Producer alliances are generally developed around a common goal or value. Some are breed specific, some are based on geographic location. Others are the result of participation in a specified health and management program.
When selecting an alliance, find one compatible with your customers' buyers. Setting a target that either your customers can't reach, or they are unwilling to change their herd to conform to the program's specifications, is a waste of their time and money. Look for a program with a similar endpoint to what their cattle produce.
No Substitute For Direct Contact The best source of information on alliances is direct contact with the program coordinator. There are many specifics you'll want to consider as you review the various alliances.
* Many alliances have been in existence for less than 10 years. As a result, they don't have much history on which to base your decision. Ask the program coordinator for names and phone numbers of other participants.
* Some programs require a contract or membership for participation. Remember, a good contract will protect both parties in the agreement. A contract outlines a timetable as well as the responsibilities and financial liability of everyone involved.
* Most alliances accept cattle from almost any region of the country. The distance to participating feedlots may be the factor that gives you an edge participating in a specific program.
* Some alliances will require placing a minimum number of cattle in the program to participate. The minimum number may vary if customers want to take advantage of such additional services as feedlot performance and carcass data collection. Usually there's a cost-recovery fee associated with the extra services to collect additional data.
* Some programs require owners to retain a percentage of the ownership in the cattle if they want to receive individual animal information.
* Almost all alliances have specifications on the genetic composition or biological type of the cattle that are accepted. A breed alliance, for example, will generally require that the breed represent 50% or more of the genetics in the calf. Many of the programs have identified certain pools of genetics they will not accept.
* There are also some limitations on carcass size and quality. The target for carcass weight will range between 535 and 950 lbs. depending on the alliance. The range of acceptability for yield grade varies with each program. Most alliances require a yield grade of less than 4 with the majority preferring a grade of 2 or better.
Quality grade, on the other hand, will range from Prime to Select with Choice being the most common grade preferred. The quality grade requirement is strictly a function of the marketing arrangements of the alliance.
Pricing Formulas Are Critical The most critical area of an alliance agreement for any party is the pricing formula.
Most programs begin with some type of base price. The price is set either from a local cash market, the USDA price or some combination of supply and price from the previous week. The base price is used to establish the initial value of a carcass.
Next, some type of formula or sliding scale is used to determine the final value of each carcass. For each carcass that achieves a predetermined standard for quality grade, yield grade and other factors, the price is adjusted upward (premium) an incremental amount from the base price. Similarly, for each carcass that falls below any of the predetermined marks, the price will be adjusted downward (discount) from the base price.
Once the base price is established, you must pay particular attention to the "premium" and "discount" categories. It's quite possible to receive enough discounts on a few non-conforming cattle to offset all the premiums received on a majority of the cattle. Producers who have some estimation of how their cattle will perform in the feedlot as well as on the rail - and can expect a high percentage will qualify for one or more of the premiums - are in the best position in this marketing.
Cattle-Fax has prepared an excellent in-depth report "Alternative Marketing Programs" (January 1997) that provides a detailed discussion on calculating premiums and discounts. To receive a complete copy of the Cattle-Fax report call 303/694-0323. There's a $25 fee for the report.
A Listing Of Alliances On page BF-11 is a listing of the alliances BEEF could identify currently doing business around the country. However, alliances and cooperative marketing agreements are continually being formed among industry members. Therefore, this list may not contain all the current arrangements. If you have interest in a particular alliance, contact them directly to receive specifics.
Each program's coordinator is listed. Give them a call. They're willing to review their program and help you determine if it's the right one for you and your cattle. Direct contact with the coordinator will also ensure that you receive the most current, accurate information.
Before calling, think about your situation and make a list of questions you want to ask. Remember, the only foolish questions are the ones you DON'T ask.
Dan Kniffen is a Colorado rancher and former head of quality programs for the National Cattlemen's Beef Association.