As a cow-calf producer, your investment in your current calf crop began long before the calves were on the ground. You’ve worked to improve the health and productivity of your cow herd, made bull selection choices that should hopefully improve the genetic merit of your calves and done everything you can to get a calf ready to wean, but is there more you can do to make your calves stand out from the crowd, and is it worth the effort?
For the last several years, value-added programs that include preconditioning or special market niches such as natural or source- and age-verified programs have offered potential premiums to producers. But with feeder-calf prices already demonstrating some slackening from a year ago, you may be wondering if investing in the extra management practices is worth the effort.
Historical data reveals that the premiums are there. For example, video sales have emerged as a good marketing opportunity where you not only have the chance to advertise the “extras” that you’ve put into your calf crop, but where there is a lot of data to show that premiums really do exist for specific management practices. A 2005 study that analyzed 10 years of Superior Livestock Auction sale data demonstrated that calves that followed a vaccination or weaning protocol received premiums ranging from 99 cents to $7.91 per hundredweight.
More recent data from last year’s sale season demonstrated that age and source verification garnered a premium of $2.14 per hundredweight on 1,177 Superior Video sale lots. The same data analysis revealed that calves that were weaned 45 days and were marketed as VAC 45, a recognized vaccination protocol, received premiums of $8.20 per hundredweight, according to Chris Nelson, business manager for Superior Stampede.
“If a producer pursues source and age verification or some sort of third-party verification, it speaks to the reputation and management of the operation,” Nelson says. “That producer has taken some extra effort to add value to his cattle, which can separate them for buyers from ‘commodity class’ calves.”
Analyses of value-added programs have also revealed that there are premiums to be had at the auction market level for enhanced management. A 2006 study analyzing calves sold through Iowa auction markets found that third-party verification of vaccination and weaning programs added $6.15 per hundredweight.
More recent data from Oklahoma State University researchers found similar results in an analysis of calves certified by Oklahoma Quality Beef Network and Noble Foundation Integrity Beef, where buyers had validated information on when the calves were weaned and what vaccinations they had received. The certified calves received a $3.61-per-hundredweight premium.
“While receiving a premium price for preconditioned calves is a goal for many producers, the advantages of preconditioning extend beyond price,” says Clem Ward, professor and Extension economist for OSU. “Calves gain weight on a higher nutritional plane during the 45 days or more calves remain on the ranch in the preconditioning program. Thus, heavier weight, even at a slightly lower price for heavier weight calves, leads to increased revenue for preconditioned calves. Calves are healthier and have a stronger immune system, having been weaned for 45 days or more. Thus, for buyers, they are ready to enter a stocker or feedlot program with a lower chance of costly disease problems.”
“The easiest calves to sell are the ones representing good management practices,” says Mark Harmon of Joplin Regional Stockyards in Carthage, Mo. “Being able to validate a health protocol, along with the possibility of age and source verification, makes calves worth more.”
“With all the economic challenges that are looming, and those challenges specifically related to cattle-feeding profitability — or lack of — in 2009, the early signs in the marketplace are indicating that there is more buyer demand for value-added calves than ever before,” Nelson says. “ This trend has been very apparent in video and Internet marketing channels so far in 2009 and will likely continue as buyers work every angle they have possible to enhance the value of the cattle they ship to market.”
So, clearly there are demonstrated premiums for certain practices; however, does the premium justify the expense? As prices trend lower, it’s an important question to ask even though it may go against some of the conventional wisdom about the best way to market your calves.
According to Ward, each value-added alternative has pros and cons for an individual cattle producer. Does an alternative opportunity add more value to a producer’s cattle than the added costs required to participate?
As you prepare for the 2009 marketing season, a thorough analysis of your breakevens is critical to understanding the potential benefits of various value-added alternatives. Oklahoma State University researchers have developed a partial budget analysis in a Microsoft Excel spreadsheet. You can substitute your individual operation’s production data to evaluate costs versus revenue to help guide your decision-making process.
Glenn Nader, a University of California Livestock Extension farm advisor, along with co-investigators Steven C. Blank and Larry Forero, have been researching the level of premiums that producers have been receiving as part of consignments in Western Video Market sales for the past 10 years. The research group is conducting this project on an ongoing basis to help cow-calf producers identify potential marketing opportunities.
In reviewing the data, Nader and his colleagues have identified some trends that may help producers understand what buyers are looking for when it comes to seeking out these premium opportunities. “As cow-calf producers, we all seek premiums, but just because you got paid more, it doesn’t necessarily mean you made more,” he says.
As you evaluate your management decisions and how you prepare your calf crop for marketing, Nader points out that you have to weigh the advantages versus the disadvantages of various practices. For example, a good weaning program also includes potential death loss, wear and tear on facilities, additional labor, as well as initial weight loss that occurs in your calves when you first wean.
“As part of our analysis of video sale prices received and the catalog descriptions that consignors were using, I found one rancher who offered to wean his calves, if he was paid 8 cents more per pound,” Nader says. “This individual had obviously calculated his real costs for this added effort.”
While having an understanding of your true breakevens when making extra investments in your calves is important, understanding the dynamics of the marketplace is also critical to knowing “the price of doing business.” As part of his observations, Nader says that more than 76 percent of the producers who had consigned calves in the Western Video sales were in fact using a standard vaccination program that included an initial administration and the necessary booster shots. “That tells us that producers feel that they have to do certain things to participate in the marketplace.”