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So far the cattle and beef businesses have proven too complex
and the mistrust between industry segments still too pronounced
for a true industry-wide value system to become the standard.
Think here of a system that goes beyond average value to one in
which carcass prices are based precisely on the value of the
cuts they contain, which in turn determine the value of the fed
steer or heifer, which subsequently quantify the value of the
calf entering the feedlot.
Before you get your twine in a bind, yes, there are currently
examples tantalizingly close to such a system. There are all
sorts of alliances building beef for specific branded products.
There are large players among that ilk, too, such as U.S.
Premium Beef, which has averaged about 12,000 head harvested per
week since its inception in 1997. Cattle flowing through the
system averaged $24.61 per head in premiums in 2007; $62 per
head for the top 25%. Plus, producer-owners of the system, which
includes ownership of National Beef, share in company dividends
beyond the premiums.
There are a handful of companies in this part of the world such
as the pioneering Country Natural Beef (formerly Oregon Country
Beef) and Harris Ranch Beef which, focus on cow types or
specific genetics to build the product their customers want,
rewarding producers accordingly.
Thinking in broader terms, there’s the Choice-Select spread that
grew record large for a time in 2006 (approximately $23/cwt.).
Though this year’s spread has more closely tracked the five-year
average than the atypically high spreads of 2006, at the end of
the November this year it was close to $16, about the same as
last year and well beyond the five-year average of about $8.50
for that time of year. Similarly, there is Certified Angus Beef,
which has become a carcass value designation in its own right.
According to CAB, it was about $4.50/cwt. in 2006—that’s on top
of the Choice-Select spread.
Moreover, technology still promises to deliver more
comprehensive value assessments with things like instrument
grading.
Still, though light years away from a decade ago, much of the
industry continues to be valued upon the average, and the base
values of pricing grids themselves determined by the average.
Value Then and Now
Consequently, what had value to buyers of calves and feeders 10
years ago still has value today, albeit to different degrees.
For instance, buying price and cattle condition still anchor
profit potential—the old adage about bought-right being
half-sold still applies, as does the value to be had with
compensatory gain served up by healthy, but thin and empty
calves.
As an example, in an Oklahoma State University study several
years ago that examined cattle value at auction by various
categories and attributes, extremely thin steers and heifers
averaged discounts of more than $13/cwt., while their overly fat
counterparts incurred discounts of $6.01/cwt. (steers) and
$11.37/cwt. (heifers). As for fill, discounts for shrunk and
gaunt calves ranged from $1.78-$10.32/cwt. while discounts of
$3.23-$9.08/cwt. were assessed for full and tanked cattle.
Similarly, weight and frame size—a solid barometer of mature
weight and subsequent carcass weight—continue to guide buyer
preference. Depending on the market or the study consulted,
large framed (U.S. Feeder Cattle Grades for frame are Large,
Medium and Small) cattle tend to bring more than upper-medium,
which bring more than smaller medium and small.
As more cattle trade out of the feedlot away from the cash
market, and in retained ownership scenarios the ultimate finish
and carcass weight of cattle weight takes on added meaning, too.
Heavyweight and lightweight carcasses receive severe discounts
in most grid-based systems. Consequently, feeder cattle that
have potential for producing such a carcass are also discounted.
Along with frame and condition, muscle continues to command
added dollars due to its impact on ultimate carcass yield (U.S.
Feeder Cattle Grades for muscle are #1—the thickest, #2, #3 and
#4—the lightest muscled).
The University of Arkansas (UA) and Livestock Market News
conducted two studies to determine significant factors affecting
the selling price of feeder calves sold in Arkansas livestock
auctions. Data were collected on 81,703 head (59,934 lots) sold
through 17 auction barns in 2000, and 105,542 head (52,401) lots
sold through 15 auction barns in 2005.
In the 2005 UA study, cattle classified as No. 1 muscle score
were worth $2.58 more than average in the AR study, which is
$8.70/cwt. more than those classified as No. 2; $20.62/cwt. more
than No. 3 and $32.98/cwt. more than No. 4.
Though it’s getting tougher to tell which breeds are actually
represented in a load of calves leaving the sale barn, if
anything, breed-based preference is worth more than ever. By and
large, feedlots are most eager for calves that are at least half
Angus and no more than a quarter Continental.
In a 1993 KSU study, the price spread between 10 different breed
types was $12.98/cwt. By the time OSU documented the spread on
similar classes of cattle in 1997, the spread had grown to
$19.42/cwt.
In the 2005 UA study, the range was $26.01/cwt. across 23 breeds
and breed types. Angus was highest at $3.71/cwt.; Black Baldies
were only a nickel back of that. In terms of color, Yellow
white-faced ($3.01), yellow ($2.80) and black white-faced
($2.60) were all worth more than the average selling price than
blacks ($1.58).
Then there’s those health-related and carcass quality-related
convenience factors. In the Arkansas study, steers were worth
$6.18/cwt. more than bulls in 2005 ($7.70 in 2000), while cattle
carrying horns were worth $3.69/cwt. less than polled
counterparts ($0.99 less in 2000).
Speaking of which, calves entering the marketing channel with
verified health protocols continue to be worth more money even
as more of them come to market.
Health Premium as Sea Change
From 1995 to 2004, of the calves qualifying for Superior Video
Auction’s Value-added Animal Health Programs (VAHP), the premium
paid for those receiving virals had grown from $0.70 to
$1.71/cwt. The pay had increased for VAC 34 (see Table 1) calves
from $1.35 to $3.47/cwt. And that for VAC 45 calves had grown
from $2.47 to $7.91 cwt.
According to an analysis of that data from Pfizer Animal
Health:
“Coincident with the rise in prices paid for calves in VAHPs,
the percentage of lots sold in which calves received no viral
vaccination declined from 45% in 1995 to only 5.4% in 2004.
During the same period, the percentage of lots sold in which
calves received VAC 45 and VAC 34 programs increased from 3% and
12%, respectively, in 1995 to 25% and 49%, respectively, in
2004.
The 10-year trends indicate that, regardless of market
conditions, a strong correlation exists between level of
participation in VAHPs and the price received for calves sold.”
So, buyers have been willing to pay more for calves as they
receive more intense health management, and as more of those
calves are offered for sale.
More recently, Montana Beef Network (MBN) VAC 34 and VAC 45
calves selling on Superior Video last summer were worth $14.81
per head more (basis 600 lbs.). That according to MBN analysts.
Also, as part of a three-state auction market study, beef
extension specialists from South Dakota, North Dakota and
Montana evaluated premiums paid in those states across auction
sales for three consecutive weeks (beginning the last week in
October 2006). The study underscored the health premium
available to calves. In this study calves with a vaccination
history sold for as much as $2.50/cwt. more (4-way viral) than
unvaccinated ones. All told, data was collected on 68,475 calves
(6251 lots). The average weight was 520 lbs.
This three-state study also pointed to other value
differentiators that continue to prevail. As an example, calves
selling in the smallest lot size (5 head or fewer) were worth
the least on a hundredweight basis. Calves sold in lot sizes of
21 head or more commanded $6.20/cwt. more than those small lots.
Lot sizes of 6-10 head and 11-20 head came in at $4.22/cwt. and
$4.31/cwt. more than the small lots, respectively.
Incidentally, in this particular study, Natural calves brought
$1.55 more than conventional ones.
Documentation and Verification
Though the net economic opportunity associated with such
strategies as health protocols or natural management depends at
least as much on cost as the premium, they rely in part another
value segregator which began growing in importance four years
ago: documented, verified information.
In 1997 no one had ever heard of Quality Systems Assurance (QSA)
programs or Process Verified Programs (PVP). Of course, there
was no Beef Export Verification (BEV) program (used to qualify
cattle for export to certain countries) because there had been
no BSE in the U.S., and the product was still accepted in
virtually every country.
In fact, 10 years ago you could argue that verification, if
considered in those terms at all, was done so in terms of
registration papers, brand inspections and health certificates.
Now, more opportunities exist to sell the same cattle for more
money if the right kind of documentation exists. For sellers of
MBN calves, age and source verification was worth $12.83 per
head last summer, say MBN researchers.
Even sans the need or demand for some current verification
demands, such as age for the international market, there’s
little question source will grow in importance—think the Country
of Origin Labeling Law—as will verification for other attributes
only now being considered. Non-hormone Treated Cattle for the
European market are an example, as well as the verification of
animal welfare or corporate philosophy beginning to be made by
some companies...
So, maybe it’s not so much that value-based breeding, managing
and marketing are still a long ways away as the fact that the
guise of it is different than what was imagined a decade or so
ago when alliances and price grids first started to become
vogue. |
