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Knowing Is Growing

A growing number of cattle transactions stemming from special sales or certified management systems prove that documented information about genetics and other value components has value to buyers. Unfortunately, these transactions are still the exception in an industry that has no universal standard for gathering and passing along information. The thing that was the biggest surprise to us was how

A growing number of cattle transactions — stemming from special sales or certified management systems — prove that documented information about genetics and other value components has value to buyers. Unfortunately, these transactions are still the exception in an industry that has no universal standard for gathering and passing along information.

“The thing that was the biggest surprise to us was how little cattle feeders know about the cattle they're feeding. That's not a criticism of them; it's the irony about how little information is known about cattle even in this age of information,” says Tom Field, a professor of animal science at Colorado State University (CSU).

Besides day-to-day experience, Field is basing those comments on a study he and other CSU researchers conducted. They surveyed 31 feedlot managers participating in a Certified Angus Beef Supply Development conference about what information the managers knew about the cattle they were feeding, what information they would like to have on cattle they buy, and what information they'd be willing to pay to get their hands on.

The difference between the information feedyard managers in the study have and want is startling (Table 1). For instance, more than 90% would like to know breed composition, vaccination schedule, which specific animal health products have been used, implant history and previous nutritional management. More than 90% also wanted to know herd history on specific performance including feedlot gain, morbidity and mortality rates, quality grades, yield grades and rate of conformance.

Out of that wish list, feedlot managers knew the vaccination history of 55.5% of the cattle they had on feed; whether cattle came from single or multiple herds (50.8%); and breed composition (49.3%) — keep in mind respondents are working with a breed-specific program, so their documentation of exact breed composition likely runs higher than industry average. Cattle documented for all of the other value components was less than 49%.

Furthermore, of the traits cited above, responding feedyard managers said they would be willing to pay more for documentation of the following information: vaccination schedule (83.3%); quality grade (80%); sire and associated performance data (79.3%); feedlot gain (76.7%); breed composition (72.4%); yield grade (70%); and implant history (66.7%).

So, What Has Value?

Now, consider the above information relative to the value components buyers are paying the most for — what they're really paying for versus what producers sometimes perceive.

“A cattle producer may sit at a sale barn on any one afternoon and think they know the market,” says Tom Troxel, University of Arkansas (UA) livestock Extension specialist. “We talk about things like whether or not cattle are dehorned, whether or not cattle sell in groups, and when during the sale cattle sell, but those factors were small compared to others.”

For instance, in a recently released UA study conducted by Troxel, visually appraised cattle health was worth as much as approximately $25/cwt. more. Never mind the hedge buyers build into the price on healthy-looking cattle they know nothing about. Again, this was visual evaluation, not verified by health management history or a specific preconditioning program.

Table 1: Information buyers know, want and are willing to pay for
Cattle on feed information known (%) Managers who would like to know (%) Managers willing to pay more for info (%)
Genetic origin
Breed Composition 49.3 93.5 72.4
Sire and associated performance data 31.1 87.1 79.3
Seedstock supplier 31.5 83.9 34.5
Vaccination schedule 55.5 93.5 83.3
Health products used (brands) 45.3 90.3 40.0
Implant history 48.7 93.5 53.4
Age at castration 31.8 66.7 17.8
Single vs. multiple herd source 50.8 80.7 36.7
Weaning age 37.7 74.2 23.3
Nutritional management 46.0 96.8 53.3
Herd history
Feedlot gain 36.6 96.8 76.7
Morbidity/mortality 25.1 90.3 66.7
Cost of gain 29.9 74.2 40.0
Quality grade 29.5 96.8 80.0
Yield grade 30.1 100.0 70.0
Dressing percent 29.7 83.3 44.8
Conformance rate 28.8 90.0 44.4
Source: Colorado State University

“Some buyers told me they expect 40-50% of the calves they buy to get sick,” explains Troxel.

The UA study included 17 weekly auction sales in the state across the entire year of 2000 — some 533,283 feeder cattle and calves sold. Of these, researchers randomly chose about 15% of the population or 81,703 head to evaluate. The mean selling price of calves was $90.93/cwt., and the mean selling price of feeder cattle (yearlings) was $85.58/cwt.

Conversely, while the value components producers often look to as barometers of buyer interest can add up to significant discounts, individually they represent smaller differences in the selling price, according to the UA study.

  • The cost of carrying horns was $1.49/cwt.

  • Cattle selling in the first third of the sale brought $93.64/cwt. versus $93.55/cwt. in the last third.

  • Cattle selling as singles brought $93.90/cwt. versus $95.14/cwt. for cattle selling in groups of two to five head; cattle sold in groups of six or more brought $94.61/cwt. Keep in mind that in this part of the world, singles and small sets of calves are the standard rather than the rule.

  • Steers brought $99.70/cwt. versus $95.07/cwt. for their intact counterparts.

  • Large-framed feeder cattle brought $94.34/cwt., medium-framed $93.38/cwt. and small-framed $74.81/cwt.

  • Compared to an average fill selling price of $93.26/cwt., those classified as gaunt brought $97.12, shrunk $95.74, full $88.53 and tanked $82.16.

Moreover, while there was a back-breaking gap of $23.40/cwt. between the highest selling breed type of calves and the lowest, no significant difference was paid between breed types that brought above the mean calf selling price of $93.69/cwt. That's not surprising when you take into account how difficult it is to determine breed composition and how many different breed type and color combinations buyers have to sort through.

In the study, cattle represented 277 different breed types and combinations. As for color, there were 170 different combinations. Yes, 94.2% of the cattle fell within 18 different breed types — 96.3% within 10 color combinations — but it underscores the hodgepodge the industry is trying to milk consistency from.

For that matter, Troxel points out the study indicates buyers were paying the most for breed types that many producers perceive would receive the least buyer interest

  • Yellow-hided cattle brought the most money.

  • The top-selling calves overall were Limousin X Charolais.

  • The lowest-selling were Longhorn calves.

  • Hereford X Charolais, Hereford X Brahman X Angus, Charolais and Angus X Brahman selling prices were higher than the overall mean selling price but were not significantly different from one another.

  • One-quarter Brahman crossbreds, Brahman, Simmental and Hereford selling prices were less than the overall mean. In between were the straight black calves many often perceive as bringing the most money.

All told in this study, Limousin type cattle brought a $2.70/cwt. premium compared to the overall mean, while Angus type cattle received no premium or discount.

Before you get your dander up and question how these markets might differ from those in other parts of the country, Troxel believes key points include:

  • When buyers don't know for sure what breeds comprise the animal, they are forced to pay less than they otherwise could.

  • If producers want to be paid for the genetic merit of a specific product, such as cattle that will meet the quality grade requirements of a particular program, they may need to market them outside of regular auction sales where their worth can be diluted.

  • Overall, buyers are paying more for a balance of traits rather than extremes.

Finally, beyond breed type, Troxel says, “Muscling is one thing our producers could really work on to improve the value of their calves. As weight increases, buyers pay less of a difference for breed type. But muscling impacts the price no matter the weight.”

In the UA study, cattle classified as muscle scores 1-4, brought $92.32/cwt., $87.60/cwt., $78.92/cwt. and $69.67/cwt., respectively.

Incidentally, Troxel says one of the questions he most often hears from producers is: which auctions pay the most money? Rather than identify them, Troxel hoped the study might point to why prices are consistently higher at some markets than others.

“It came down to quality,” says Troxel. “If sale barns sold a higher percentage of quality calves the sale barn averaged a higher price.” Health, condition, breed type, all of the quality components that spring to mind, draw more cattle, which draw more buyers, which underpin a higher price floor.

Leveraging The Value

“Some producers were shell-shocked by the data,” says Troxel. Not just by where discounts were levied, but by the depth of them in the strong overall market at the time of the study.

Short of retained ownership, the CSU and UA studies underscore the challenge of passing along information buyers want in an industry with no common information standard, as well as the need for sellers to find out more about exactly what it is their customers want from them.

“If you can package known information about cattle and pass it along to the buyer, there may be more value,” says Field. “Producers have to spend time with the people buying their cattle. My notion is that it is important to have as many of these conversations up and down the chain between buyers and suppliers as possible. Otherwise we won't ever find a solution to what information has value and how it needs to be passed along. How do you get yourself in a position where you understand what it is your customers want from you?”