The beef industry, without a doubt, has seen many changes over the past decade. Value-based marketing to fill brand identified niches has become a more popular alternative than marketing the harvested product as a commodity. As these brands stepped to the forefront, there was a cry to increase marbling genetics within the nation's cowherd.
As the search for more Choice cattle became breaking news, it seems crossbreeding was sacrificed to improve quality grade with straight bred cattle. Millions of dollars in opportunity costs are gone due to lost performance that crossbreeding brings in added pounds and maternal efficiency. The question to the beef industry is, “Has the goal been reached?”
Revealing data put together by Cattle-Fax sheds light on the fact that maybe only part of the designated target has been reached. For the last five years, Yield Grade 4s have become a growing part of the harvested population, increasing 1.35 million head. The quest for the Choice grade has not gained any ground and even became less of the population in Southern feeding areas.
“This is due to a variety of things. Cheap corn and high breakevens leads to heavier carcasses, which tends to increase the number of 4s we have in the mix,” says Tim Schiefelbein, Director of Live Cattle Procurement, Swift & Co.
“The percentage of 4s moves with carcass weight and the number of 4s continues to increase as we try to hit the Choice grade. We haven't seen the percentage increase in Choice that was expected compared to the rise in 4s,” says Tod Kalous, Cattle-Fax analyst. According to this data, Yield Grade 4s have increased about one percentage point per year since 2000. If the trend continues, according to Cattle-Fax, there will be another 1.35 million 4s by 2010.
“There are more British-based cattle in the population than we've seen in the past. The trend was to stay away from the Continental cattle and with cheap corn we are seeing more days on feed for a lot of cattle,” says Steve Peterson, MPK Feeders, Lebanon, Kansas.
Even though there has been a lot of emphasis on genetics aimed at the Choice grade there are still a lot of variables in the genetic base of the cowherd. By managing these genetics correctly cattlemen can be profitable. Value-based marketing will help each set of genetics fill a certain market by aiming certain types at different end points.
“We feed a high percentage of value-based cattle. I think what keeps our customers' coming back is we are able to manage cattle on an individual basis and capture value for each customer. There are all sorts of different end-points to feed for,” Peterson says. “I think the commodity cattle skew the numbers for the industry. Even in genetics from one herd, out of three or four sires, we see differences because there are so many variables. We have seen improvements both from a quality and yield standpoint in our top cattle.”
“If a producer will use crossbreeding to stay away from different thresholds where cattle are too lean or too fat, then a producer can fine tune his marketing plan to be the most profitable,” Schiefelbein says. “Have an animal that will produce a premium year round then make the genetics work based on the Choice/Select spread.”
The Choice/Select spread plays an important role in helping producers fine-tune marketing schemes. This same form of reward helps producers with certain genetic mixes find the right time of year to market cattle. The spread takes into account marketing a whole carcass not just the middle meats.
“At a $10 Choice/Select spread a producer can afford 10 percent 4s if his cattle grade better than 65 percent Choice. At this point it is a wash, but anything after that is profit,” Schiefelbein says. “The most efficient cattle mean the most dollars. A yield grade 2 is always worth more than a yield grade 4. Each producer has to figure out how much red meat yield he can afford to give up chasing the Choice grade.”
“When we sell on a value-based market we are penalized for too many 4s. We have to manage them to an optimum level,” Peterson says. “We have been using ultrasound since 1992 and we try to manage away from 4s. We definitely watch the Choice/Select spread from March 1 to mid-June or July 1. If the spread is $3 why feed for the Choice grade, but when it is $11 or $12 we have incentive to feed for that market. In our market the higher percent Choice and the more red meat yield, means more dollars every time. If I could feed every carcass to a Prime, Yield Grade 2, I would, but that doesn't happen very often.”
The Choice/Select spread only provides incentives during certain months of the year. Cattlemen with the right genetics can focus on this target to add to the bottom line during three months out of the year.
“The packer always wants what we don't have. It is as simple as the law of supply and demand,” Schiefelbein says. “In April and May we want Choice cattle and we'll pay for them.”
“There is a seasonal trend with Choice/Select spread,” Kalous says. “In the spring of the year the spread is typically the largest because the supplies are the tightest during this time of year and demand for Choice product is high.”
Other economic signals besides supply and demand are being sent to cattlemen. These economic signals are compounded by cheap corn, high break-even costs and genetics that are targeted for end points based solely on quality grade.
“The economic signal is being sent to feeders to add more weight. There is little incentive for leaner more muscular cattle, this is one reason we have seen the percentages of 4s go up so much,” Kalous says. “It is cheap to add pounds right now; we may have to watch this trend into the next cycle. The add weight trend is going to change, but it is still the biggest signal being sent to feedyards today.”
“The market takes care of everything. The market will make an adjustment to bring back more muscular cattle to control yield grade problems,” Schiefelbein says. “There are two ways to control yield grade, one is to feed them for less days and sacrifice carcass weight. The other is to add some Continental influence through crossbreeding because you can take these cattle to a heavier weight without having a huge yield grade 4 problem.”
The lack of crossbreeding has played a role in decreasing rib-eye size and adding to the number of 4s in the carcass mix. As different groups of cattle are harvested, it is almost alarming, within some pens of cattle, how increased back-fat levels and small rib-eye-area come to the forefront identifying the wrong kind for the production mix.
“We see groups of cattle that are 20 percent yield grade 4s and it is not uncommon to see groups that are 40 and 50 percent yield grade 4s,” Schiefelbein says. “These cattle need help. Crossbreeding keeps yield grade in check.”
“We are seeing the amount of muscle decrease at a time when corn prices are cheap, which has a huge affect on rising 4s,” Kalous says. “It is hard to say what affect the genetics we are using today will have on the market two years from now, but there has to be an incentive passed to the feeder and cow/calf man to change the trend of more 4s in the marketplace.”
“You can't feed marbling into a calf. Without proper management or added stress, it is the first thing to go,” Peterson says. “It is a known fact Continental cattle produce a lean carcass, which will help producers stay away from the 4s.”
Cattlemen are becoming very sophisticated in designing and implementing crossbreeding systems as they discover rewards for proper genetics. Marketing plans along with genetic mix can be positioned based on historical data to try and make the most of what the market offers.
“There are extremes in every breed some cattle will surprise you no matter what their genetic background is. We have cattle from one ranch, with three or four different sires, where out dates will range 45 days,” Peterson says. “Finding the right market is a challenge every day because there is no certain set of rules to follow. There is a lot of money to be made if producers don't go to extremes and have the genetics in line to fill certain niches within the mainstream market.”
A producer's profitability always depends more on reproductive efficiency than carcass premiums. Certain guidelines have to be followed to allow the cow herd to function in its intended environment. For most of the United States, this is utilizing grass with very little input costs. Due to Mother Nature's strict protocol, to achieve profit on the maternal side, sometimes handcuffs the producer with market options on the carcass side.
“There are so many things that control a producer's program, such as environment, calving dates and genetics. These variables dictate crossbreeding systems to producers and it is his job to figure out where he needs to market his cattle based on his genetic mix,” Schiefelbein says. “Tailor the crossbreeding system to fit pre-planned marketing dates. If your marketing window is during the times the Choice/Select spread is the widest, a 75 percent British/25 percent Continental is the better cross. When the spread is narrow, a 50 percent British and 50 percent Continental usually is more profitable.”
Through this price discovery system based on supply and demand, balanced trait cattle are still the most profitable in every segment of the industry. By selecting balanced trait cattle and finding the right market windows producers will add to the bottom line in almost any market scenario.
“Seventy percent Choice and 70 percent 1s and 2s is what the industry wants right now,” Peterson says. “As we feed more for the upper Choice market, we will increase the number of 4s. We have to have some crossbreeding to hit the 70/70 target.”
“We need balanced trait cattle that can marble and yield,” Schiefelbein says. “Crossbreeding will keep you out of trouble and the marketing window will help dictate genetic makeup.”
Good management and husbandry can help eliminate 4s. The market has to send adequate signals to producers to give them incentive to produce heavier muscled cattle where fat does not rob producers of future profits.