“The seedstock business is the most inelastic market there is,” says Dave Nichols of Nichols Superior Beef Genetics, Bridgewater, IA.
The number of bulls needed is defined by the number of cows. So, as the nation’s cowherd continues to contract, fewer bulls are required. The same goes for seedstock producers who view heifers and cows as their primary revenue source.
As with their commercial counterparts, margins for seedstock producers continue to narrow as input costs increase.
“It’s become more challenging to be in the seedstock business at a profitable level, not within-breed so much as within the business overall,” explains John Burbank, CEO of Seedstock Plus.
The breed race largely run, the battle now is for commercial market share, often by offering buyers more than one breed, as well as hybrid (two breeds) and composite (more than two breeds) seedstock.
Moreover, since seedstock producers can all access the same genetics for the most part, competition for commercial customers’ bull buying dollars revolves around offering more value via a broader array of services. That includes everything from free delivery to helping customers market their calves to managing customer replacement heifer development.
“Instead of selling more bulls for more money every year, our focus has always been on marketing more value per bull at affordable prices, which makes it more sustainable for everyone,” Burbank says.
But adding more resource-intense services narrows margins further.
“I’m not very optimistic about the future of seedstock producers marketing 10, 20 or 50 bulls a year on their own,” Burbank says. “I think you’ve got to get bigger, get aligned or get out.”
That’s one reason Burbank and a handful of other Gelbvieh breeders formed Seedstock Plus a decade ago. Members, some like Burbank, who are long-time seedstockers, retain their autonomy but send bulls to regional development facilities for common management and marketing. They market more than 1,000 bulls each year, offering four purebred and three hybrid lines.
“I think the days of buying a bull from your neighbor or brother-in-law are probably over,” Nichols says. “The seedstock business has to become more service-oriented and more market-oriented.”
Nichols – in the seedstock business for 58 years – began selling franchises in his family’s seedstock program more than a decade ago. The Nichols program primarily offers two pure breeds as well as hybrids and composites, more than 1,000 bulls annually across the entire system.
Volume drives opportunity
As commercial herds become fewer and larger, commercial operators need to buy more bulls, meaning they need more of them to sort through. That favors larger entities.
The same goes for genetic improvement itself. Until genomics proves otherwise, Donnell Brown at the R.A. Brown Ranch, Throckmorton, TX, believes genetic advancement will continue to revolve around population genetics.
Simply, the larger the population – assuming timely and accurate genetic evaluation – the more opportunity there is to find the outliers that allow for progress. R.A. Brown Ranch is six generations and 37 annual sales into the seedstock business, marketing more than 600 bulls/year, two pure breeds, one composite and one hybrid. The Browns add volume and maintain quality consistency by also working closely with several cooperator herds.
Technology leads the way
The focus on selection technology through the advent of Expected Progeny Differences (EPDs) in the early 1980s enabled extraordinary genetic progress, as measured by in-breed genetic trends.
Such accurate genetic prediction compared to the past also likely explains why commercial producers seem more willing to utilize hybrid and composite bulls in order to exploit maternal heterosis.
“For more than 50 years, the benefit maternal heterosis has on efficiency, longevity and thriftiness has been well understood and documented. We have also learned how valuable breed complimentarity is to making better cattle for all segments of the beef production chain,” explains Jim Butcher of Gateway Simmental and Lucky Cross in Lewistown, MT. “To be fair, in the past, without quality multi-breed data collection and genetic evaluation, many of the hybrid cattle as well as their purebred parents were sold without directions for use or proof of their value.”
Though the Butcher family will host its 31st annual bull sale this year and markets more than 200 bulls/year, they became owners in Allied Genetic Resources, which represents several thousand bulls.
Barring something that prevents marketing cattle based on added value, such as the much-discussed GIPSA rule, Brown believes commercial producers will use more hybrid and composite bulls that blend English and Continental breed advantages.
Brown points out commercial producers discovered the power of maternal heterosis when Continental breeds arrived in the late 1960s and early 1970s. Since then, he explains, the sweeping successes of Certified Angus Beef® and the premiums for marbling lured many back to primarily straight-breeding. Now, he says, commercial producers are rediscovering what it’s like to operate without direct and maternal heterosis.
As Butcher says, after commercial folks experimented with Continental breeds, “By the mid ’80s, the straight-bred Angus cycle was beginning to take hold. It seems like these cycles last for about 15-30 years, which not coincidentally is about how long it takes to breed all of the useful heterosis out of a commercial herd.”
Genomics – the next wild card
Genomics – utilizing DNA technology to identify and select cattle that possess specific genes for specific traits – promises to launch seedstock selection and production into an age of precision heretofore barely imaginable.
“The promise of DNA technology for the beef business will likely be fulfilled in areas we don’t traditionally think of adding value,” Nichols says. Think in terms of genetics resistant to bovine respiratory disease, more feed efficiency, those that produce “prescription” beef.
Paradoxically, that same power also adds vulnerability to the current business model for seedstock production, which relies on producers finding and propagating gene leaders.
“Will the genomics companies get into the seedstock business?” Brown wonders. “Will there be proprietary genetics tied to the end user in such a way that packers and feedlots will pay more for, or buy exclusively, cattle with those genetics?”
Because of that potential, or in spite of it, Nichols believes alliances are on the cusp of being reborn, where the desires of specific beef retailers and food service are engineered from conception onward via contractual relationships.
No matter what the future holds, it promises to remain challenging.
“I’m continually reminded how hard it is to do this right, to produce the genetics and provide the service that can truly help commercial producers remain economically viable,” Burbank says.
That’s the key, Brown says: “I believe the seedstock business is sustainable for those who focus on producing bulls that make the commercial producer more money, and can do so because they truly understand how commercial producers make their money.”