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HUNTIN' DAYLIGHT -- THE CASE FOR CASE READY

by: Wes Ishmael

Best jerk that cinch an extra notch. No one has any idea how fast this is going to get.

“This will change the way we breed cattle, feed cattle and stocker cattle,” said Bill Mies, trusted industry observer and analyst. He was addressing the recent Texas Cattle Feeders Association annual meeting in Dallas.

“This” is the case-ready revolution, blasting along at warp speed because of the industry's glacial evolution toward value-added marketing, in spite of it, or probably a little of both.

If you're not yet familiar with it, case-ready products—beef arriving at the supermarket already cut, packaged and labeled—and its close cousin, centrally processed beef—meat that arrives already cut and then is packaged and labeled at the store—are taking the packing world by storm. According to Dan Hale, a meat science professor at Texas A&M University, the nation's five largest packers are already jamming 17 million pounds of case-ready product through each week.

Plus, Hale, says the growth is being driven by a number of bottom line, customer-friendly reasons. Among them: less product shrink, increased shelf-life, improved inventory control and assurance particular products are always in stock and in front of the consumer. That's before considering the subject of food safety, a factor Hale believes will accelerate the move to case-ready in light of the terrorist attack in September. With case-ready retailers can offer tamper-proof and leak-proof packaging.

“We're going there (case-ready) because economics is driving it, that and the transfer of liability,” says Mies. “When economics drive change it's usually permanent and it usually happens faster than we thought it would.”

The Road Ahead

“For 20 years we said we had to fit the box, now I'm saying we're going to have to fit the tray,” says Hale.

Just imagine the implications of an industry switching to a different price basis within a few years or so.

As an example, Mies explained, “In case-ready a Yield Grade 3 is too fat. Packers can't really afford to fabricate a Yield Grade 3 in case-ready and leave all of that fat on the floor…When we trim case-ready, there is no place left for the fat to go.”

Specifically, with case-ready products what retailers see is what they get—red meat—not the fat that is a course of business in the boxed beef trade. Consequently, waste fat, along with consistency of cuts and portion size take on a whole new level of economic meaning in the packing industry. If you can't sell the excess fat, why buy it? If one ribeye in every five won't fit the tray, how do you sell it?

Keep in mind these Yield Grade 3 cattle are still as common as dirt in the industry. In 2000, 41.5 percent of all of the federally graded carcasses were a Yield Grade 3. All told, 43.7 percent were Yield Grade 3 or worse. For you abacus rattlers out there, 47.9 percent were Yield Grade 2 and 8.4 percent were Yield Grade 1.

In fact, Yield Grade 3 represents the par value—the point at which carcasses are neither rewarded, nor discounted—in many of today's pricing grids.

Yes, yield grade is in part a function of the feed bunk. Buy a 5-weight calf and harvest him as a Yield Grade 3 and he's also been a Yield Grade 1 and a 2 somewhere along the way.

And yes, as long as feed is cheap and premiums for added carcass cutability are as inconsequential as they are have been historically, there will continue to be little economic incentive for producers and feeders to shift gears. Except for a couple of key points.

First, consumers are driving the rush toward branded beef products, which happen to lend themselves quite well to case-ready; some would say demand such a system. And, Hale points out, “Consumers don't look at the price per pound as much as the cost per package.”

Just as compelling is the fact that once the floodgate is open, the direction of the water becomes something of a self-fulfilling prophecy. In this case, Hale points out as more yield grade 1-2 cattle go into case-ready, there is a larger percentage of yield grade 3 cattle left behind for the boxed trade. In turn logic says that will push buyers to get their hands on more case-ready product as their cost of business increases with fewer high yielding carcasses to dilute the performance of the lower yielding ones.

“This will be as big as or bigger than the industry's move to boxed beef, then to quarter inch-trim,” said Mies. “I don't think anyone has yet positioned just how big this transition is going to be.”

What it Means to You

The flip-side of all of this, of course, is the fact that participating in value-added markets is a producer option. However, those who choose to play for more than the leavings that will likely be the commodity market have no option about what they provide.

Never mind genetics, breed type and specific management practices—chances are not even the marketplace can legislate that—playing in the new industry today, even before the days of case-ready as standard requires producers to provide some fundamental value attributes to the product they provide, attributes that used to sound like fiction but that are now quickly becoming fact.

Chief among these attributes is information, credible, verified information about what the cattle are and how they've been handled. Think of it like this: arguably, if you have enough of any particular type of cattle, managed similarly, you can gain more production efficiency and product consistency. Conversely, you can have the best cattle in the world, scattered out across the industry in odd bunches here and there and no one will ever be able to milk the efficiency from them they could by having them aggregated in large, like groups. And, since most folks are finally agreed that it's easier to estimate the geometrical weight of a gnat's toenails than to eyeball a fat steer and guess what his carcass will actually be, information is the ticket to play.

That's one reason the industry has played host to a burgeoning number of vertically coordinated systems. In and of themselves, none of these “alliances” nor the concept itself is intrinsically good or bad. It's what behind them that can make a world of difference for the industry. At the root of any of those surviving today and any of those who have their sights set on playing in the future, is reducing risk for everyone involved by providing and working with greater predictability through the use of information.

As an example, there is the American Red Angus Association's Feeder Calf Certification program. Basically, for about a buck a tag, any calf out of a registered Red Angus bull or female, is eligible for the program, the industry's first USDA-approved and audited genotypic and source-verified feeder calf program. The volume of calves flowing through the program has tripled since it began several years ago. Packers are paying more for the cattle on a specific pricing grid for the cattle because of how the carcasses perform in several branded programs. And feeders are paying more for the cattle, in part for the added market opportunity presented by the grid, but mostly many say because the verification means they know the calves are what they're purported to be, meaning they can manage them more reliably and obtain more predictable results.

Another example is Caprock Industry's Sharing Total Added Value alliance. Caprock owns all of the cattle it feeds in its yards, better than 300,000 head at any given time. They've become such sticklers for predictability and the opportunity to market cattle into a specific branded beef program—in this case Cattleman's Collection, developed and distributed through a joint effort between Kroger and Excel Corporation—that they're not only sharing feeding and carcass data with producers for free, they're paying producers bonus dollars when the cattle they purchase from them perform at the head of the class. They're willing to do this and able to do this because of information and the added bounty it creates.

Prior to the feedlot, a growing number of auctions are helping customers market their cattle to more aggressive demand by using information, everything from verified genetics to specific health management. An example of this is the Premium Auction Sale held recently at eMerge Interactive's Blue Grass Stock Yards where producers earned an average premium of about $12/cwt. for the preconditioned, electronically identified, commingled and sorted calves they sold. This was similar to the $10/cwt. premium producers received for similarly managed and documented cattle in the first Oklahoma Quality Beef Network Sale held at Oklahoma City West in El Reno, Oklahoma in November. In both cases we're talking thousands of calves.

Move away from feedlots and specific coordinated systems and it's not a stretch to say that a handful of full service genetic providers are also demanding and offering information as the price of admission to more economic opportunity for themselves and their customers.

For instance, Seedstock Plus—a cooperative of individual seedstock suppliers who collectively develop, market and service about 800 bulls—has gone beyond providing the age-old pedigree, EPD, actual and adjusted data on its bulls. In addition, they have performance test data, pelvic information, ultrasound and a growing amount of feeding and carcass data tied to specific genetics. Armed with that information they're willing to guarantee all the bulls they sell for the first breeding season, even in the event of injury or death. What's more, the volume of cattle and the data they provide their commercial customers has made them one of the only select suppliers recommended by Caprock Industries to the producers it buys calves from. Their genetics are also currently being evaluated by Future Beef Operations.

Each of these examples is just that, a representative of opportunities being made and taken by others organization today. In each case, whatever the end goals of the program, the key to them is using information—as opposed to reams of meaningless data—to build and aggregate cattle of similar kind and potential to produce product that is predictable for the consumer.

It's what the industry needs. It's what the industry wants. Best yet, it's at the heart of what the industry is willing to pay more for.

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