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HUNTIN' DAYLIGHT -- PREMIUMS FOR ADDED HEALTH VALUE INCREASE

by: Wes Ishmael

Even though the notion of preconditioning has been around for decades, and while the practice began in earnest during the past 10 years with the advent of the Texas A&M Ranch to Rail program and subsequent specialized management and marketing programs, plenty of producers still view preconditioning as a dicey investment.

Fact is, a growing body of quantitative evidence suggests that not only are buyers willing to pay more for feeder and stocker calves that have received health management which should decrease risk, but they're willing to pay more whether the base price of cattle is high or low.

Consider data from Superior Livestock Auction video sales, assembled annually by researchers at Colorado State University (CSU)—the cost underwritten by Pfizer Animal Health. During the nine years researchers have been tracking the Value-added Health program (VAHP) data, the premium paid for VAC 45 (see Chart 1) calves has ranged from $2.47/cwt. to $6.69/cwt. What's more, premiums paid for VAC 45 calves in 2003—when calf prices began rewriting historical highs—were among the highest. The same goes for VAC 34 (see Chart 1) calves; premiums have ranged from $0.99/cwt. to $3.39/cwt., with last year's premiums among the highest.

Chart 1-Overview of Superior Livestock Auction
Value-Added Health Programs

• VAC 24 -- At 2-4 months of age, calves receive a 7-way Clostridial, 4-way Respiratory Viral Vaccine and Mannheimia (Pasteurella) vaccine.
• VAC 34 -- Calves receive a 7-way Clostridial at branding time or at 2-4 weeks prior to shipment. Calves also receive 4-way Respiratory Viral vaccination and Mannheimia (Pasteurella) vaccine at 2-4 weeks prior to shipping.
• VAC 45 (option 1) -- Calves receive 7-way Clostridial at branding time or 2-4 weeks before weaning. Calves receive 4-way Respiratory Viral vaccine 2-4 weeks prior to weaning, then are revaccinated at weaning. Calves are vaccinated for Mannheimia (Pasteurella) 2-4 weeks before weaning, then are revaccinated at weaning. Calves are weaned for a minimum of 45 days prior to shipping.
• VAC 45 (option 2) -- Calves receive 7-way Clostridial at branding or at weaning. Calves receive 4-way Respiratory Viral vaccine and Mannheimia (Pasteurella) vaccine at weaning, then are revaccinated according to label instructions. Calves are weaned for at least 45 days before shipping.

Adapted from Pfizer Animal Health Technical Bulletin SV-2004-02

In fact, the database also indicates that buyers have been willing to pay more even for calves that have only received a round of viral vaccinations before shipping (VAC 24—see Chart 1). Premiums for these calves ranged from $0.70/cwt. in 1995 to the current high of $1.85/cwt. last year.

Keep in mind, the Superior Livestock Auction data accounts for 2.4 million head of cattle sold as 19,487 lots in 78 sales. The comparison is between the classes of calves mentioned above and those marketed as non-weaned calves that had received no respiratory viral vaccine before shipment. So, this isn't some tiny database with limited predictive ability.

What's more, buyers have been willing to pay the highest health premiums for calves coming out of the South and Southeast. For calves originating in the Southeast last year, buyers paid $7.22/cwt. for VAC 45 calves, compared to the national average of $6.69/cwt. VAC 34 calves from the Southeast received an average premium of $4.34/cwt. last year, compared to a national average of $3.39/cwt. VAC 24 calves from the Southeast earned a $1.81/cwt. premium compared to $1.85/cwt. nationally.

Painting with a broader brush regionally, calves coming from the South/Southeast earned even slightly higher premiums last year: $7.88/cwt. for VAC 45; $4.84/cwt. for VAC 34; and $2.28/cwt. for VAC 24.

While the study wasn't geared to identify the reasons this geographic advantage occurs, researchers speculate that since a lower percentage of cattle sold in the region were the result of value-added health programs, competition for more limited numbers drove the price up. Logic also suggests the geographical distance between these regions and the central gut of the country where many calves are stockered and/or fed increases buyer interest in preserving calf health.

Moreover, as in the case of the Southeast, it could be that producers' own proactivity is playing a key role with the development of more regional and state programs for calf health, such as those in Kentucky, Texas and Oklahoma, to name a few.

Perhaps the most telling indicator that premiums for value-added health programs represent a trend rather than a fad is what the premiums are driving producers to do. During the nine years of the study, the percentage of lots sold that represented a VAC 45 program increased from 3 percent in 1995 to 22 percent last year. The percentage of lots representing VAC 34 management increased from 12 percent to 51 percent during the same period. Conversely, the percentage of lots sold that had received no viral vaccination prior to shipping declined from 45 percent in 1995 to only 6 percent in 2003.

Should You-Can You?

Of course, price received is only half of the net value equation. Every VAHP calf in the study had to incur more direct cost than non-weaned, non-vaccinated, non-preconditioned counterparts.

Consider the average national premium of $6.69/cwt. paid in the Superior sales last year for VAC 45 calves. For a five-weight calf, that's approximately $33.45. So, whether or not the effort is worthwhile for a particular producer, you have to determine the difference between that and what it costs in a specific situation. You can find all sorts of examples suggesting there is enough net difference to make it worthwhile. The growing percentage of calves going to market with the added cost in them, this growing percentage over close to a decade, certainly indicates producers are finding enough net return to take on the extra work. If you're looking for more detail, cost calculators and the like, www.beefstockerusa.org is an excellent source.

Similarly, producers can go to all of the work and expense of sending VAHP calves to market and never receive payment for the added value if they ignore the marketing component that is essential for realizing the worth of any product quality differential. In other words, if you send VAHP calves to market without noting the fact and being able to document it, and/or if your 40 calves are the only VAHP calves in the sale, the likelihood of being paid for the added value diminishes. As evidenced by the Superior data, buyers had plenty of numbers to bid on in the various VAHP categories, and Superior has proven to buyers over time that calves classified as VAHP do in fact yield lower health risk.

The necessity of marketing VAHP calves apart from the normal trade of cattle and in large enough numbers to draw buyer interest also explains the growth of such marketing programs, be they coordinated by state cattlemen organizations, sale barns or some other entity.

According to Michael King, a research associate in the Animal Population Health Institute at CSU's College of Veterinary Medicine Department of Clinical Sciences, “These study data and trends strongly indicate that preparation of calves in a value-added health program has resulted in an increase in sale price commensurate with the level of preparation of the program.” King, who authored a recent summary of the Superior data, explains, “The data also suggest that the price differential has been a factor in driving the trend away from one of, ‘none or minimal immunization.' To one of more complex health programs such as VAC 34 and VAC 45.”

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