Who is selling your bull?

Thursday, July 25th, 2013

So you have a high testing bull that all the A.I. studs want…Great! Now the headaches begin. Sure the day you got the test results back it felt like you had won the lottery. But it’s not that simple. There is a lot more work to be done. You see, picking which A.I. center to lease your bull to is a lot more complicated than most think. It’s not simply figuring out who will pay you the most money. Anyone who has read a sire lease agreement knows that you need a masters in law and mathematics in order to calculate just how much money you will actually get paid. With that in mind the Bullvine decided to highlight some of the key factors that many breeders may not be paying enough attention to when they decide who to lease their bull to.

Market Share & Distribution

Bigger is not always better (Read more: Does Size Matter). Having said that, when it comes to which stud to lease your bull to, size can’t hurt. Think about it. The big 5 studs have more than 10 times the distribution of even the medium studs. That would mean that you need to get 10x the % royalty that you would get from a smaller stud. For example if Stud A has a 25% market share and offers a 10% royalty, a smaller stud that has say 5% market share would have to offer 50% royalty in order to deliver the same net revenue.

Market Segment

Probably just as important as market share is market segment. This means that you would not lease a high type sire to a stud whose core clientele is commercial producers. They just would not have the correct distribution network to move the maximum amount of semen for you. For example, studs like Alta Genetics, Genex and ABS have a strong commercial producer clientele, so a NM$ sire would be better to lease to them than a high type sire would be. Conversely, studs like Semex and Select Sires have strong type lineups. Hence they have developed great distribution channels that work well for show and pedigree breeders.

Taking this one step farther, it’s also important to see how strong that studs lineup is that would compete with your bull. For example Select Sires has a strong all around line-up (Read more: Stud Wars – The Battle for AI Supremacy), so your bull may be one of many top sires to market in that segment. Whereas studs like ABS and Accelerated have a strong market segment to the commercial producers, but currently do not possess as strong a lineup of NM$ sires in relation to their market share. Leasing your high NM$ sire to one of these studs would probably result in greater marketing and distribution efforts for your sire, as it would be more unique in their lineup, and still be in that stud’s wheel house.

Marketing/Lease Agreement

Seth Godin probably said it best “Never sign a contract or make an investment that you don’t understand at least as well as the person on the other side of the transaction.”

In reviewing many of the contracts offered by most studs these days, the wording is so vague about what you will actually get paid, and who owns the rights to what, that it can be hard for most non lawyers to even understand what you are signing. You may know the stud’s personnel or the sire analyst that you are dealing with quite well. But what happens if they get fired? What happens if new ownership or technologies come out? Things like first release semen, cloning, etc are all key parts of any agreement. These are just a few of the details that you need to understand clearly.

We keep a law firm on retainer for all contracts we sign for the work that we do. This has helped since starting the Bullvine for those interesting times when some threaten to sue us. When I showed our lawyers the contracts that the major A.I. studs have breeders sign, they first laughed, and then said that breeders should never sign them. Everything should be clearly put in writing. Until you are crystal clear on how the agreement will work (in writing), you should never sign anything.

There are key questions you need to be clear on: what is their definition of domestic semen; what is the value of early release semen; and what is the difference between the retail and wholesale selling price? Each of these terms can have a huge impact on the revenue you will receive. For example many of the larger studs sell semen to their member co-operatives or sister organizations very cheaply and that is the rate you get your lease from. Even though these studs then go and sell that semen for 5 and 6 times as much. Since you are paid on what the originating stud sells it for and not their member co-operative or sister organization sells it for, you could be losing out on thousands of dollars.

One thing I am surprised about is that more breeders aren’t demanding and more studs aren’t delivering a full accounting of exactly how many units were sold and for what price. In a sense they are asking you to trust them in blind faith that the numbers they tell you are correct. Now I am not saying the studs are trying to cheat you, but for everyone involved an accurate accounting for total number of units sold and blend price is necessary to build trust in these partnership arrangements.

It`s also important to make sure that the agreement is a Win-Win for both sides. You may think you have gotten the best of the stud for the arrangement you get, but if it is not a win for them they just won’t move semen, and that is an extremely key element in any lease. You see if it costs them too much to sell your bull and they have other bulls that are close and cost way less, naturally they are going to move those other sires.

Also realize that in today`s genomic market, 6 months after a bull is released there is a good chance that the bull will no longer be in the top of the list, so an agreement that worked well for a list topper, may no longer work well for a sire who is in that no man’s land between early release and proven sire status. Make sure you have arrangements and agreements in place with the stud that keeps semen moving and is still a win-win for both sides. One arrangement I have seen work well is a % of net royalty for the first year and then a set price per dose after that. That way you capitalize on the high value, early release semen and then agree to a very manageable set price for the stud after that. This way, they can continue to market and promote the sire.

The Bullvine Bottom Line

The “aw shucks I am glad to be selling a bull to A.I.” days are over. This is a business. Big business. And with big business comes contracts. In order to maximize your revenue, you really need to become adept at contract negotiations. Only then can you know who is really selling your bull and exactly how much money you are making.