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Opportunities and risks for commercial cow-calf producers and the seedstock producers who serve them are record-large.Editor's Note: This is a special feature story for the first annual Seedstock 100 listing. View the complete Seedstock 100 listing here.
December 29, 2014
“Some will take advantage of the opportunity to position themselves for better rewards down the road, whether the market is good or bad,” says John Burbank, CEO of Missouri-based Seedstock Plus.
Burbank is talking about the unique opportunity in unprecedented cash flow – courtesy of historically high calf and feeder cattle prices – that’s allowing both commercial and seedstock producers to shore up bottom lines and position themselves for the uncertain road ahead.
“The key opportunities for commercial producers include higher prices and the ability to generate some cash to put their operation in a better equity position,” says Vaughn Thorstenson of Thorstenson Gelbvieh and Angus, Selby, SD.
“The increase in prices is a great opportunity to improve equipment, facilities and cattle,” adds Jim Butcher of Gateway Simmental and Lucky Cross, Lewistown, Mont. “In the more drought-stricken areas, it should be a great opportunity to replace sold cows with better quality genetics. If the seedstock business has been doing its job, the replacement stock should be better,” he says.
For some, the opportunity extends to expansion, but with plenty of caveats.
“I think expansion by acquiring more rangeland will probably be limited due to competition, but there obviously will be opportunities to run more cattle by dry-lotting heifers or supplementing cows more,” Thorstenson says.
Burbank believes that operators who have their forage base and labor figured out will have significant opportunities to expand. “If you’re struggling with forage and labor, I think you’ll struggle to hold together what you’re doing currently,” he says. “Most everyone I know is already doing everything they can with what they have.”
As for challenges to both commercial and seedstock producers, Thorstenson says that when prices decline, as they always do, it’s often difficult to scale back on expenses fast enough, particularly since beef producers tend to only have one pay day each year. He lists Other challenges include the Environmental Protection Agency (EPA) and other government agencies trying to regulate our rangelands,” he says.
Butcher says “figuring out how to deal with increasing rent payments, saving money for the next downturn, and being able to adjust to less income when it comes,” are challenges he sees. “When profits are big, it’s easy to forget the old days and get too aggressive and optimistic. The same challenges as before the latest price move remain: predators, government control, taxes and property rights,” he adds.
Brett DeBruycker of DeBruycker Charolais, Dutton, MT, believes challenges and opportunities are similar for commercial and seedstock producers.
“You have the opportunity to improve the quality of the cowherd. With increased cash flow, there’s the opportunity to improve genetics in the cowherd more rapidly than ever before,” DeBruycker says. But, he’s quick to add, “When you see profitability flow into the industry, the focus is sometimes on quantity rather than quality. The temptation might be to lower the bar and overlook some faults.”
Galen Fink of Fink Beef Genetics, Randolph, Kan., cautions against concentrating more on the number of cattle than the productive potential of them.
“I currently see a lot of commercial producers buying anything with four legs and the chance to breed,” Fink says. “That throws a lot of poor-quality animals back into the market. If you’re rebuilding, you need to use solid genetics.”
Thorstenson believes that, as grain prices cycle back up, the need to create more efficiencies in the beef cattle industry will return. “The swine and poultry industries have made great gains in efficiency, while the beef industry hasn’t. We have a GrowSafe system at our ranch to test for feed efficiency and have been testing our cowherd for four years. I think the cattle industry must embrace this technology to compete in the future with higher land and input costs,” he says.
Most every seedstock producer mentioned here is testing cattle for feed efficiency in the name of helping commercial customers run more cattle on the same ground or the same numbers on less. Several also mention the continued opportunity available to commercial producers to harness heterosis – especially maternal heterosis – through crossbreeding.
Along with sheer dollars and cash flow, differentiation is a growing opportunity.
“Even in these times of unprecedented prices, when fed cattle were bringing $172/cwt., our customers were selling cattle for $11-$13/cwt. more on the grid because of what the cattle are and how they performed,” explains Mark Gardiner, Gardiner Angus Ranch (GAR), Ashland, Kan.
Likewise, in Superior sales, Gardiner sees customers selling calves for $10-$12/cwt. over the market. “While the opportunity has always been there, I think we’re doing a better job of differentiating,” he says. GAR was a founding member of U.S. Premium Beef (USPB), which rewards cattle for meeting the narrow carcass specifications demanded of specific beef brands.
Dan Dorn, business manager for Nebraska-based Powerline Genetics (PG), sees the same opportunity for increased differentiation, especially as overall industry concentration and consolidation continue. Dorn explains that PG is focused on breeding cattle targets for the PG feedyard system, and ultimately for Cargill Meat Solutions (CMS).
“PG works with a group of multipliers to produce bulls that excel in performance, feed efficiency and carcass merit,” Dorn explains. “Today, PG includes 44 affiliated feedyards in Nebraska, Colorado and Kansas, with finished cattle dedicated to CMS.”
“The closer you can be to a vertically coordinated system, the better off you’ll be,” Dorn believes. “If you’re not part of a system, I don’t know how you can compete.”
For commercial producers, this kind of alignment can open the door of market access to higher-paying specification markets while expanding the pool of bidders. “It goes back to hooking up, lining up to be part of a larger system that enables you to do things you can’t do on your own,” Burbank says.
Seedstock Plus (SP) began 17 years ago when a group of smaller seedstock producers banded together to provide the numbers needed to serve their customers more effectively. Members utilize similar genetics and send qualifying bulls to a common performance test. The bulls that measure up are marketed and serviced by the larger SP organization.
Besides the ability to offer personalized customer service they couldn’t on their own, Burbank says the unified effort has allowed them to “identify industry-relevant genetics in the breeds we work with that wouldn’t have been identified otherwise. That offers our members and customers a significant advantage.”
Increasingly, due to the opportunity and need to differentiate, accurate data plays a growing role in seedstock success.
‘We see a lot of opportunities with the Seminole Pride branded beef program,” explains Chris Heptinstall, general manager at Salacoa Valley Farms Brangus (SVF) in Fairmount, GA. “We’ll get to hang the carcasses of these cattle and prove young sires quicker.”
After 30 years in the Brangus seedstock business, proving genetics at SVF achieved a higher gear when the Seminole tribe of Florida – one of the nation’s largest commercial cattle operations – purchased them last year. The purchase makes the Seminole Tribe of Florida – which grows, feeds and harvests cattle for it own branded beef program, Seminole Pride – totally vertically integrated.
Like others mentioned, SVF purchases calves back from bull customers. Besides supporting their customers and acknowledging belief in their own genetics, it helps them evaluate the feeding and carcass performance of their genetics. For perspective, it’s not unusual for SVF-sired cattle to grade 82-83% Choice and dress at 65%.
Along with genomics testing, and the feed efficiency testing they do through Auburn University, Heptinstall says, “If we keep our ducks in a row, we’ll be able to build genomic profiles we have for the cattle at the different Seminole ranches and build selection indices for things no else is.”
Brett DeBruycker says the feedlot helps them maintain their focus on genetics that work in each sector. His dad Lloyd managed and co-owned a feedlot from the 1970s through 1990s. Today, Lloyd, Brett and Brett’s brother Mark partner on about 25,000 customer calves to feed each year.
Meanwhile, Fink says that the service that matters most to his customers is helping them market their cattle, whether they’re calves for the feedlot or breeding heifers. The Finks hosted Fink-influence calf sales through the ‘90s, then female influence sales in the next decade. In both cases, though, enough buyers and sellers began trading with each other directly that the need became less. Today, they help customers market through a dedicated marketing staff and a network of buyers.
Perhaps unsurprisingly, visit with these seedstock producers who comprise the BEEF Seedstock 100 list and you come away understanding that useful, relevant genetics are the price of admission to successful, sustained seedstock production. Services are a point of differentiation.
“Our whole goal with the Charolais program, from the beginning, has been to do our best to make bulls and genetics that will go out and help the commercial rancher be profitable,” Brett DeBruycker says. “Our attitude is that if our commercial customers are profitable, then we’ll be profitable.”
Standing behind the product is the glue that holds everything together and determines whether they have the opportunity to continue.
“If you’ve got cattle, you’ll undoubtedly have bull trouble,” Thorstenson says. If I buy a bull, have trouble right away, notify the breeder and am told ‘that’s really too bad,’ then all I can do is agree. If it happens to one of our bulls, we try to get the rancher a replacement bull and take care of their needs. They appreciate a partner they can depend on.”
DeBruycker adds that “customers expect integrity, and that they’ll be treated fairly, no matter what the situation is. We try to be honest and treat our customers the same way we want to be treated.”
“We treat customers with respect and listen to them. If they have a problem of any kind, then we view it as a big problem that needs addressing,” Gardiner says. “It’s the golden rule. Everyone talks the talk, but I get too many new customers who come to us because of unsatisfactory experiences they’ve had with other breeders.”
How far seedstock producers are willing to go in backing their product is another point of differentiation.
Fink Beef Genetics, for instance, warranties its bulls for three years. If something goes wrong, they’ll replace the bull or provide credit toward another one. Plus, they let the customer keep any salvage value in the bull being replaced.
“I’ve always been of the opinion that if our customer has the bull six months or a year and something happens to the bull, the customer already has some cost into him, so they should keep the salvage money,” Fink explains.
Like honesty being tested most when no one is looking, the plethora of genetic recessive disorders uncovered in recent years has provided new tests of breeder integrity. For instance, when the Gardiners found themselves in the unenviable position of having some of their genetics linked to such a disorder, they simply stood by their warranty.
“If we’re not willing to invest in our customer’s future, how can we expect them to invest in ours?” Gardiner says.
Although there’s nothing easy about the seedstock business, plenty of opportunity remains for committed individuals to craft their own place in it.
For current seedstock producers, Burbank believes there will be more differentiation between what he calls branded bull suppliers and commodity bull suppliers. He explains that branded bulls come from organizations with a solid reputation that provide lots of customer service and feedback based on accurate and meaningful data. Commodity bulls come from outfits with a lesser degree of those things, offered at a relatively low price.
“I think there’s more net profitability in the branded market, but you have to invest wisely in genetics and customer service,” he says.
For others contemplating the seedstock business, Fink says, “Don’t turn our nose up at anything until you have a look at it. There are still ways to get started in this business without having a million acres. Start with one cow, do some flushing and work on your market. Over 10 years, you could build a market and be selling 40-50 bulls or more each year. Some of these opportunities didn’t exist in the past.”
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