Premiums, Discounts For Western Calves StudiedPremiums, Discounts For Western Calves Studied
Ranchers in the West have long known that prices for their calves and yearlings are lower than prices paid in the Plains and Midwest, with transportation being the principal driver of the discounts. In fact, University of California research, looking at data from 1997 to 2007 provided by Western Video Market, found transportation-based discounts increased over time as transportation costs went up
February 24, 2011
Ranchers in the West have long known that prices for their calves and yearlings are lower than prices paid in the Plains and Midwest, with transportation being the principal driver of the discounts. In fact, University of California research, looking at data from 1997 to 2007 provided by Western Video Market, found transportation-based discounts increased over time as transportation costs went up.
In response, western ranchers looked for value-added premiums to offset the freight charge of shipping their calves east. To determine the extent of those premiums, the researchers looked at price data on 4,116 lots of calves and 5,147 lots of yearlings, totaling around 571,000 calves and 874,000 yearlings, sold at video auction.
While premiums and discounts varied from year to year, the researchers found that preconditioning grew from a niche to the norm over the 11-year period. In 1997, only 11% of the calf lots and 17% of the yearling lots sold as preconditioned. By 2007, that market share had expanded to 68% and 60%, respectively.
With that shift, the researchers found that preconditioning became less of a market factor as time went on. There was a price premium for preconditioned calves, but it was statistically significant in only five of the 11 years. The situation was even more pronounced with yearlings, where only two of the 11 years had a statistically significant variance.
Due to the small number of non-preconditioned cattle lots sold in some years, it was difficult to quantify the effect of preconditioning on market price, the researchers say. However, they noted that non-preconditioned cattle did receive a discount. Over the entire study period, preconditioning brought ranchers an average premium of $1.37/cwt. for calves and $1.03/cwt. for yearlings.
The advent of the “natural” niche also gave ranchers an opportunity at premiums. While no calves were sold as natural until 1999, by 2003, 13% of the calf lots sold that way, and 38% by 2007. These calves received an average premium of $2.25/cwt., while yearlings returned $3.78 more.
“In the future, natural beef premiums and their amounts will depend on competitive responses within the cattle market,” the researchers say. “As ranchers provide increased supplies of natural beef to the market, this niche may become the norm and premiums will be competed away.” In fact, by 2007, the last year the study analyzed, that trend may have already begun occurring for calves.
While producers implanted fewer cattle as the natural market grew, interestingly there were still no significant price changes for implanted cattle over the study period. It could be argued, however, that implants generated a de-facto premium from the additional weight gain.
Another area where ranchers were able to capture additional money was by selling calves weaned longer than 30 days. Calves not weaned at time of sale received $3.59/cwt. less on average than calves weaned 30 days or longer.
Similar results were found in a study jointly conducted by researchers at North Dakota State University, South Dakota State University and Montana State University. This study looked at auction market sales in those three states.
Their research showed that calves sold in fall 2006 received a $1.55/cwt. premium when marketed as natural; meanwhile, implants did not have an effect on sale price of calves.
Vaccination history, on the other hand, made a difference. Calves sold in fall 2006 that were either vaccinated with just a four-way viral, or with a seven-way clostridial, four-way and Pasteurella, both brought $112.85/cwt. However, non-vaccinated calves garnered just $110.96/cwt.
Hide color brought more money as well, although the premiums were significantly different between the two studies. In the California research, calves that may have qualified for the Certified Angus Beef program received an average premium of $1.38, while black-hided yearlings brought 67¢ more on average over the 11 years. Meanwhile, in the Dakotas-Montana study, black cattle sold for $114.40/cwt., almost $3 more than the $111.50/cwt. fetched by cattle with other coat colors.
The California researchers say value-added practices can enhance the sale price of calves and yearlings. The question is, will those management additions boost prices enough? “Ranchers will have to determine for themselves whether the associated costs are lower than the price benefits,” the researchers say.
To see complete results of the California study, go to www.escholarship.org/uc/item/899921xt. To see the Dakotas-Montana study, go to http://www.ag.ndsu.
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