Age- and source-verified, weaned, preconditioned, non-hormone-treated, all natural, BVD-free — ranchers today face an array of potential marketing claims for their calves, and many of them can bring premiums on sale day. But to capture those premiums and profit from their efforts, producers should begin planning early, identifying processes that will work on their ranch and targeting markets that will pay for them.
Know the market
Due to short supplies, prices for this year’s calves could reach record levels, and sale data show that price spreads continue to widen between the top and bottom calves at market. According to Joe Lichtie, productions manager with Superior Livestock Auction in Fort Worth, Texas, the average calf price from 2,900 lots sold through Superior auctions last summer was $163.66 per hundredweight, the highest price in the company’s records and almost $20 per hundredweight higher than the 2011 average. One set of 150 Angus-based VAC 45 calves from the TA Ranch in Saratoga, Wyo., sold via video on June 27 at $286 per hundredweight for delivery in November — the highest price Superior has ever recorded.
Cattle-Fax analyst Lance Zimmerman has studied value-added markets over several years and says the price increases we’ve seen for calves in recent years have made quantifiable, verifiable attributes worth more than ever for the cow-calf producer. Buyers are increasingly investing more on cattle, feed and other inputs, adding to a risk level that already is high due to tight margins and market volatility. They cannot afford to take additional risk on the health and performance of cattle. The days of sellers getting top prices by just saying their black calves have “had all their shots” are over, Zimmerman says.
Health reigns supreme
Besides sale weights, health protocols remain at the top of the list of value-influencing attributes, says Jackie Moore, who owns and operates Joplin Regional Stockyards. Other verifications have emerged that can add value, but first and foremost, he says, buyers need calves that will stay alive and healthy.
Moore says buyers at Joplin, especially the high-volume buyers for the largest feeding companies, want documentation on ranch health programs including vaccination protocols and the length of time calves were weaned. They are willing to pay for that documentation, and you want the big players bidding on your calves, Moore says. At most sales, he adds, a handful of buyers are bidding on calves of unknown background, while virtually all the rest are bidding on health-verified calves.
Zimmerman says his research and Cattle-Fax data show weaning is the single biggest value driver for calves, with calves documented as weaned for 45 days bringing premiums of $5 to $7 per hundredweight. Adding a documented preconditioning protocol stacks on another $3 to $5 per hundredweight. He adds that while cattle values, feed prices, fuel prices and risk levels have increased dramatically, the cost of vaccines, supplements and dewormers have remained relatively flat, meaning the return on investment is higher.
Moore agrees, saying it’s easy for some ranchers to slide by when prices are high, but documentation of a good health program still pays. The difference between $190 per hundredweight for health-verified calves versus $184 for generic calves doesn’t sound like much, but it adds up to $30 per head, which makes a significant difference for most cow-calf producers.
And the price difference can be much wider than $6 per hundredweight. Lichtie says VAC 45 calves sold through Superior auctions during the summer of 2012 earned premiums averaging $12.06 per hundredweight, up from $11.88 in 2011 and $6.38 per hundredweight in 2010.
Non-weaned calves that were not in a verified vaccination program but were vaccinated against respiratory tract viruses at some time sold for $5.26 per hundredweight less than those in a verified program. The 2012 price premiums were the largest reported in the 18 years of the Superior Project for all health protocols with the exception of VAC 24, which averaged a little lower than in 2011.
Lichtie notes that 2012 was the first year Superior data showed premiums for calves tested for bovine viral diarrhea (BVD). The test protects buyers from the risk of calves persistently infected with BVD, and premiums for tested calves averaged $2.42 per hundredweight.
Moore adds that a good health program also helps build the reputation of your calves at the market and benefits your herd at home. Several animal-health companies and other local or regional organizations offer programs to help ranchers implement and verify their vaccination and weaning programs. Moore says buyers at Joplin are not particular about which of these programs a seller uses; they just want documentation.
Joplin holds special value-added sales that tend to attract buyers who prioritize health verification. Moore says sale prices average $5 to $7 per hundredweight higher than market averages at these sales, with less price variation between groups. Differences in price are based mostly on appearance or condition of the calves. At the facility’s regular feeder-calf sales, health verification typically accounts for the largest variation in sale price between similar lots of calves.
Joplin also holds commingled sales that help smaller producers pool similar calves to sell as a load-lot. Some other auction facilities around the country offer similar services. “It’s the fastest way I know for producers to make some extra money on their calves,” Moore says, adding that commingling typically adds $3 to $8 per hundredweight to calf prices. Cattle, Moore says, are one of the few items that sell for higher prices in larger groups. Virtually any other goods you might buy, from food to feed or fuel, are cheaper in bulk than in small quantities.
Promote your genetics
If you’ve invested in good genetics, let your buyers know. Zimmerman says a full list of bull EPDs might be excessive, but including information on AI sires, sire lines or seedstock suppliers can improve buyer confidence and attract higher bids.
If you are upgrading your bull battery, remember the marketplace pays for pounds. Zimmerman says the first priority for the commercial producer should be producing a live calf that weans at an acceptable weight. So in selecting bulls, he suggests looking first at calving-ease EPDs, then at weaning weight. Yearling weight is important, too, but the majority of ranchers sell calves at weaning. From there, look at maternal traits if you retain heifers or sell them as replacements, or terminal traits if all your calves go to finishing programs.
Producers and breeders have selected over time for value traits such as polled cattle and mild temperament. Today, the market does not offer premiums for these traits, but a high percentage of horned cattle in a sale lot will bring at least a $2-per-hundredweight discount. Producers who routinely bring wild or aggressive calves to market will likely see discounts based on reputation.
Is age and source verification dead?
Age and source verification has paid significant premiums in past years, primarily because of Japan’s restriction on imports of U.S. beef from cattle older than 20 months. Now that Japan has relaxed its import restrictions to 30 months or younger, those premiums are likely to disappear. In fact, Zimmerman says, premiums for age verification have declined since 2011 as packers found other ways to identify calves that qualified for export to Japan.
Superior sale data illustrate this trend, with 2012 premiums for age- and source-verified cattle averaging $1.14 per hundredweight compared with $1.70 in 2011 and $1.74 in 2010.
Zimmerman adds, however, that producers who have implemented a low-cost process for age and source verification might want to continue it. They probably have gained some management benefits by maintaining better records, such as calving dates on individual cattle. Also, they will be in good position to supply source- and age-verified calves if an export customer requires it in the future.
Filling a niche
Several additional specialized or niche verifications such as natural, organic, grass-finished or humanely raised can bring premiums but also increase production costs. Ranchers engaging in these production systems need to arrange marketing channels ahead of time and verify that premiums will exceed additional costs.
“We don’t sell a lot of natural cattle,” Moore says, adding that when groups of calves come through the stockyards with natural claims, they sell well and usually at somewhat of a premium. “I’ll find someone who wants to buy them.” Moore believes many of the calves sold as natural do not remain in natural programs through the stocker or feeding stages. Buyers assign some premium to them believing they will benefit from a bigger performance boost when they implant calves for the first time.
With feed costs high, feedyards prefer to use every production technology available, meaning demand for natural calves has declined somewhat over the past few years, Zimmerman says. Some demand remains though, as Lichtie says natural calves tend to attract aggressive bidding in Superior’s video sales. Premiums averaged $2 to $3 per hundredweight for calves in 2012, and this winter, yearlings with natural claims are bringing premiums around $5 per hundredweight.
Another option is to certify calves for the non-hormone-treated cattle (NHTC) program, which qualifies beef for export to Europe. In Superior auctions during 2012, premiums for NHTC calves averaged $2.05 per hundredweight above similar calves not in the program, but this price premium was down from $2.46 in 2011, $2.28 in 2010 and $2.80 in 2008.
A high percentage of calves could qualify as natural or NHTC because the majority of cow-calf producers do not use implants, Zimmerman says. For some ranchers, the cost and labor involved in implanting might outweigh the benefits, but for most, especially those who precondition and wean their calves, an implant at turnout can increase sale weights by 25 to 35 pounds, meaning an extra $50- to $70-per-head return — well above any premium for natural or NHTC claims.
Write it down
Zimmerman says when we talk about “low-hanging fruit” in cattle production, documentation is about the only “free lunch” you will find. For many producers, verification is a simple and low-cost supplement to what they already do. Numerous programs are available to facilitate the process, but simply asking your veterinarian to sign a document outlining the health and nutrition products you purchased and protocols you used can add value to your calves. Write it down, type it up. It could be a sophisticated spread sheet or hand written in a little red book, but document what you do and provide the information to buyers up front.
Don’t base your decisions on one year of experience, Zimmerman says. Some days, at some sales, undocumented calves bring the same price as fully vaccinated ones. But over time, on average, documenting your processes will pay off, in part because of the seller’s reputation.
Know your breakevens
However, getting that top price does not necessarily equate with making the highest profit. Zimmerman stresses that producers need to understand production costs and their breakeven prices. A 45-day-weaned calf with two rounds of vaccines and full documentation clearly is worth more than an undocumented calf weaned on the truck, but raising that calf entails additional labor, feed, facilities and other production costs. For many, the extra pounds of calf and higher per-pound price will easily exceed the costs. For others, a preconditioning program without weaning could offer better profits even if the calves sell at lower prices.