Cattle Today

Cattle Today







CATTLE TODAY

VALUE-ADDED MANAGEMENT CAN IMPROVE PROFITS

by: Clifford Mitchell

Cattlemen have often been accused of being slow to adapt to new husbandry practices, alternative feed sources or to even new vaccines that are just a tick better than the old ones. When he gets caught in this quandary, it often reminds us of the Cuba Gooding Jr. character from the movie Jerry McQuire and he'll say “Show me the money”!

Adding value is nothing new to the beef industry. It would surprise most on how long it has actually been part of the cattleman's vocabulary. Most programs prove their worth up and down the chain. Due to differences in supply, feed and transportation costs, it is sometimes hard to put an exact value on what these different forms of value-added management return to the producer.

Fast rising input costs, often changing overnight, leave most producers searching for answers. Since no single protocol fits every operation in the beef business, there is no simple solution to bringing home the most dollars for the calf crop in a given year. Making changes to combat narrow margins are often confined to management practices because changes to genetics take a long time.

Today's marketing toolbox provides many alternatives for the commercial cow/calf man. Video auctions, internet broadcasts and country sales have become “en vogue” for a lot of outfits. Some criticism has fallen on the local auction barn. However, time and time again, we see these local markets willing to adapt and adjust to current market trends to establish price. Or use some of these tools to help cattle fit a wider variety of buyers.

“Having different selling options is good for the industry. In fact, different forms of marketing are integral parts of the business. Livestock markets continue to set the price through competitive bidding. Auctions set the tone. The market isn't set by country sales,” says Bill Barnhardt, OKC West, El Reno, Oklahoma.

“Auction markets are here to stay. Marketing calves will continue to change. Auctions are a very competitive business and there are enough of them around to set the market any day of the week. Weekly auctions do a good job of setting price,” says Jim Reynolds, National Livestock, Oklahoma City, Oklahoma.

“The livestock auctions still play an important role in marketing feeder cattle. Business has changed and they look for new ways to offer a package of services,” says Dr. Derrell Peel Extension Livestock Marketing Specialist, Oklahoma State University.

Producers looking to establish real time value still look to the livestock auction as a primary resource to market their calf crop. These markets rely on their staff's expertise and the relationship built over years of trust with a loyal clientele.

“There is always a group of people who have tried other marketing avenues that return to the livestock auction format. Mainly because of the inconsistencies in many calf crops due to weight,” Reynolds says. “The livestock auction sorts cattle into a size and weight range. These cattle command top dollar because they're grouped based on type and kind.”

The animal health companies have made it their business to provide distinct guidelines for animal health programs that will provide uniqueness to a set of calves. They come in all shapes and forms. Cattlemen must find the program that works for the individual operation.

“Many producers are trying to enhance value through a shot regimen of some type. There are many programs offered by different animal health providers. Sometimes it's trial and error. If you don't think you're getting enough for your calves then you need to ask yourself if there's something you can do to enhance value,” Reynolds says. “Today, we see a lot of calves that are pre-conditioned in some fashion. Producers are looking for a higher market for their calves and to make the product better for the next buyer.”

“Pre-conditioning didn't pay for a number of years. Now it pays on a fairly consistent basis. Price still varies somewhat. On average a pre-conditioned weaned calf will bring between $4 and $5 per hundredweight more,” Peel says. “We have done a number of studies looking at different programs. Sometimes it's more, and sometimes it's not that clear cut of an advantage. One thing a producer can usually rely on is there are more pounds after 45 days and that will usually net him more money.”

“Cattle that are weaned 45 days, received two rounds of shots and are bunk broke, definitely bring a premium. A set of calves with just one shot we don't see much of a premium,” Barnhardt says. “There are so many programs available to producers that it's hard to keep track of them all. What works for some may not work for others.”

Along with pre-conditioning usually comes some sort of information trail. Just like buying a new truck, one with all the “bells and whistles” is definitely worth more than the “plain Jane” model. Credible information sometimes means as much to the buyer as the actual health program.

“The more information we have the better we can promote the cattle. Whether that's an all-natural designation or they're source and age verified, we have buyers here to buy them everyday we sell cattle,” Barnhardt says. “I don't see these things being automatic for premiums yet. I think higher prices will become more relevant with time. Cattle with good records, excellent health and good genetics will always top the market.”

“No doubt pre-conditioned cattle are worth more to the buyer and the industry, because they perform. The other thing that goes with documentation is credibility and building a reputation for your cattle,” Peel says. “Credibility of a program doesn't happen instantly. Good quality, healthy cattle will help build a solid reputation.”

Health and documentation of a program definitely are a place to start trying to differentiate the product. However, without quality built-in the calf crop, a producer will not be positioned for profit.

“If it's not a desirable animal, due to flesh or genetic makeup, even with shots and a health program you're still going to get discounted,” Reynolds says. “Quality is still a major determinant for buyers.”

“Pre-conditioning will not make up for bad genetics,” Peel says. “There is tremendous incentive to participate in these programs, but quality is the bottom line.”

Some of these programs are a little more management intensive than some outfits can handle. The diversity from firm to firm will eliminate some of these added management systems based on size, facilities and resources. Taking care of the little things could be a good start for most.

“Every producer is well aware of their budget and how to make their individual operation work,” Barnhardt says. “For some, weaning calves isn't an option. They don't have the man power or facilities. They have a hard enough time getting them rounded up. That bull calf with no shots is becoming fewer and farther between because the market dictates they bring less money.”

“I still see a lot of people bring calves to town that aren't cut and never had a shot of any kind. Just cutting the bull calves and knocking the horns off them will get you more money,” Reynolds says. “The people I buy cattle for realize how much harder it is to get that bull calf straightened out. I don't know many people who can't afford to cut a bull for $50 to $60 per head. Something as basic as that will enhance value.”

“If producers will steer and dehorn their calf crop, and give them time to heal up before they go to town, they will probably make more money,” Peel says. “Dehorning and castration are visible things and producers should do those things first to add value. No horns means $2/cwt. more and cutting the bulls usually will add $5 per cwt.”

Every year brings something new for the cattleman to deal with. In recent times, it was drought and lack of forage resources. Today, higher transportation and feed costs are a thorn in the cow/calf man's side. Through differentiation and adapting to new challenges, producers will use different management technique to maintain profitability.

“The corn price has readjusted the market. To combat this, most producers are going to have to try and make cattle bigger. It takes too long to change genetics,” Reynolds says. “There will be an increased demand from the buying side for genetically superior cattle because they will feed cheaper.”

“Corn and freight are both relative to the market. Prices tend to reflect corn price and the cost of transportation. A lot of producers are choosing to wean calves, run them on their own wheat and market an 8 or 9 weight feeder,” Barnhardt says. “When we have high dollar corn, buyers look for top performing cattle because they can't afford to waste it.”

“High corn prices make forage-based gains cheaper. Taking calves to a bigger weight will minimize the amount of corn needed. This year, there are incentives for the cow/calf man to retain ownership through the stocker phase,” Peel says. “A year ago, there was no incentive to take calves over 700 pounds. There is a lot of value in that extra 150 to 200 pounds of gain.”

Seventy percent of the calves in the U.S. are weaned and marketed in the fall. Changing the time producers' market cattle is extremely hard. Added expense will keep pencils sharp as cattlemen look for alternatives to add weight at a cost that will be favorable to the bottom line. Finding the point of diminishing returns will be extremely important as producers evaluate available resources to meet market demands.

“Producers are tied to calendar forage production when they look at marketing calves. The market shows fairly strong seasonality. Prices in October and November are lower because of volume. When producers try to move away from this they have to justify extra costs of production” Peel says. “If retaining ownership through the stocker phase is not an option; producers, with adequate numbers, should consider splitting the calf crop and retain part of it. Market the big end at weaning and retain the smaller end for added weight gain. There is some anticipation that replacement heifers will be in demand. Consider marketing the steer calves and retaining the heifers, but only if they're replacement quality and you have the resources to grow them.”

“Most people market predominantly at or near the same time of year. It's hard for a producer to change this when he's used to getting a check once or twice a year,” Reynolds says. “Most producers don't have the resources to take the financial risk of holding cattle longer than what they are used to doing.”

For many of the added management techniques prescribed by the beef industry, profit is confined to only substantial producers. However, improving efficiencies can be done well by both large and small operations. In some cases mastering this skill may be more easily achieved by the little guy.

Finding the best market has always been a challenge for most producers because so many factors dictate the management scenario. Many recipes for success are conjured up out in the country on a daily basis. Adding information, health and quality seem to be key ingredients.

“A lot of times it's easier for the smaller producer to become better managers than the larger guys. If he'll upgrade his genetics, with the right kind of health program, he can compete on the same playing field,” Barnhardt says. “Every producer has had to become better managers because margins are so slim. The cattle buyer is still looking for something that will perform and the more information he has, the better he feels about bidding.”

“Find a program that works for you and make a commitment to that program. Since we're mostly talking about managing information and passing it on to the next owner, it's not hard for anyone to add some value to their calf crop,” Peel says. “There are many reasons to participate in programs like pre-conditioning, source and age verification and individual ID. What that value is for sure, it's still a little early to say. It's still hit and miss, depending on who values that information and what they're willing to pay for it. In spite of corn prices, we're still short enough on supply to have the opportunity to participate in an extremely good market this fall.”

[Home]

Send mail to webmaster@cattletoday.com with questions or comments about this web site.
Copyright © 1998-2007 CATTLE TODAY, INC.