Part 1 of a series
Making a living in the seedstock business can be a serious proposition.
Year in and year out, producing seedstock costs more in time and money than it does produce commercial cattle. Not only are seedstock producers faced with day-to-day production management challenges that all producers must attend to, they also must spend countless hours away from home, meeting with long-time customers and building relationships with new clients. They must contend with registration and performance paperwork, strive continuously to maintain the integrity of their information and make ruthless culling and selection decisions that set the genetic trends of their cowherds for years to come.
In addition, seedstock producers must implement marketing programs – programs that can add up to considerable expense and time. Most importantly, they must have the courage of conviction to either stay with their long-term strategies, or to know when to abandon them when they're not working.
Still, unprecedented opportunities exist for producers willing to plan ahead and take calculated risks in order to carve out a niche in this increasingly competitive business. This series of articles contain tools that you can use to make the right decisions to guide you through good times and bad. Hopefully, the information will have lasting and beneficial impacts on your operation.
The articles include industry trends on your business to help make educated management decisions and assist you in developing price-discovery systems for financial planning. The information will also show you how the telephone, the car or even a hand-written letter can help build your client base and keep existing customers for the long term. There's also technical information on advertising production – for radio, print and direct mail – that will help ensure the dollars you invest in marketing, return great dividends to your enterprise.
Step 1: How Much Are Your Seedstock Cattle Worth?
Determining the value of registered cattle has always been a challenge for seedstock producers. You should consider several general rules regarding price discovery before setting your marketing plan budget.
* Demand for different breeds varies significantly from year to year.
* Demand for different breeds varies from region to region. Individual breeds will always have regional strongholds and weaknesses.
* Changes in bull prices reflect changes in calf and fed cattle markets. Data gleaned from an analysis of bull markets since the early 1980s show relationships between calf and bull markets do exist. The average annual price for bulls sold during these two decades was almost always equal to 22 times the 450-pound steer calf price. For example, if the price for the calf was $95/cwt. in any given year, then the price for bulls was $2,090 (95 × 22). The price can also be determined by multiplying the 650-pound calf price by 25, or the fed cattle price by 29.
*Tough cattle markets mean seedstock producers must work harder for market share than any other segment. Simply put, when times are good, seedstock producers do well – probably better then their commercial customers – but when times are bad, they typically do worse. It's the whip-lash effect, and seedstock producers unlike any other segment find themselves on the end of the whip more often than not.
Typically, the seedstock business over-responds to increasing or decreasing cow herd numbers, much like being at the end of a whip, which puts it in an extremely good bargaining position half of the time and an extremely bad one during the other half.
Watch the fed cattle and corn markets closely as a method of determining the overall profitability of your commercial customers. When fed prices are good, they build value into your customers' feeder calf price, which, in turn, builds value into prices they can pay for your bulls. When prices take a downturn, and feedlots start to lose money, they must pay less for calves. Conversely when corn prices are good, feedlots must pay less for calves, which negatively impacts bull prices. And when corn prices are low, the calf price goes up – and so does the price for bulls.
“This tells a seedstock producer a lot about the business he's in,” says Tom Brink, an economist for Continental Grain. “He's in a business in which he cannot expect prices of the products he sells to rise as fast over the long term as his business expense will. The challenge he has is to continually become more efficient.”
*Like all commodities, bull prices don't keep pace with inflation. Bull prices are so closely tied with the calf and fed markets, that the affect of inflation is minimal.
Like producers of any commodity, seedstock producers must do one of three things to stay competitive over the long haul: sell more product, cut costs – or break out of commdoty orientation by adding value to their products (more on this in a minute).
Perhaps most importantly, seedstock producers who are actively involved in the marketing of their customers' cattle stand the best chance of increasing the sales price – of their cattle. This is where bulls stop being a commodity, and when they start becoming a value-added product.
Today, more than any time in the history of the beef business, successful seedstock producers are heavily involved in the success of their customers, locating feedlots to place their calves, customers to buy them, or branded beef programs through which their genetics can marketed and receive a premium price.
Activities such as this create a “pull-through” effect that adds value to seedstock. In fact, many seedstock producers who work with their customers in this way have seen the average prices for their bulls and heifers exceed market averages by many hundreds of dollars.
No doubt this will play an even larger role in the economic success of seedstock producers in the future.
Eric Grant is a freelance writer and photographer based in Oak Creek, Colo. He's written about the seedstock business since 1986. Visit his website at portfolios.com/wahooproductions. Watch for this ongoing series in upcoming issues of Cattle Today.