This is the second in a series of columns I am devoting to value-based female marketing. Last month's column focused on the efforts of pioneering seedstock producers who share my opinion that this is not only a concept whose time has come, but a sleeping giant in terms of an economic opportunity for both seedstock producers and commercial producers.
Let's look at the economics of value-based females this month.
Jason Gerke's timely article on replacement heifer values in last month's issue of Drovers provides a good starting point for economic analysis. Mr. Gerke used a method developed by economist Harlan Hughes of North Dakota State University. The Hughes' method makes it possible to determine how much you can afford to pay for a bred heifer based a seven-year production life and the return you seek on your investment (ROI). Based on prices and costs projected for the next seven years for 600 pound calves by the Food and Agriculture Policy Research Institute (FAPRI), this method shows that you could pay $1,446 for a bred heifer and still make 8 percent per year on your investment.
Analyses of this type inevitably deal in averages-average prices and average quality. The reality is that females and their progeny always sell in a price range, whether it be at a sale barn or another type of public sale. Bred heifers in the Drovers' market report for December averaged $531 but sold in a range of $439 to $624. This range left $93 available above the average price that could be exploited through value-based marketing.
Quality is not a new factor in the female trade. Buyers have always bid one amount or another for females based on what they think a cow's progeny will contribute to weaning weight and post-weaning performance (on the hoof and on the rail). But perceived quality often involves pitfalls and disappointments. Documented quality can be much more reliable and rewarding.
For an example of the possibilities here, re-read my December column. This column shows a whole- life advantage of almost $100 for the steer-progeny of genetically superior cows over those of just average quality.
My December example was based on a fictional cow-calf operator named George. The average weaning weight of George's steers was 480 pounds. The steers were out of genetically superior cows, and the steers had good performance and carcass records. These steers sold at average for 79 cents per pound at the mid-point of an 11-cent price range on last fall's market. The steers netted $42 over weaned cost. If George had laid claim to one-third of the $100 advantage, his steers would have been worth almost 7 cents more per pound, and his net on each would have increased to $75. George would have gotten his premium because people up the line-growers and feeders-also would have pocketed a share of the higher value.
Commercial operators wanting to be "just like George," would do well to seek bred heifers like his. The Hughes' method applied to George's bred heifers shows that a customer raising average-quality calves and having a 20 percent ROI target could afford to pay about $125 more per head over average price for these heifers. But this is just about the operator with steers selling at the mid-point of the price range. Someone selling at the bottom of the range could afford to pay an extra $214 per head.
As I pointed out in my January column, pioneering seedstock producers are already showing there is strong demand for value-based females. But, the field is still wide open for you. We need a network of seedstock producers and commercial producers to put together listings of females with defined genetics and production histories that can be tapped by commercial producers who are tired of grab-bag marketing.
More next month.
To contact Fred Knop, write Drovers or send e-mail to: firstname.lastname@example.org