EDITOR’S NOTE — The following is an excerpt from a paper presented at the University of Tennessee Beef and Forage Field Day at the UT Agricultural Campus in Knoxville. The entire paper and copies of other state-of-the-art beef and forage research presented that day can be found on the Web at http://web.utk.edu/~taescomm/kes/fieldday/beefpro.html.
It’s time to take action. Southeastern feeder cattle producers need to feel a sense of urgency in improving their marketing strategies. The beef industry will undergo more changes in the next 10 years than it experienced in the last century.
Seven changes currently under way — or that are predicted — should alter how feeder cattle prices are determined.
(1.) Fewer calves sold "off the teat."
Increasingly fewer calves will be sorted off the cow in the morning, hauled to the market, sold, and sent on their way to a new home that night. The combination of weaning, marketing, long-distance hauling, a new environment, commingling with a bunch of strange calves, a series of vaccinations, and being offered a strange new feed has proven to be a deadly and expensive process.
Smart producers will adhere to the strong economic signals and make their calves more "feedlot ready" before sale.
Many cow/calf folks complain, "The buyers won’t pay for what it cost me to wean my calves." But careful examination reveals that in many cases a distinct price advantage exists for calves that have been properly prepared for the feedlot.
The critical issue is to design a backgrounding program that puts on enough pounds of gain cheaply so that the gain pays for the weaning process. Premiums paid then become a bonus.
Many other cow/calf operators simply do not have the resources to allow them to background their own calves. For this reason more operations will custom background calves for their neighbors. A growing trend in Virginia, this situation seems to be a win-win situation for both parties.
(2.) Value based marketing.
It has taken decades, but the industry is moving toward more finished cattle being priced on their carcass quality and the percentage of useable beef they produce. Whether it is called "grade and yield" or carcass grid pricing, more cattle are being priced for their value.
For too long in the major feeding regions of the country, all the cattle sold during the week have received the same price on a live-weight basis. The superior cattle have subsidized the inferior cattle, but the trend is for feeder cattle with the potential for producing superior carcasses to be worth more.
(3.) Demand for source verification.
Increasingly, consumers, retailers, and processors want to be able to trace the background of their beef. The immediate concern has been health issues such as E.coli 0157:H7 and BSE. In the long-term, factors such as carcass merit, feedlot performance, and vaccination history will drive source verification.
(4.) Market segmentation.
With the rapid growh in branded beef products, the value in cattle feeders acquiring the proper genetic package and then applying specific management programs to the cattle has grown. There are inherent inefficiencies in feeding a non-descript set of cattle a standard ration, selling the cattle as a pen, and then letting the packer sort the cattle into various product lines.
Cattle with known genetic and management backgrounds will be worth more.
(5.) More retained ownership by cow/calf operators.
Cow-calf operators who have confidence in the superior growth potential and carcass merit of their cattle will recognize the value in owning them to at least the packer’s rail. Many relatively-small Southeastern producers will have to pool their calves to facilitate custom feeding.
(6.) Growth in production/marketing alliances.
One of the more striking changes in the industry is the development of vertical alliances. Some of the characteristics common to most vertical alliances include branded beef products, specific target carcass characteristics, carcass grid pricing, contractual agreements between industry segments, and a sharing of risks and incentives.
Feeder cattle to be utilized by this type of arrangement may be supplied by producers retaining ownership within the alliance or those contracting or selling their calves to the alliance.
Many of these arrangements will offer incentives to the cow/calf operator for above-average feedlot performance. The smaller producer will likely only be able to participate in an alliance by pooling his calves with his neighbors. In many cases, smaller producers will have to form a horizontal alliance to gain access to a vertical alliance.
(7.) Development of a two-tier price structure.
The fanciest-looking set of calves unloaded at the sale barn is probably worth less than a load of cattle with a known health history and the genetic potential for efficient growth and carcass merit.
Emmit Rawls, professor in agricultural economics with the University of Tennessee, says it best: "What can you promise to buyers of your feeder cattle regarding health, gaining ability, feed conversion, and carcass traits? If you cannot promise anything, are you deserving of anything more than the average price for a particular weight, grade, sex, and breed or color?"
Rawls advises cattle producers to truly think about these issues. Producers who wish to grow and sell superior cattle will have to do more than think — they will have to act.