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BEEF Magazine is the source for beef production, management and market news.
The beef industry may have had a commodity mindset in the good old days, but things are definitely different today. New markets dictate more progressive management and record keeping practices from producers, while they add opportunities for practitioners to engage with clients.
June 5, 2012
Value-added opportunities for cow-calf producers have expanded in recent years to the point that generic cattle, low accountability, and anonymous producers are quickly becoming a thing of the past. Behind these opportunities is an industry that has experienced changes since December 2003 in beef export market access, and also one that has become more aware of the impact health and genetics have on cattle feeding performance and end-product quality, especially for today’s quality-conscious consumer.
These days, the price spread among the same class of cattle is larger than ever, and it’s not uncommon to find a $25/hundredweight (cwt.) spread on calves and a $100/head spread on fed cattle. Overall, consumers and the beef industry as a whole benefit from increased accountability and stepped-up management. Darrell Wilkes, the U.S. beef supply systems manager for ABS Global, Inc., believes producers who choose to raise and market above average cattle versus commodity cattle will be rewarded, too, for documented quality as well as added value. He explains that numerous forces are responsible for the price spread in the marketplace, namely branded beef, grid marketing, name-brand health programs, name-brand genetics, supply chain marketing, and documentation and verification.
Beef products of today are slotted and marketed under numerous brands to further differentiate and meet demands at the retail and food-service levels. Branded beef carries a specific or implied promise, such as breed-specific, guaranteed tender, grain-fed, grass-fed, natural, organic, humanely-raised and/or environmentally responsible.
Certified Angus Beef® and Certified Hereford Beef® are examples of breed-based brands, while packer brands include Cargill Meat Solution’s Sterling Silver® Premium Beef, or National Beef’s Naturewell® Natural Beef, Black Canyon® Premium Reserve, and Imperial Valley® Premium Beef. Still, some are store brands such as Safeway’s Rancher’s Reserve®, which is guaranteed tender. According to the 2010 National Meat Case Audit, some 51 percent of beef sold at retail was, in fact, store branded.
Known to increase carcass value knowledge for both feeders and producers, grid marketing has become increasingly popular, especially with the availability of instrument grading. In 1989, ten percent of fed cattle sold on grids. According to Wilkes, in 1999 this figure was 20 percent, and today it is now 45 percent.
Name-Brand Health Programs
There has been a natural evolution of health programs in feeder calf marketing, and the bar keeps rising, Wilkes relays. A generic vaccination program is just at par; there can be discounts given for the use of non-modified live vaccinations. A premium program includes a name-brand integrated modified-live vaccine, mineral, and parasite control program, he says.
Jim Davis, a 24-year Superior Livestock Auction representative based in Boise, Idaho, adds, “Every time I sit down with a rancher, I talk about vaccination. I try to get them on the VAC 34 or VAC 45, because of how much more these cattle are bringing versus the other cattle. We want them healthy when they go.” He also confirms that buyers are definitely interested in mineral programs, and he has many customers who are testing and identifying their calves as BVD PI-free.
A recent study, conducted by Kansas State University, shows that the supply of weaned calves and those treated with certified health programs have both increased over time. “Cattle producers striving to improve profit might first focus on improvements in calf weaning and animal health programs as they offer the greatest value-added premiums,” reports this study, which evaluated the genetic, management, and marketing characteristics of more than 30,000 lots of calves sold on Superior Livestock Auction’s video market from 2004 to 2010. (See Table A.)
Well-known seedstock genetics are also considered premium. The color “black” is no longer thought of as a genetic description, and breed is not even descriptive enough for some buyers, Wilkes points out. Instead, buyers desire to know what seedstock program’s genetics are represented within the calves, and how those sires’ expected progeny differences (EPDs) rank within that respective breed. Davis, too, assures that buyers want to know about genetics as well as health. He says they are “totally aware” of bloodlines and reputable seedstock operations and how these cattle perform.
Additionally, Kansas State researchers concluded in their study that buyers appeared to be more discriminating in seller management and marketing claims. “Producers who generically described their calves as weaned, non-implanted, black-hided calves with all their shots missed chances for additional revenue that more specific descriptions may have provided.” Why the need for so much information? Just under 50 percent of cattle are targeted for different grids, each with specific quality and yield grade, carcass and rib eye area targets, with attached premiums and discounts.
These systems fill the pipeline with specific, targeted genetics, so this practice is also widening the feeder cattle price spread. Buyers and sellers involved in supply chains develop long-term relationships and share information for mutual benefit and success. They are especially product-focused to ensure customer needs are met.
Over the past six years, both domestic and international consumers have demanded specific management practices from U.S. beef producers, and born from this have been the marketing programs for age and source verification (ASV), natural, and non-hormone treated cattle (NHTC). Packers have continued to pay premiums for cattle that are age- and source-verified by a third party and qualify for export. Age and source verification is carried out through a USDA-approved program, including a Process Verified Program (PVP) or Quality Systems Assessment (QSA).
A PVP and QSA outlines the policies and procedures that producers need to follow for age and source verification, thus dictating the necessary management and documentation involved. These animals must be traceable to the ranch of origin and meet age restrictions (under 21 months for Japan, as of now). ASV is becoming a feature for domestic branded programs as well.
To age and source verify cattle, a producer is required to go through a USDA-approved third-party verification program. Calving records must be maintained and produced for verification, and oftentimes it’s as simple as documentation of the first calf born recorded in a calving book.
Annual enrollment, a short training process, and phone interview to review records and production practices typically complete the process. All enrolled cattle are tagged with RFID tags prior to shipment from ranch of origin. If cattle are commingled with others, additional forms of identification may be needed. Paperwork and auditing for age and source programs across the industry are similar, but programs may slightly differ, especially if they include other components.
For example, AngusSource® adds a genetic component. It documents source, group age and a minimum of 50 percent Angus genetics, so all calves must be sired by a registered Angus bull, enrolled by the ranch of origin, and have a known group age of month, day and year. The premiums received for the additional management and documentation requirements of these programs are based on supply and demand.
But more recent research conducted by the Kansas State study indicates that age- and source-verification premiums have continued to hold since 2005, when Superior Livestock Auction began featuring this notation in lot descriptions. (See Figure 1.) Furthermore, nearly half of all calves sold by Superior in 2010 were verified for age and source.
Value-added marketing practices typically require documentation on the part of producers and, in many instances, it’s for management practices already being carried out on a respective ranch. For example, Never Ever 3 (NE3) and NHTC also require verification through a USDA-approved program, such as Verified Beef in Bozeman, Mont., which also verifies grass-fed cattle. Both NHTC and NE3 are initiated with on-site training audits, and require records for age and source, plus additional detailed documentation to prove their production processes.
Cattle verified for USDA NHTC qualify for export to the European Union, whereas cattle verified as natural meet the requirements for USDA NeverEver 3, making them eligible for all-natural marketing claims. Oftentimes if an animal falls out of one program, it may still qualify for another.
While programs like these verify production processes, IMI Global Inc., a third-party verifier based in Castle Rock, Colo., also verifies programs targeted at sustainability and animal welfare, the latter which can be additive. Its Verified Green™ promotes those producers participating in sustainable agriculture and environmental practices, while its Humane Handling Standard, developed by the National Cattlemen’s Beef Association and world-renowned animal handling specialist Dr. Temple Grandin, was put into play in response to consumer concerns regarding animal welfare.
Marketing options abound in today’s beef industry, and multiple programs require documentation and certification, whether through legal affidavits, audits, or third-party verification. While they require new management, new markets also offer producers, as well as their veterinarians, new opportunities in today’s progressive, consumer-minded beef business.
For Further Reference:
USDA Agricultural Marketing Service, processverified.usda.gov
Agricultural Marketing Resource Center, www.agmrc.org
The Effect of Value-Added Management on Calf Prices at Superior Livestock Auction Video Markets, ageconsearch.umn.edu
National Beef® Packing, www.nationalbeef.com/pscbrandedbeefproducts
Verified Beef, www.verifiedbeef.net
IMI Global, Inc., www.imiglobal.com
Understand industry marketing structure; where’s the value?
What are consumer wants and needs?
What are feeder calf buyer wants and needs?
The components and value of certified vs. non-certified preconditioning programs
What are the value-added programs, as a whole? What are their requirements and differences, especially with natural programs?
Health and age requirements, especially for natural and export programs?
Record keeping requirements, paperwork involved, especially for NHTC and NE3 programs. Can you assist producers with this paper trail?
The sky’s the limit when marketing feeder cattle in today’s value-added beef industry. The additional management of programs that can reap added returns may not be for all producers, but the question still becomes: How can bovine practitioners help make a difference with their producer-clients as well as for themselves in value-added approaches to marketing?
Both Drs. Tom Hill and Bill Shain agree that health management of the herd is one of the most likely ways for veterinarians to be involved with clients in value-added management at the cow-calf level. In fact, a recent Kansas State University study, which looked at the value-added steer calf premiums received on Superior Livestock Auction’s video format from 2004-2010, further confirmed that weaning and vaccination programs can significantly enhance revenue at marketing time versus commodity calves, especially for certified programs. (See Table A.)
“A herd health program is the biggest thing we’re involved with,” Hill relays. “We’re designing a more aggressive vaccination schedule than a typical rancher might have, because if an animal is treated, it’s out of a natural program.” Hill, a 37-year food animal practitioner and co-owner of Baker Veterinary Hospital, Baker City, Ore., relays that a number of his clients send cattle to the Painted Hills Natural Beef Program based out of Fossil, Ore., and Country Natural Beef (CNB), based in Vale, Ore. “There’s a
little difference between programs as far as what they’ll allow for treatments. It takes familiarity with the program to know what is allowed,” he says.
Aside from vaccination, other whole-herd management factors apply to client operations undertaking a natural marketing approach. “This time of year you think about calving and calf scours. Most are doing some kind of program to try to avoid calf scours, whether it is a Sandhills-type system or sorting pairs. It just takes a little bit more management to avoid any problems,” of which he weighs in on.
As a cattle producer too, Hill is very familiar with natural programs. He understands their management needs, and how documentation, record keeping, and verification requirements vary in stringency from one to another, so he can pass this information back to clients. For example, Country Natural requires that member-ranches are audited and certified by independent, third-parties to Global Animal Partnership’s 5-Step Animal Welfare Rating Standards (www.globalanimalpartnership.org). Painted Hills, on the other hand, ensures program compliance with legal affidavits, a common industry practice.
Hill markets calves from his own commercial herd of black baldies as age-and-sourced natural feeder calves, all bred up from the reputation genetics of local client seedstock breeders. Last fall he offered them on Big Blue Sale Barn, an online marketing site that lists cattle for viewing and online bidding. Big Blue works with local representatives to specialize in marketing ranch-direct, value-added reputation cattle.
In southeastern Wyoming near Pine Bluffs is Bill Shain, the owner of Bluff’s Veterinary Clinic, a mixed rural practice. Like Hill, one of Shain’s primary goals is to educate himself so he can be of service to clients who pursue newer undertakings such as value-added marketing programs. He says, “In the beef market, it really comes down to managing a veterinary practice like a business. At least in my business model, my number one aim is client service. For a lot of practitioners, their best opportunity is to not be afraid to step outside of their comfort zone.”
Shain advises others to accept the responsibility of becoming educated about a program a client will participate in “so that you can continue visiting the farm and being part of their production team.” He adds, “The actual financial reward of those things can sometimes be hard to capture, but sometimes that becomes a cost of doing business.” He further points out, “An easy example that a lot of practitioners are already involved with is the preconditioning program; whichever one it may be. Obviously we can be more of an independent source to advise on the different preconditioning programs and what it takes to qualify for each.”
Pine Bluffs has established health protocols for feedlot cattle and cow-calf herds, tailored to the needs of individual operations, and offers consulting options for production records and financial analysis. Shain believes a lot of the financial reward happens when veterinarians are on-farm engaged in other work. It’s much easier to help, he says, when one better understands an operation. “While we’ve been asked to work on the health side of it, in order to do a proper job for the producer, there are more questions to ask, such as ‘will you enter a value-added program?’” He says veterinarians can then offer advice, especially on the cost versus benefit of all-natural programs, for example.
“That is what keeps you tied to the client,” he says, “knowing about their operation, what kind of management they’re doing, and then being involved in some of the decisions they make when they decide to change, whether it be calving season, genetics or looking at these programs. Hopefully you’re able to help them or at least be a resource for them. You at least need to be that or, in my opinion, it gets hard to be part of their production team.”
He continues, “For a cow-calf producer, or for any food animal producer, veterinary services should always be looked at as an investment or there’s something wrong either with the relationship or the thinking there. It is a business, so veterinarians themselves need to understand that and make sure that their services are actually adding to the value of the operation. “As all areas of animal medicine consolidate, it’s going to be harder and harder to make a living just thinking you’re James Herriot, and run up and down the road doing emergencies.”
Shain believes, “You really need something to tie yourself to the remaining producers so that you still keep your routine work—the preg checking, bull checking, that kind of thing—as well as helping them make these other decisions. If you’re not available for that, there’s certainly the chance that another practitioner will be.”
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