As calves drop on the ground this spring and next, chances are they'll face better-than-a-buck cash markets come fall. But what comes after that?
Depending on whose timepiece you consult, it's about 12:05 a.m. at the dawning of a brand new beef economy.
Call them alliances, strategic partnerships, systems, networks or whatever else you will. Sooner than later, every cattle producer in America is going to have to learn how to contend with vertically coordinated beef production and marketing systems.
Already, the number of fed cattle trading away from the cash markets is approaching 50%. And, the largest coordinated production and marketing systems haven't even begun to stretch their wings.
It could be that newcomers like Consolidated Beef Producers (2.1 million head committed this year) and Future Beef (presumably more than 100,000 head targeted/plant) and even U.S. Premium Beef (about 2 million head during the past three years) will appear elf-like compared to other systems the industry has yet to see. Some predict more than 80% of feds will trade away from cash by the end of this decade.
With that in mind, a rational assumption is that cattle feeders will continue to look for more history and documentation of the feeder calves and cattle they buy. Why? So they can manage risk of the unknown and boost profit potential by targeting specific cattle toward specific markets.
Even now, as cattle numbers begin their cyclical evaporation and excess feeding capacity accelerates the competition for shorter supplies, a robust cash market on feeders is spreading the value of cattle type and potential. That's likely chicken feed compared to the future.
At this year's National Cattlemen's Beef Association (NCBA) meeting, Randy Blach, Cattle-Fax executive vice president, explained to a group of cattle producers that, ultimately, week-in and week-out, Cattle-Fax expects to see $150/head separating the highest value feds from the lowest. Back that into a 5-weight calf and you're talking $30/cwt. that buyers have to play with in spreading the market of what they want and what they don't.
Blach also pointed out that over the last two decades cow/calf producers have on average realized about $2 profit/cow, the very definition of a break-even commodity business. However, year in and year out, the top third of cow/calf producers reporting to Cattle-Fax make $110/head more than those in the bottom third. So, even when the market is sinking through the trough, some folks are making cattle pay worthy jingle.
Information Makes The Difference
While every one of the 850,000 or so cow/calf operations in this country is different, odds are those making a profit are using more than blind luck and a trusty rabbit's foot. Trite as it sounds, the common thread woven between profitable operations is information. Not reams of data and bar charts, but data transformed into useful information that can be used to control costs and maximize returns.
Knowing how your cattle perform in the feedlot and on the rail may well be the key to survival in an industry quickly moving away from commodity averages toward consumer-defined, value-added eating experiences.
The math is pretty simple: A calf's value heading into the feedlot is worth whatever the breakeven says its worth. Figure the cost of gain and estimate the market that particular critter can sell in or the board potential that is available, and you back into the buying price.
If a documented health program can reduce the cost of gain compared to the average, and if the calf in question can sell into a value-added market that's $5/cwt. more than the anticipated average live market, guess what? The calf is worth more money.
None of this discussion takes into account such things as USDA-approved, augmented instrument yield grading that will peg carcasses to the nearest 1/10 of a grade or the case-ready revolution silhouetted on the horizon. Both will provide more opportunity to document and spread value differences even further.
Thanks to improved beef demand and shorter cattle supplies, producers have purchased more time. Today, they don't even have to participate in the coordinated systems that are transforming the way beef does business, the very systems that exploit the spread in cattle potential.
But, when the worm turns and the cowherd expands again, or beef production/cow increases again — it always does — logic says the serious-minded cattle producer had better be prepared to participate.
It's 12:05 a.m. Do you know where your cattle are?
Judge Rules For Ranchers' Privacy
Cattle producers recently won a landmark legal battle that challenged a radical group's mission to end livestock grazing on federal lands.
Federal District Judge Edwin L. Mechem strongly criticized the U.S. Forest Service (USFS) in a decision issued on Jan. 15 for providing private financial information to an environmental group, says Jimmy Bason, Hillsboro, NM, president of the New Mexico Cattle Growers Association (NMCGA).
The case that generated the ruling was filed in June 1999 by the Santa Fe-based Forest Guardians against the USFS. The group had sued the USFS to obtain private financial information about livestock producers.
The USFS attempted to settle the Forest Guardians' suit by granting access to ranchers' escrow waivers — forms used by the USFS that allow a bank to control a grazing permit if the bank forecloses on a rancher's loan.
Mechem ruled that the USFS “didn't consider all it should have” in regard to ranchers' privacy. He further said the USFS should have regarded the escrow waivers as “confidential commercial” information.
Because of these violations of the Privacy Act, permittees from across the Western U.S have filed a class action suit against the USFS that is pending in a Washington, D.C. Federal District Court. If successful, each permittee whose personal identity was given to the Forest Guardians could recover up to $1,000 from the USFS.