PRICES FORCE EVALUATION OF VALUE-ADDED PROGRAMS

by: Clifford Mitchell

Marketing cattle at whatever stage fits the production model is becoming less of a challenge for most commercial operators. Channels are open to those producers who wish to take advantage of them. In year's past, some of these marketing opportunities were unavailable to some operations.

Knowledge of how health programs impacted performance led to demand for a standardized raw product that had been managed to follow a certain protocol. Marketing outlets from the traditional brick and mortar livestock auction to video and internet auctions have placed emphasis on this product.

“Marketing pre-conditioned calves or cattle that are enrolled in some sort of value-added program have become more of the norm. Whether it's a traditional livestock auction, producer board auctions, country sales or video auctions, buyers are demanding this type of product,” says Jim Collins, Executive Director, Southern Livestock Network.

“We have been a big proponent of weaned calf sales. Our data shows producers can receive a $6 to $10 per hundredweight premium for pre-conditioned calves,” says Joe Don Pogue, Sulphur Springs Livestock Auction. The Sulphur Springs Livestock auction facilitates sales for the Northeast Texas Beef Improvement Organization.

High calf prices are leading some producers to question the value of things like source and age verification, pre-conditioning or other protocols that exchanges information up and down the production chain. The real question most producers should be asking is what impact will this have on future marketing efforts.

“Some producers will take the higher prices and run. Abandoning pre-conditioning programs or other value-added options,” Collins says. “Producers have to ask, what will they be giving up if they stop a health and pre-conditioning program? I think the market will answer this question for most producers.”

“The demand is always more for the weaned calves, but a lot of people have opted out and just sold them right off the cow because of the high price,” Pogue says. “Because we co-mingle cattle, even producers marketing smaller groups can get the same premium.”

Even in a high market where production costs remain the chief threat to profit margin, pre-conditioned cattle still seem to be in demand. Repeat business is the oldest tool the beef business has that says “Job Well-Done.”

“We have a lot of interest in our pre-conditioned sales. Since most of the guys we sell for bring 20 to 25 head to the auction and we co-mingle them with other cattle to make a load, we don't get a lot of specific feedback from our buyers,” Pogue says. “Our main feedback is the number of repeat buyers here at every preconditioned sale.”

“Using today's tools of communication, it is a lot easier to get the word out when calves will be marketed, what health protocol was followed and the nutritional status of each group of calves. Communicating this information up and down the chain will create demand for the right product,” Collins says. “Buyers will know more about how your calves performed and want to chance to bid on them again.”

Information exchange and a known commodity are benefits for buyers of pre-conditioned calves. Additional gain at premium prices could be overlooked by some who rely on the program to help market the calf crop.

“It would have to be an awfully expensive cost of gain before it doesn't make sense to pre-condition calves, in most years. With high market prices it is harder for some to differentiate, but the value is still there,” Collins says. “Beef Quality Assurance (BQA) programs, source and age verification or pre-conditioning all add value and will help the cow/calf operator capture that value.”

“Producers often overlook gain and what it means when they wean their calves,” Pogue says. “Over a 45 to 60 day period, that gain is worth a lot of money when you get premium price for your calves.”

Supply, for most, is the driver for high market prices. Less available feeders and the old adage of “the hotel has to be full” from the feedlot perspective has created some good competition in the market place. As numbers slide, producers who continue the pre-conditioning process could be well-positioned.

“With tight numbers there is a decreased supply of cattle with all the “bells and whistles.” Producers that have the system in place could see added profits because their cattle will fit domestic branded programs or export markets,” Collins says. “To capture those premiums or avoid discounts, producers have to expose their cattle to all the markets that are available. Calves can be marketed several different ways once producers make the commitment to pre-conditioning and record keeping.”

Traceability is becoming more important to the beef industry and future expansion into foreign markets may hinge on these factors. Increased pressure from the American housewife could also place emphasis on information.

“Our consumers wanting to know where cattle come from is another part of the equation,” Collins says. “Certain protocols will satisfy both foreign and domestic markets and the cow/calf operator will facilitate what programs calves fit.”

As producers try to make their management and record keeping system compatible, genetics sometimes takes a back seat in the discussion. For some ranchers, not that long ago, the focus was on production and marketing took a back seat, but a renewed focus on marketing sometimes relies on good genetics being automatic. Pre-conditioning programs are very compatible with increased genetic potential.

“You can change a calf a lot with a good pre-conditioning program, but the biggest premiums we see are for the better cattle,” Pogue says. “For those producers who use better bulls, you can definitely see a difference in the calves and what they'll bring.”

“Producers have to understand the difference in genetic potential,” Collins says. “Make your cows fit the country and resources. Mate them to bulls that will fit the mainstream market and decide how you're going to market those calves.”

When cows calve and the number of days in the calving season are another important part of marketing the calf crop. Matching weaning dates to qualify for marketing opportunities will help decide if this works for the operation.

“Look at the way you do business, if tagging calves and recording birth dates is part of the record keeping process then producers only have to take a few more steps to source and age verify the calf crop,” Collins says. “Pick a time of year to calve, from a marketing standpoint, to position the calf crop for a pre-conditioned sale or other opportunities, like fall vs. spring calving.”

“We have six NETBIO sales every year,” Pogue says. “There is a lot of opportunity for producers to set up calving intervals that will help manage cash flow or other financials.”

For some these programs have become part of the “standard operating procedures.” Cattlemen have seen the merits of a sound health program and the benefits of added weight gain to the point it is tradition, and that's saying something in the beef business.

Acceptance of pre-conditioning programs often comes with the same dose of pride and stubbornness it did when the industry was trying to convince cattlemen to believe in the process and the responsibility to do the right thing bears heavy with most. As the industry looks to answer supply and cost questions, cattle enrolled in some type of program will be in demand.

“We have had some give up the process and market through other channels. I think they'll be back when it's all said and done,” Pogue says. “Others, who took a long time to convince they could be successful in the program, finally became believers and they're not going to change. It's part of their management system.”

“You'll hear guys joke they have to continue their health program because it's the best insurance policy against a neighbor who doesn't care. Others know there are “X” number of factors they can't control in any given year. Most know there are certain things in the market we didn't have to deal with 10 years ago. Some producers take it as a personal responsibility to keep delivering quality cattle to the market place,” Collins says. “Whatever the reason, successful producers are going to remove as many unknowns from the equation as possible and pass that information along. As cattle become scarce, producers will realize they can't afford to miss a year.”







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