Marketer: Thor Jonsson, T.J. Livestock, Oakview, Manitoba

Overview of the Business

T. J. Livestock is a specialized ‘order buying’ cattle business owned and operated by Thor Jonsson. Thor lives and farms near Oakview, Manitoba, in an area of the province better known as the Interlake region. It is also the location of the highest proportion of beef cows in the province.

Order buying in its simplest form is the process of matching supply with demand and vice versa. To this end, T.J. Livestock serves as an agent between these two market forces. On the demand side, T.J. Livestock has many customers across Canada and the U.S. who are mostly feedlot operators. On the supply side, Thor Jonsson sources cattle from a large number of cattle farmers in the Interlake region who rely on him to sell their calves when they come off pasture each fall.

T.J. Livestock moves in excess of 35,000 head of cattle annually. Most of these sales take place on the basis of the personal relationship between the buyer and Thor Jonsson as the sales agent. In addition, T.J. Livestock is a qualified agent for TEAM (The Electronic Auction Market) – an online interactive marketplace based in Western Canada that brings together buyers and sellers through the Internet. In addition to the order buying business, Thor operates a 2,000-head feedlot which finishes a mix of operator-owned and custom-fed cattle.

Thor Jonsson is an interesting example of how a farm operator has been able to expand and diversify a farm business by developing a service based enterprise as an alternative to increasing production. Traditionally it is assumed that if the objective is to increase income, the response should be to increase production. However, it may be possible to identify an equal or better service opportunity that builds on acquired expertise and diversifies the risk associated with added farm production.

Marketing Strategy

T. J. Livestock’s business is very straightforward: listening and understanding the specific requirements of the customer (typically a feedlot operator) and supplying the cattle required to meet the order. The specifications are key: lot size or number; breed/cross breed; sex; target weights, condition; price range; timing etc. Once the order is specified, T.J. Livestock’s task is to find the cattle (which means knowing where to find them, either by regular contact with individual producers and/or purchasing them at various auction barns) and shipping them to the buyer.

The strategy has two critical and essential elements:

• Personal contacts - the cattle order buying business is all about knowing who the potential customers are – namely individual feedlot operators across the country; packers; other order buyers; auction markets; brokers; other individual buyers; cattle industry personnel; and other key influencers in the cattle business.

• Trust –most transactions conducted in the cattle business are done on a handshake and personal reputation. For Thor this works two ways: having the trust of his customers to deliver the cattle they are looking for; and having the trust of his producer suppliers who have confidence that Thor is fair and has their best interest heart. A breach of trust at either end of the transaction will have inevitable repercussions that will damage the business very quickly.

In addition, T. J. Livestock is one of 35 agents that form the TEAM sales network (for more information see www.teamauctionsales.com). Established by the Calgary Stockyards, TEAM positions this marketing service as “providing maximum exposure to cattle being sold, resulting in maximum dollars for cattle.” TEAM links agents from all the Canadian western provinces as well as Minnesota, North and South Dakota and Wisconsin.

Key to T.J. Livestock’s strategy however, is building and maintaining a geographically diverse customer base. This is essential for several reasons:

• Changing local/regional market conditions. In recent years, the beef market has and continues to be in a state of change. For many years, most of Thor’s customers were located in Alberta. This was during a period when the industry was expanding and the demand for replacement cattle was strong. However the appreciation of the Canadian dollar and increased competition within the Alberta packing industry has reduced demand for Thor’s services. In recent years, his customer base has grown in Quebec, Ontario and the U.S.

• Market concentration. The feedlot market is increasingly in the hands of fewer and fewer operators as the sector consolidates. By implication, there are fewer buyers. Thus, it is essential to develop a broad geographic reach since the loss of customers by sheer attrition or acquisition will occur.

In summary Thor Jonsson’s guiding marketing philosophy is built on two very simple pillars. To quote:

“First, always give your customers what they ask for. And second: always be honest! If you are honest, you never have to look back and second guess what you did or what your customers might be thinking about you!”

Marketing History

Thor Jonsson began farming more than 30 years ago when he left the University of Manitoba in the early 1970’s. Prior to starting his own business, Thor took a position as a farm manager for a large operator based in southern Manitoba. After six years, he made the decision to return home to the Interlake region and become part of the family operation. At that time, the operation comprised approximately 200 head of beef cows and 600 acres of grain.

It took only a short while for Thor to realize that the income generated by the farming operation was not meeting his expectations. He described it this way:

“I wasn’t making enough money to support the lifestyle that we had become used to. So we had to figure out something different.”

But what? Instead of expanding by simply rearing more cattle or growing more crops, he explored a new possibility: become a third-party, custom-feed agent for Nutrena Feeds (Cargill). The opportunity arose as a result of a newly constructed feed mill that had more capacity than customers. Thor presented Nutrena the following proposal: instead of becoming a traditional paid sales person, he offered the alternative of operating as a commissioned agent. To be known as Thor’s Custom Feeds, he would develop the customer base, formulate the rations to meet customer requirements, service the accounts and deliver the feeds while using Nutrena as the feed manufacturer to produce the feed. At the same time, Thor continued to expand his own farm and established a feedlot business.

The approach was accepted and proved successful. Not only did Thor become familiar with the many livestock producers in his region who became his feed customers, he developed a reputation as someone who knew something about beef cattle markets. It did not take long before his feed customers started asking him to find markets for their beef calves. Thus the genesis of the order-buying business. Eventually the opportunities and the demand for order buying (and selling) started to overtake his feed business. As a result, after 10 years Thor sold his feed business and concentrated on order buying.

The success of T.J. Livestock reflects more than 25 years of experience, hard work and a continuous commitment to serving both buyers and sellers in a consistent and fair manner. Today, it is one of the largest order-buying businesses in Manitoba and indeed western Canada. T.J. Livestock serves a large customer base across Canada and mid-western U.S. While the focus is predominately the buying and selling of feeder calves for the feedlot market, approximately 20% of its total volume is now comprised of finished weight (fat) cattle sold to packers in the U.S.

Interestingly, revenues from the order-buying business serve as “income insurance” for the cattle feeding business. When asked what proportion of his total income is derived from order buying, Thor offered this reply:

“ That depends on the year. Overall, it provides a good steady income. In fact order buying is more predictable than feeding cattle. Some years we can make good money with our feedlot. Other years, you don’t make anything.”

Key Information Sources/Influences

Accurate and timely information is critical to being a competitive and responsive buyer and seller of cattle. To this end, Thor relies on many sources of information including:

• The Chicago Board of Trade – which he studies daily.

• Various cattle market reports supplied by such sources as Canfax and Cattlefax.

However, the most important source of information is direct contact with other buyers and sellers in the market:

“Sometimes it seems that I take over 100 calls a day!”

The most critical piece of information is the price of cattle and the respective local basis and how these are constantly changing. These dynamics are what drives the flow of cattle and in turn influence the markets of where the buying and selling will take place. For example, the recent decline of competitiveness among Alberta packers is widening the basis between Alberta prices and other regions. As a consequence, Thor is now doing more business with buyers in Quebec, Ontario and Nebraska – each of these regions are offering higher prices for both feeder and finished cattle than Alberta which has been the traditional source of demand.

Finally, Thor offered a particularly important insight that is perhaps the major contributing factor to his success and how he approaches his business:

“When I worked as a farm manager, my boss was a very smart man. He always said: if you don’t know something, find the information you need! Sometimes this may have meant spending two or three hours on the phone, but it taught me a valuable lesson.”

Thor goes on to offer this advice:

“Never be afraid to ask the questions. And don’t assume the top speaker or the so-called expert has the best advice. Listen to many points of view and then make up your own mind.”

In fact, he offers a contrarian perspective to ‘expert’ opinion. He has often observed that doing the opposite of what the prevailing ‘wisdom’ is advocating may be a better course of action.

Key Challenges

Thor identifies several challenges that either impact or have potential to impact his business. These include:

• The value of the Canadian dollar – the rapid appreciation of the dollar in relation to the U.S. dollar is having a dramatic effect on the flow of cattle. Increasingly, it is becoming more competitive to finish cattle in the U.S. compared to western Canada. This of course impacts Thor’s customer base and where he needs to focus and build new relationships.

• The competitiveness of the Canadian beef industry - further to the previous point, Thor observes that the ‘fat’ cattle market will strengthen in the U.S. but continue to be soft in Canada. Ultimately this affects the price being paid for calves in Manitoba which in turn may impact the long-term supply of calves that he is able to sell, if returns are too low.

• Disease – the BSE experience in 2003/2005 and the current Foot and Mouth Disease scare in the United Kingdom is a stark reminder to everyone in the cattle business how quickly and decisively one small outbreak can cripple an entire industry. Without question, disease is a major risk factor to all livestock-related businesses.

Lessons Learned

T.J. Livestock provides a number of lessons to producers who may be considering new income-earning options as part of their farm business:

1. Look beyond more or new production enterprises for new opportunities – this is perhaps the central and most important lesson forthcoming from this marketing case. Thor Jonsson has established a successful service business that is built on several unique geographical, market and personal factors:
   1. Location within a beef cow-calf producing region that created a supply in need of buyers. The Interlake region of Manitoba is a highly productive forage and pasture region with an abundance of beef cows.
   2. A changing beef feeding industry that was shifting to the western Prairies. Manitoba was once the base of a large meat-packing industry located in Winnipeg. As new packers emerged in Alberta, a rapidly expanding feedlot sector in that province required cattle beyond local supplies. Hence the opportunity for ‘out of region’ order buyers.
   3. Previous customer-service experience. Clearly, Thor’s experience in servicing customers for his livestock feed business created the experience, the supplier base and the reputation that led to the order buying business.

In effect, T.J. Livestock has evolved to become a knowledge-based company offering a specialized service. Further it is built on already established customers (formerly feed customers) who are now suppliers to his order buying business.

The lesson here is to examine your own situation, region and personal strengths. What are the opportunities? What specific skills or experience might you be able to transform into a service offering in response to needs or opportunities? Finally, do you already have a customer base to which you can offer a new set of services based on need or opportunity?

2. Evaluate your willingness to serve customers – a service-based business is all about dealing with people. A successful service business has the following uncompromising imperative: a commitment to serving customers and providing what they are asking for. This may sound straightforward but is rarely easy. Any producer considering a service business must ask these questions: Do I like dealing with people? Secondly, am I committed to meeting my customer needs? And thirdly, am I prepared to commit the effort? This attitude and approach is central to Thor’s approach and the reason for his success. However, many producers do not have such a service commitment or the personality to deliver it. Without these attributes and the right attitude, a service business will have little likelihood for success.
3. Trust and patience is key – a personal service business is built on the strength of a service that is in demand and is based on consistency and reputation. This takes time. Much of the business growth will flow from word-of-mouth provided by satisfied customers. While it may be easier to increase physical production (more acres of crop or head of cattle) based on the implementation of management and/or production systems, it is more difficult to expand a service business which is an extension of personal expertise and reputation. However, the net revenues associated with a service business can be rewarding and predicable. For example, as a feedlot operator, Thor Jonsson needed to understand the markets for his cattle. This same knowledge provided the foundation for his order-buying business. In the end, it is much more difficult to ‘copy’ or duplicate your personal service. Thor’s business did not develop overnight. It is the result of many years of experience.
4. When in doubt ask questions – Thor Jonsson demonstrates a quality that is prevalent in most entrepreneurs: an inherent curiosity and a desire to find the answers. This is so essential to identifying opportunities, understanding customer needs, adjusting to market trends and most importantly continuously responding to ever changing market conditions. Without the curiosity to ask the questions, followed by a relentless drive to seek out answers, the chances of business success is exceedingly small. Thor offers one more very practical piece of advice when deciding to do business with a new cattle buyer: “Ask the truckers. If the truckers are being paid, then you are dealing with someone who is going to pay you!”
5. Adjust to market conditions – one certainty in business is constant change. The cattle industry is a testimony to this dynamic. Since T.J. Livestock has been in business, several major structural changes have occurred: (1) the decline of the Manitoba packing and feeding industry; (2) the rise of the Alberta beef industry; (3) the shock of a major livestock disease (BSE); and (4) the shift in competitiveness to the U.S. Thus T.J. Livestock’s customer base and market requirements are always changing. Understanding these changes and adapting to them is vital to the viability of this business, as it is for any business.