Hays, Kan. — Predictions for a year that will see a continuing trend toward higher input costs, declining revenue and the threat of unprofitability will likely drive more cow/calf producers toward value-added steps in 2009, from marketing alliances to retained ownership. If you’re one of them, advises Ken Conway, PhD, founder and head of GeneNet, one of the nation’s leading marketing alliances that pools calves to sell on a quality grid, be sure to be on the lookout for these top issues:
Know what you’re selling. “There just aren’t a lot of cattle producers left anymore who can afford to treat calf raising as a spectator sport,” says Dr. Conway, whose GeneNet Alliance now pools calves from more than 1,000 calf producers and 100 feedyards to market on a carcass grid Swift offers only to GeneNet. Over its 10-year history, the 1 million-plus cattle marketed through the alliance have brought GeneNet members an average $24 per-head premium, says Dr. Conway—and the top one-quarter have earned an extra $65.
He believes we may now be approaching one of those tipping points in history, where the focus for the average producer will change from one of being lowest-cost commodity producer to one of highest-value quality producer. In other words, cost of production, though still critical, will become second to quality of production. What that means, according to Dr. Conway, this quarter’s Boehringer Ingelheim Vetmedica, Inc. Value through Innovation Pioneer (BIVI-VIP), is that producers must understand and track exactly what it is they’re marketing at least as closely as they understand and track how much it cost them to produce it. If not, they risk giving it away too cheaply.
“You have got to understand what your cattle are, and what they’re really worth, he says. GeneNet typically returns carcass data from the packer to subscribers in under a week. “I know, a lot of cow/calf producers feel, ‘I’ve got a great set of calves. I’ve always topped the sale.’ But I always tell them unless you know how your calves will grow, what they’ll gain in the feedyard, how they’ll hold up to stress and disease once the next guy owns them, and what they’ll do on a grid, in the end you really don’t know what it is you’re selling. And if you don’t know that, you really don’t have any idea of where to go or what to do with those calves to bring you what they’re really worth.
“When I started GeneNet 10 years ago, that was a time when very few people were even putting tags in ears. Once we finally got some of those guys to send cattle through the program, to kill them on the grid, we saw the same thing happen again and again. They’d look at a set of cattle and see them as peas in a pod—a good set of top calves with no difference down the line from top to bottom. And then we’d send back the kill sheet data on them that showed a $300 difference in the spread in the final value of these calves.”
That’s the kind of market intelligence that will make the difference between the successful cattle producer and the not so successful in the coming years, Dr. Conway believes. “I’ve got a lot of producers who say if it wasn’t for GeneNet, they wouldn’t be in business. You just can’t afford to give away the quality you’ve invested in—not for very long, anyway.”
Pick the low-hanging fruit. Dr. Conway says he’s consistently seen a pattern in producers who consider retaining ownership or entering some other value-added arrangement but then fail to follow through: They come up against how overwhelming the details of entering an alliance wholesale can sometimes seem, and that distracts them from the numerous small, starting steps that are available to them in the here and now. But there are several straightforward, immediate options that exist to add value that too many producers still miss—relatively simple steps like dehorning, castrating and vaccinating. As relatively small a step as joining a Beef Quality Assurance program has been shown to bring a premium. And age and source verification can be the easiest money a producer can make, if he’s willing to take the often difficult mental step of opening up his records to a stranger.
Health improvement through preconditioning, for instance, makes an ideal starting point to capture weaned-calf value premiums in small steps. “If 60 percent of your calves get sick when they get to the feedyard, and buyers know they’re likely to, those buyers aren’t coming back. And the world is getting small enough that it seems like everybody knows whose calves those are. But if those calves are preconditioned, if they had a good set of viral vaccinations, they’ve got a good mineral package behind them, those feedyard customers are going to come back to buy those cattle they know bring less chance of getting sick. And we also know that when that morbidity goes down, the grade goes up when they go through the whole system.”
Trust but verify. More and more, calf marketing has become a business built on relationships. And you have to be able to trust your partners.
“One of the things we’ve discovered is that for a lot of the cattle that don’t work on the grid it’s not necessarily because of the genetics of the cattle. Fact is, I’d say probably 70 or 80 percent of the cattle that don’t end up working on the grid are tied to their management. They’re either too big or they’re too fat or not far enough along, or something else. So the key is to get into a feedlot that knows how to kill cattle on the grid and is willing to sort and do all the things it takes.
“There’s a learning curve in this business everybody has to go through. There are people who are very good at it and there are some who have a lot left to learn. And it pays to know the difference.”
Dr. Conway believes that’s the real value a marketing alliance like GeneNet brings to the table. It creates a mechanism to shortcut some of that learning process and verify its viability. It creates a structure that determines how price and premium will be determined, and then producers can put trust in that process.
Be careful of the natural market. “I know they’re really pushing the natural programs,” Dr. Conway recognizes. “And a lot of producers are out there looking at big-dollar premiums on the natural thing. But we’re finding most if not all of those cattle are lined up at least six months in advance. I’m getting a lot of guys calling me saying, ‘I’ve got these natural cattle ready to kill and there’s no place to sell them.’ I can go ahead and put them through my grid, but they lose the natural premium built into them.
“If you’re going to get into the natural programs, you’d better have those calves locked in on a specific market. If you plan on just sending them to town, chances are good they’re not going to bring natural premiums. Investigate the markets and lock them in before you go to the expense and trouble of raising them.”
Take a long view. Think about it like this, Dr. Conway advises: Most of yesterday’s producers didn’t anticipate all the changes in our industry that have it made so hard to make a living in it today. Likewise, if you want to be profitable tomorrow, you have to start anticipating what the industry’s going to look like in the future. Obviously, that’s impossible to do completely. But you have to be watching for the signs that point out the trail.
Retailers are looking more and more to distinguish their business through high quality meats. How are you responding? Stockers and feeders are recognizing that the value of good health is always priced into calves—or out of them—whether you call it a premium or not. Are you leaving that money on the table? The level of risk inherent in finishing cattle is seldom created or destroyed, it simply shifts from one sector to another. Are you willing to absorb some in return for potential reward? All these are necessary questions producers need to answer now to better understand how to make money in the industry of tomorrow.
“Let’s talk about retained ownership, for instance. I know that the last four to six years, that’s been a dirty word for anybody selling these high-priced calves. But I work with a lot of producers who retained ownership during that period, and they’ve been very, very successful. So I think a lot of producers need to take a good look at retained ownership, or partnering, or something because that’s really the best way to get your data back. Then you get a real feel for what your calves really do in the other part of the market. If you’re doing retained ownership, it changes how you select for bulls when you know you have a stake all the way to grid. There’s money in retained ownership. A lot of producers need to take a hard look at in the next few years.”