is to get on the phone, call around to see who has availability and what their prices are,” Plowman says. “Then you go back around to them and negotiate price, delivery and freight. That is all time-consuming.”

On Cooney’s site, producers create a user account by providing their name, address, phone number and type of operation (i.e., dairy, beef or swine). Sellers list which feeds, and how much of them, are available as well as a price.

They can also guarantee any quality or nutritional specifications on the loads they list. Producers can search feed listings by price or region.

They can offer to buy at the listed price or place a bid to the seller. Click here to view also provides users a weekly feed ingredient market e-newsletter. The site provides all of these services for free.

Once a price and time for delivery are agreed upon, the producer and seller must individually negotiate any other terms of sale, such as credit terms, feed quality assurances, etc.

Sales contracts are kept confidential between the two parties. Feedpail.com makes a profit from providing a commission on feed delivery logistics, which it offers to both the site’s buyers and sellers.

“It brings the two parties together but they still have that one-on-one service after the agreement,” Cooney says. “It makes the negotiation of a sale fast and painless.”

When the site first launched in April, Cooney says he thought producers would use the site to save money on their most costly ingredients, such as blood meal.

“Rather than trying to save $50 on a $1,000-per-ton ingredient, people have been looking at the wide range of ingredients available to see if they can switch from a $300 ingredient down to a comparable $200 ingredient,” Cooney says. “The website easily opens up a wider range of alternative ingredients for our users.”

Cooney’s goal is to maintain a buyer/seller ratio of 50:1. So far sellers were first to see the benefits of the site. He’d like to get more potential buyers signed up. To this point, more beef producers than dairy or swine producers have been using the site.

“I think that’s reflective of the total number of U.S. operations for each species,” Cooney says.

Both websites admit their users today are probably early adopters and they expect traffic to increase over time. Some of that traffic increase will likely come as dairymen become more comfortable with technology and have positive experiences completing purchases they initiated online. Oechsner describes the apprehension many dairymen may currently have with these types of sites.

“When you get a price quote, you don’t really know who’s who,” Oechsner says. “The more information about a company and the quality of product they are selling, the less likely you are to think, ‘Are they trying to get rid of a bad load or something?’”

Joel Newman, president of the American Feed Industry Association, says this adaptation of technology could help save producers time and money, but cautions them about a few concerns.

“This is new technology and it certainly will be advantageous to producers in the essence of time,” Newman says. “But don’t take it for granted that it will automatically fill all the needs of making a successful purchasing decision. There are a lot of key things beyond price that need to come into play.”

Newman says purchasing certain ingredients with well-defined quality specifications, such as soybean meal or cottonseed, will be easier to negotiate online than other ingredients with less specific quality standards or ones more likely to vary in quality.

Newman advises producers to consider whether they want to shift more of the responsibility for quality assurance onto themselves, which mills and third-party suppliers have traditionally provided for dairy producers.

“One of the most critical things is to know who you’re doing business with,” Newman says. “You need to make sure they can provide your nutritional specifications and to know how reliable and consistent they are at delivering them.” PD

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