There are many economic philosophies that can be applied to different situations. Business professors across the land preach macro-and micro-economic principles to future MBA holders that take a seat at the head of the corporate table. The rural CEO of his outfit (rancher) does not have time to sort through these highly sophisticated ideas when it's time for a calf to be pulled, water to be hauled in a drought or ice to be chopped in a winter storm, but when the calf crop is marketed, each has a rough handle on the theories that will affect the bottom line.
The same old broken record has been played over and over saying cattlemen are not good marketers. Poor timing, lack of knowledge, poor management or a combination of detrimental decisions makeup factors that separate the winners from the losers at sale time. Several years back a concept dubbed “value-added” entered the marketplace. As with most new ideas, it was pushed to the side by most cattlemen, except the ones termed eccentric by neighbors or fellow producers. Today, this concept is widely embraced, because, for a lot of outfits, it means the difference between survival and bankruptcy.
“Added input costs, like fuel and feed, force producers to find ways to get more dollars out of the calf crop. If you weren't in a drought, most cow/calf operations have been pretty profitable the last six or seven years. Today, even if calf value holds out of pocket cash expense and opportunity costs will cause profitability to suffer,” says Kevin Good, Senior Analyst, Cattle- Fax, Englewood, Colorado.
The term added-value is a broad explanation to getting more dollars for the calf crop. Extra income is pretty noticeable in some sectors. For example, when carcass premiums are paid producers know the value. While other segments such as the cow/calf man look to identify premiums in certain market settings.
“There are more premium programs and market alternatives available to producers now than ever before. Producers have to identify cost-effective ways to add value to the calf crop,” Good says. “It is more important to do this now than ever before, because producers have to make up the difference.”
“You have to continue marketing the calf crop. During these tough times, I think it's more important than ever to stick with the health and management programs because we have to have a selling point. In order to get paid for your work, you have to find someone willing to pay a premium for the calf crop,” says Jimmy Curtis, General Manager, A-Bar Ranch, Texarkana, Texas.
With corn prices continuing to spiral upward and fuel prices reaching new records daily, sticking to the task may be hard for some breeding programs. There will be many decisions made in regard to operations across the country. Some outfits have gone to their own “emergency plan” to secure profit at the end of the day.
“I would be lying if I didn't say we are cutting back on a few things like making fewer trips to town for supplies, exploring the effectiveness of a delivery charge instead of going to pick things up or squeezing another year out of that tractor or farm truck,” Curtis says. “We can't afford to cut corners on our health, genetics or records for the cow herd, even as all our input costs keep going up.”
“Premiums are available through the marketing chain. Producers have to look long and hard for ways to capture some of that at the ranch level,” Good says. “The cow/calf man has to find the most effective ways to generate more dollars. As the number of branded programs expands; we're going to see wider and wider discounts for cattle that don't meet the specs. Your seedstock supplier, county extension agent and state cattlemen's association are excellent places for information.”
Nightmares or visions of walking off into a moat of quicksand could be on the minds of most cattlemen as each search for the best marketing options available. As with any other systematic process in the beef business, there is always a logical place to start and the answers do not come over night.
“Superior performance in the feedlot from an efficiency, carcass quality and cutability standpoint will help producers build a solid reputation. Cattle of known genetics will demand premiums in this market,” Good says. “Adding value takes time. At least one calf crop if not two. If you haven't been doing anything special to your calves, it will take a couple of years for you to catch up to the competition.”
“We have built our reputation over the years and the same buyers purchase our calves every year,” Curtis says. “Buyers know healthy calves perform. We have to stay with our health and management program because when things change our calves will demand more premiums at the marketplace.”
Most value-added programs are pretty straight forward. Different programs ask cow/calf men to document husbandry practices. Deciding what fits the operation is a critical step in the right direction.
“Premiums for source and age verified cattle will work its way back to the ranch level in most cases. Tightening the calving season to a 60 day interval could help add value,” Good says. “It is a work in progress. As the branded programs tighten their specs, known genetics become more valuable. To enhance value even further, look to see if your calves qualify for an all natural or breed specific program.”
“We use an EID tag for two reasons: source and age verification and inventory at the ranch level. We enrolled our cattle in Pfizer's Select Vac program and got paid for doing so,” Curtis says. “I get increased interest sometimes because I have exact birthdates and I can sort out any calf that has had an antibiotic shot. I have individual records dating to 1993. Our profits have stayed consistent over the years and last year we received a $22 per head premium over market price for using Select Vac.”
Even though adding value takes a long time to establish a rancher's right of passage to premiums for the calf crop; it's almost like car shopping and each set of “bells and whistles” establishes a new pricing structure. Every rancher, in affect, is providing a bundle of services for potential buyers and like that chocolate sundae, every extra topping makes it more appealing.
“Source and age verification does make you money. Any reputable herd health management program where you can document what happens; lets potential buyers know I am willing to go the extra step to make sure my calves work, whether he's taking them to the feedlot or they go to a stocker operator,” Curtis says. “I have to sell a package of different management practices. If I do this, I keep my marketing options flexible and different buyers have the opportunity to bid on my calves because they'll fit several different programs.”
“It's a cumulative effect in the marketplace. The more things you can do with the calf crop, like source and age verification, known genetics, a health program, all natural designation etc., the more value you should add to that set of calves,” Good says. “We see a $20 to $25 per cwt. difference from top to bottom every day during the fall runs. As more and more people start doing things right, proper management is going to become even more important to the average cow/calf producer.”
Integrity has always been a big word in the beef business. With so much on the line in today's high cost world, it should have two or three more syllables. Steps have been taken to regulate herd health programs so buyers are getting exactly what they pay for.
“If a buyer questions my management and health program, all I have to do is pull out my paperwork and show him where the veterinarian has signed off on all the shots and de-worming. The Select Vac program requires us to write down the brand name and batch number of every vaccine we use,” Curtis says. “We even take it a step further. We give all our shots according to the Beef Quality Assurance program and use a different needle with every shot. It costs a little more, but that's a price we're willing to pay to do it right.”
Some geographic areas will have to work harder than others to keep profit in the calf crop. Operations with smaller than load lots will also have to become very creative to avoid market discounts.
“Calves from the Southeast could see significant discounts because of rising fuel costs. It costs a lot just to get them to the feedlot region. This is a cost some don't often think of that comes out of the price pretty quickly,” Good says. “There is an economic incentive for load lots in the marketplace. Some producers may have to band together with neighbors, who have similar genetics and management programs, to get the best price for their calves.”
Producers may have to evaluate the management program and some will add stocker operator to their role as cow/calf man. Retaining home-raised calves in this market setting should be a value enhancer.
“I would recommend producers look at retaining some calves. The more pounds you can put on them improves value, especially in areas where there is year-round forage supply. Even keeping them through a 45 day pre-conditioning period should add weight,” Good says. “For accomplished operators who have stocker experience; adding purchased calves of like type and kind could make a more marketable package after the grazing period.”
“We weaned our spring calves in October and kept them until January. We were able to put 60 to 70 pounds on them pretty cheap by grazing wheat and rye grass,” Curtis says. “It's pretty hard to do this with our fall calves the way we're set up. I just don't have the available forage to do it that time of year. I need what forage I do have to maintain the cow herd.”
Once again, there are no quick fixes in the beef business. Sure business minded cowboys can always hedge the position in the marketplace to limit losses during periods of uncertainty. As input costs continue to rise, cattlemen face more questions than answers. Some will labor to answer questions, others will maintain by simply riding out the storm and hope the ship does not sink.
As an election hangs over producers' heads, floods dominate the news in corn country and surprisingly prices for the right calves remain high; decision makers will rely on a lifetime of experience to maintain production at a level of profit. Embracing value-added concepts, to some degree, should help producers add an element of control to the business model.
“We are in an environment where a lot of change still can take place. We're actually seeing cow herds that range in size from 200 to 500 head expanding a little even though all market signals are against expansion. We are losing some small producers because they are tired of driving around on five dollar diesel to check 30 cows,” Good says. “There are a lot of people in different areas that have some decisions to make and obviously, some will ask “Why am I doing this?” Most producers, in order to survive, need to become better marketers and better managers.”
“I can't control the price of fuel, fertilizer or feed, but I can control how I manage the cattle. I can't control what market price is, but I can control the weight of the calves and provide all the information to potential buyers,” Curtis says. “It is my job to make them as heavy as I can whether the market is $1 or 65 cents. I will deliver a healthy calf with a known genetic background every time.”