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Articles from 2002 In December


Playing bigger than your size

Just how big do you have to be to compete in an industry that continues to concentrate and consolidate? Consider this:

  • The four largest packers annually harvest more than 80% of the entire fed beef cattle supply, reports the Grain Inspection, Packers and Stockyards Administration. Of those, Steve Kay of Cattle Buyers Weekly estimates IBP (now Tyson) handled 9.7 million head last year, Excel — 6.4 million, ConAgra (now Swift and Co.) — 5.7 million and Farmland National — 2.7 million.

  • By comparison, the top four cattle feeding organizations account for a one-time capacity of 1.6 million head. Using the industry standard of 2.5 turns/year, that's about 4 million annual fed marketings, assuming full pen utilization, or about 16% of the total fed steer and fed heifer harvest in a fed supply of 25 million head (the previous two years have been closer to 24 million head of fed cattle marketed).

    Meanwhile, the top 10 feeding outfits account for a total of 7.45 million head annually, or 29.8% of that supply.

  • As for cow-calf producers, Cattle-Fax reports that 27,450 beef cow operations have herds of 200 head or more. That's about a third of the cowherd.

  • No single organization has yet been able to assemble more than a million head of anything to counter the leverage of a concentrated packing industry and rapidly consolidating retail industry. This includes the individual feeding organizations cited earlier, as well as such alliances as U.S. Premium Beef (USPB), which markets 700,000 head/year, and Consolidated Beef Producers (CBP), which currently markets about 1 million annually.

In fact, the top 10 organizations sharing annual marketings in BEEF magazine's “2002 Alliance Yellow Pages” (August 2002) represented a combined 4.1 million head. The largest open system among these was Certified Angus Beef at 2 million; the largest closed system was USPB.

The bottom line is that no one knows for sure how big you have to be to counter increased packing and retail consolidation and concentration. We do know, however, that the volumes producers have assembled under one marketing roof thus far are too small to command more industry-wide market power.

Consequently, rather than ask “how big?” the more pressing question may be “How big do you have to be to be able to play?”

The Four States Working Group, a group of associations and cattle feeders from Texas (including Oklahoma), Kansas, Nebraska and Colorado, are exploring the pooling of cattle to gain market leverage. At press time, the group was exploring partnering opportunities with CBP.

Kay says the four states represented 18.4 million head of cattle in 2001, about 79% of all the fed cattle marketed. Arguably, even 25% of that supply, coupled with cattle already marketed by CBP, could change the bargaining position of those involved.

Only time will tell if enough cooperation exists to harness such collective power, but there's little question that plenty of interest exists for cooperation.

Case in point: during its initial membership drive to cattle feeding organizations, lasting about four weeks, a new organization, VeriPrime Inc., signed up members representing 9.2 million head of fed cattle. That about 36.8% of the fed cattle supply.

Specifically, VeriPrime seeks to get producers paid by consumers for the assurance attributes producers provide. That would include adherence to beef quality assurance and standardized animal welfare guidelines, monitoring feed rations for mammalian protein, etc.

This value will be negotiated apart from the trade, says VeriPrime. The group says it isn't representing 9.2 million head of cattle, but the consumer assurance attribute rights to those cattle. Still, when was the last time producers controlling that many head of cattle agreed on anything?

Incidentally, apart from the raw volume thus far, early VeriPrime members are excited about the notion of getting paid for consumer assurance attribute rights apart from the cattle trade. It represents an entirely new revenue stream rather than just another attempt to re-divvy pre-existing margins.

The idea of working together to gain more market leverage on either the buying or selling side isn't new. But examples like these may point to a new willingness by producers to exploit the opportunity.

If so, one of the most important marketing decisions individual producers might make in the coming year isn't how they will market their cattle or to whom. It's who they will join forces with to play bigger in a market that shows no signs of becoming less concentrated or consolidated.

Cattlemen's Calendar

December 3-4 — The Robert E. Taylor Beef Symposium, Fort Collins, CO; 970/491-6009.

December 5 — IRM Working Group Fall Conference, St. Joseph, MO; 303/850-3373.

December 6-7 — Minnesota State Cattlemen's Association's Annual Convention, Bloomington; 507/877-5003.

December 6-7 — 2002 Missouri Livestock Symposium, Kirksville; 660/665-9866.

December 10 — 2002 Minnesota Cattle Feeder Days, Morris; 320/589-7423.

December 10-12 — Annual Rangeland Management Short Course, University of California, Davis; 530/752-1720.

December 11 — 2002 Minnesota Cattle Feeder Days, Slayton; 507/825-6715.

December 12 — 2002 Minnesota Cattle Feeder Days, Ormsby; 507/825-6715.

December 12 — 2002 Minnesota Cattle Feeder Days, Rochester; 651/565-2662.

December 13-15 — Missouri Cattlemen's Association Annual Meeting, Osage Beach; 573/769-2468.

January 18-22 — North American Veterinary Conference, Orlando, FL; 800/817-9928.

January 19-22 — American Farm Bureau Federation's 84th Annual Meeting, Tampa Bay, FL; 847/685-8850.

January 19-21 — Western Range Science Seminar, Medicine Hat, Alberta, Canada; 403/317-2218.

January 21-24 — Food Processors Institute's Better Process Control School, (Spanish only), Orange, CA; 714/628-7255.

January 22-23 — California Grain & Feed Association's Industry Conference, Monterey Bay; 916/441-2272.

January 23-24 — Kansas State University Employee Management for Production Agriculture, Kansas City, MO; 620/431-1530.

January 27-30 — Food Processors Institute's Better Process Control School, Corvallis, OR; 800-823-2357.

January 29-31 — American Society of Agricultural Engineers Dairy Housing Conference, Fort Worth, TX; 269/429-0300.

January 29-February 1 — 2003 Cattle Industry Annual Convention and Trade Show, Nashville, TN; 303/694-0305.

February 2-7 — 56th Annual Society for Range Management Meeting, Casper, WY; 307/358-2289.

February 3-5 — Food Processors Institute's Better Process Control School, Anchorage, AK; 907/274-9691.

February 9-16 — 27th Annual Iowa Beef Expo, Des Moines; 515/855-4322.

Institute's Better Process Control School, Baton Rouge, LA; 225/578-3541.

The King Ranch: A 150-Year-Old American icon

The King Ranch: A 150-Year-Old American icon

Yesterday is important, but the focus is also tomorrow,” says Paul Genho, vice president and general manager of the sprawling and storied King Ranch, headquartered in Kingsville, TX.

That statement underscores the driving philosophy that enabled Capt. Richard King — indentured by his Irish immigrant parents to a jeweler at the age of 9 — to carve out a vast cattle empire that's remained in the same family for 150 years.

“We feel like we have an obligation to make things better,” says Genho. “We don't walk away from our legacy or deny our heritage, but part of that heritage is being progressive.”

Many historians consider the King Ranch as the cradle of American cattle ranching. King was among the first to systematically propagate cattle, rather than merely gather the native strays and send them to market.

He started with the Longhorns he found on both sides of the border along the Gulf Coast. By 1920 his family had blended Brahman and Shorthorn cattle to forge the foundation for Santa Gertrudis, the first beef breed developed in the U.S. Today, it's the leading composite in Australia.

Along the way, the King Ranch is credited with inventing a number of industry standards. These include the dipping vat in 1891 to rid cattle of the Texas fever tick, net wire fencing in 1933 and the root plow in 1935, which continues to be an integral brush management tool.

At the same time, the King Ranch has worked on its own and funded an untold number of industry studies that have led to modern micro-nutrition, wildlife management, range management, genetic selection, coordinated production and marketing, and the list goes on.

They also are among the founders of the quarter horse breed and that breed's association.

How It All Began

Imagine being indentured by your parents to a jeweler as a child. This is New York City in 1833. Within a couple of years, your ambition and spirit of adventure lead you to stow away on a ship anchored in the harbor and bound for Mobile Bay, AL.

You're discovered, but the ship's captain likes something about you and puts you to work. You prove yourself and ultimately obtain a license to pilot steam ships. Then, you and a partner go into the steamship business and make a small fortune.

Such is the track of King, who along with partner Mifflin Kenedy built a thriving steamboat business serving consumers and merchants up and down the Rio Grande River. At the time, there wasn't much but country in the Nueces Strip between Corpus Christi and Brownsville in the Rio Grande Valley. This parched, open country was known both as Wild Horse Desert, because of the wild bands of mustangs that ran there, and as el Desierto del Muerto (the Desert of the Dead) because of how tough it was to live there.

Genho, who's managed the ranch for five years, can attest to the area's challenges. In those five years, he says, there have been four droughts and one hurricane.

“The country is harsh, which is one reason the commitment to quality is so unique,” he adds.

In rough country like this, rather than simply try to raise as many pounds as possible in a given year and then market it, Genho says the focus has always been on producing quality as defined by durability. That barometer is applied to everything from the range and wildlife they manage, to the cattle and horses they build, and to the leather goods and horse tack they market internationally through King Ranch Saddle Shop.

But, when King rode through this hard environment on his way to a meeting in Corpus Christi, he saw opportunity. There was lots of land, an abundance of vaqueros south of the border already ranching cattle, and an untapped national market for beef.

While he saw the opportunity, King also realized his limitations. That's where the Kineños — King's people — came in.

King was buying cattle in Las Cruillas, Mexico, a village forced to sell all its stock due to severe drought. As he rode away, it dawned on him that he'd just purchased that village's sole livelihood. He rode back and invited them to come to work for him on the ranch. They did, and history was born.

Thicker Than Water

“It's a badge of honor,” says Genho, who himself is not a Kineño, nor will ever be. To be a true Kineño, one must be born, raised and work on the ranch — for generations. Genho figures that if his son were to spend the rest of his life on the ranch, then have kids that are raised and then work there, either those kids or their kids might finally qualify as Kineños.

“About half of my people here are descended from those original Kineño families. The seventh generation of some of those families are working here,” says Genho. “There was a bond between the King family and the Kineños from the beginning. That bond and the Kineños are an integral part of the ranch's history and its future.”

The mutual respect that brought them together in the first place grew, remains today and has significantly influenced the culture of King Ranch.

In earlier times, wages for Mexican vaqueros were lower than those for other cowboys, except on the King Ranch. While other cowboys were seasonal workers and were fired when they weren't needed, the vaqueros on the King Ranch had year-round jobs. And unlike other old cowboys who were on their own, old Kineños moved on to less demanding jobs on the King Ranch.

Today, the ranch has 401(k)s, retirement plans and medical insurance for its employees, and it remains a community that takes care of its own in unique ways. Many of the Kineños live in homes on the ranch, and the ranch has its own school district with a K-8 school right on the ranch. Kineño children go to their own high school at Texas A&M in Kingsville.

Learning From The Past

The ranch still maintains a small herd of Texas Longhorn cattle. Genho says it's in honor of those who paved the path and a reminder of how you must change and adapt to survive.

And there's plenty of history to recount. Take, for instance, the time Union forces held a pregnant Henrietta (King's wife), her family and the Kineños hostage while trying to find the captain, an ardent Confederate who was then in Mexico retrieving stolen cattle.

King and his boat crews were very successful in running the Union blockades to get supplies to Confederate troops. General Robert E. Lee was King's close friend and chose the location of the original ranch home because it would be easy to defend. Henrietta named the child she was carrying at the time Robert E. in honor of the rebel commander.

Henrietta was the daughter of a Presbyterian minister, and she was tough. After King passed away, she doubled the size of the ranch with the help of her family and the Kineños.

Pancho Villa and his bandits also raided the place, killing one of the Kineños.

The list of King Ranch family members and Kineños who made their marks in government and high-ranking public service reads like a Who's Who. Books upon books are filled with ranch history, not to mention a fair-sized building in Kingsville crammed to the rafters with ranch archives.

The King Ranch seems to have always had a knack for learning from the past and then moving on, rather than dwelling on the past or wishing the future away.

The King Ranch Today

“We're vertically integrated all the way through,” says Genho. Besides seedstock, cow-calf, stocker and feeding enterprises, King Ranch is also a founder of Rancher's Renaissance. They're one of three groups supplying cattle to Excel for the Cattleman's Collection brand being marketed exclusively through Kroger stores.

Currently, the King Ranch itself occupies some 825,000 acres in south Texas among four different divisions. There are 1,000 registered Santa Gertrudis cattle in the seedstock operation and another 23,000 commercial cows. In all, using stocker cattle for drought flexibility, King Ranch is running about 32,000 animal units. It also includes 15, 150-acre preconditioning traps and a 15,000-head feedyard.

For anyone wondering how managing a ranch this vast differs from riding herd over one a fraction of that size, Genho says, “You do the same things, you just add more zeros to everything.” For instance, instead of five bulls you need 500, rather than a couple of hired hands you need lots more.

About 400 folks are employed by King Ranch — roughly a quarter of them in the cattle portion of the business. There are five full-time wildlife biologists alone.

The cattle business is as straight-forward as it is vertically integrated. Along with marketing some of their Santa Gertrudis seedstock, it's the genetic stream they use to fuel their Santa Cruz commercial composite program. The results are market cattle that are half Santa Gertrudis, one quarter Gelbvieh and one quarter Red Angus. Genho emphasizes the Santa Cruz represent their crossbreeding system, not a separate breed of cattle.

As for cattle feeding, they buy calves from South Texas and Southeast for their yard because the market for their home-raised cattle tends to be higher farther north, he says. The cattle fed in the King yard — about 20% are custom cattle — end up going either into the Nolan Ryan beef brand or to Publix in Florida. Conversely, the Santa Cruz cattle they raise and feed in custom yards are marketed through Rancher's Renaissance.

And then there are the horses.

“King Ranch has always been dedicated to keeping its men well-mounted,” says Genho. That's a little like saying Johnny Unitas once threw a football. The fact is King Ranch is home to volumes of American horse history.

Wimpy, the first quarter horse registered by the American Quarter Horse Association, was theirs. Peppy San Badger (Little Peppy), the all-time leading sire of National Cutting Horse Association stock, and his sire, San Peppy, are King Ranch legends. They had the 1946 Triple Crown champion with Assault — yes, that Triple Crown. Today the ranch has a band of 80 brood mares and about 300 using horses.

King Ranch is a hunter's heaven with world-class hunting for quail, deer, turkey and Nilgai (pronounced Nil-guy) antelope. If you've never seen Nilgai, their coarse, angular head and mature weight of about 700 lbs. can make them appear in the dusk like some otherworldly creature.

“People ask whether cattle or wildlife are more important to the sustainability of the operation,” says Genho. “The answer is it takes both.”

Actually, Genho says, it takes all. “We'll continue to grow in agriculture where we see profitable opportunities,” he adds.

As evidence of that, King Ranch expanded its ag holdings in 1998 and eventually became the largest U.S. citrus producer. Genho says continued growth and diversification has to do both with massaging a business for the times and the simple fact that the more family you have relying on the ranch for income, the harder one must work at figuring out how to make the resources return more.

Consequently, ranch history represents the dynamic nature of the business. For instance, King Ranch once encompassed more land, with ranches in Argentina, Australia, Brazil, Cuba, Morocco, Spain, Venezuela, Florida, Kentucky and Pennsylvania. Genho explains that it had to do with expanding the presence of Santa Gertrudis and King Ranch quarter horses, upgrading their own stock, along with teaching and learning in each unique environment. Times change, though, so those ranches were sold.

“You can't buy a ranch today in the U.S. and pay for it with cattle. We are, to a great extent, land managers, and cattle is one of the enterprises we use to manage the land in our care,” says Genho. “King Ranch Inc. is an agricultural company. We're involved in citrus, sugar cane, sod, cotton, grain, wildlife and cattle.”

More importantly, Genho emphasizes King Ranch remains profitable because it focuses on more than just profit.

“Profits follow excellence, not the other way around. You're profitable only if you have a clear mission that is meaningful. The goal can't just be profit,” he says. “There is and has always been here a commitment to resources and making them better rather than just focusing on profit. The King Ranch has always taken the long-term perspective, rather than looking at the short-term fix.”

One thing Genho and others are willing to bet on, though, is that this south Texas land pioneered by an indentured servant from New York will remain intact, even while shifting to meet changing demands.

“This ranch is the essence of who we are — the people of King Ranch, the family and the Kineños. It will be here when Hell freezes over,” Genho says. Consider their legacy. You can't bet against it.

The Running W

The meaning behind the “Running W” remains a mystery.

Perhaps it represents one of the ranch's many diamondback rattlesnakes, the winding Santa Gertrudis Creek, or the Longhorn's sweeping horns. Whatever the concept, as a brand the Running W is handsome and practical, designed to heal quickly, thwart rustlers and grow with the animal that bears it — just as King Ranch has evolved over time. Today the Running W appears on both prize-winning cattle and top quality leather goods as an icon of the American ranching industry.

King Ranch Timeline

1824: Captain Richard King is born in New York.

1853: King Ranch is founded.

1869-1884: King revolutionizes the cattle industry, shipping more than 100,000 head of cattle north to feed the country's expansion and spur the development of ranching interest throughout the West.

1916: King Ranch begins a highly successful quarter horse and thoroughbred program that eventually produces countless stakes winners and a Triple Crown champion.

1920: Years of experimentation in cross-breeding culminate with the birth of Monkey, a deep red bull calf who became the foundation for the Santa Gertrudis line of cattle.

1953: Ranch acquires 50% interest in Running W Citrus Growers Limited partnership, which controls 13,000 acres of Minute Maid Citrus Groves in south Florida.

1997: Rancher's Renaissance is founded.

Comforting news

When my parents married in the late 1940s, my dad built a small house for them right alongside that of my grandparents. Seven or eight years later, with four kids and another on the way, they bought a larger existing house located across two gravel roads and a railroad track from my grandparents' house.

I remember that as youngsters, we spent a lot of evenings visiting my grandparents in their house. Ma would eventually call and say it was time to come home. As small children still very conscious of the dark, we'd usually ask her to watch us as we scampered across what, at that time, seemed like a wide and wild no-man's land between the two properties.

She'd switch on the porch light and stand outside the kitchen door on the stoop. I still remember the calming effect of seeing her form silhouetted in that light as I bounded over the ditches and tracks in my mad dash home.

I was reminded of that childhood recently. In a time when it seems all the news is bad — from acts of worldwide terrorism to gloomy economics and the prospects of a looming war — came the news in October that an empty stone burial box — or ossuary — had been discovered in Israel.

What was intriguing about this ossuary, a limestone box commonly used by Jews in the first century to hold the bones of a deceased person, was that an expert examination dated the box to the year 63 A.D. And on that box was this inscription in ancient Aramaic: “Ya'akov bar Yosef akhui diYeshua.” Translated it means “James, son of Joseph, brother of Jesus.”

Dated just 30 years or so after Jesus's crucifixion, the artifact — if authentic — would be the earliest known direct link to Jesus Christ. Though the find is certainly incredible, examination by experts hasn't thus far found anything to substantiate that the ossuary, its inscription, the language used and its appropriateness to the historical period is a hoax.

Who knows if the Jesus referred to on the ossuary really is the Son of God. But nonetheless I found it a comforting attestation in a difficult time.

Sort of like that reassuring silhouette that guided me home decades ago, the discovery of that ossuary hit me as a reminder that the Lord once walked among us on this Earth, and that He still watches over us. With all of today's trepidations, I found that awfully comforting.

Merry Christmas to you all!

Stocker conference proceedings available

Proceedings of the 2002 Beef Stocker Conference are available free of charge. Find them at: www.beefstockerusa.org, a cooperative Web site effort between Kansas State University and BEEF magazine. In addition, check out the ever-growing wealth of information and free downloads available on www.beefstockerusa.org, the world's top archive for stocker management information. New on the site are:

  • A “breakeven selling price” program for Palm OS (available in the “calculators” section).

  • The two latest additions to the stocker fact sheet series — one on the marketing value of stocker information and another on calculating shrink.

  • In addition, check out the new, more time-efficient “search” feature.


Our deepest condolences to the Burke Healey family. The industry icon from Davis, OK, passed away Oct. 21. He was 70. Memorials may be made to Cross Timbers Hospice, 1514 Meadow Lane, Ardmore, OK 73401 (580/223-0655).

World-renowned in livestock circles and considered the father of frame scoring, Healey was also a tireless industry volunteer and contributed much in leadership and foresight to breed, state and national cattlemen's organizations. BEEF magazine bestowed is first-ever Trailblazer Award on Healey in 1994 for his work in promoting the mapping of the bovine genome.


The move to irradiated ground beef continues to pick up steam.

  • Three years after approving the sale of irradiated meat to the public, USDA says it will reconsider, and is likely to lift, its prohibition on irradiated foods in the federal school lunch program. A decision is expected by the end of the year.

  • All imported fruits and vegetables that might carry fruit flies can now be irradiated for sale in U.S. markets, USDA ruled in October. As a result, the amount of irradiated foods available to U.S. consumers is expected to jump dramatically as imported fruits and vegetables make up 40% of the produce consumed in the U.S.

  • And five more retailers add irradiated, fresh ground beef to their retail offerings. The firms include: Hy-Vee, a West Des Moines, IA-based chain of 200 stores in seven Midwest states; Virginia Beach, VA-based Farm Fresh, a regional chain with 11 locations; Price Chopper, a Schenectady, NY-based supermarket chain of 102 Northeast U.S. stores; Clemens, a family-owned, regional supermarket chain of 19 locations in the Philadelphia, PA, area; and Giant Food, a 189-location supermarket chain headquartered in Landover, MD.


The market advantages of fall-calving beef-cow herds. That's the topic of a Dec. 14 University of Missouri Fall Calving Options Workshop in Linneus. Covered will be the enhanced profit opportunities available by tailoring calves to a market time when prices are traditionally higher, as well as the environmental, health and grazing considerations. Contact Roberta Baumgardner at 660/895-5121 or [email protected].


A Billings, MT, district judge has affirmed the beef checkoff's constitutionality. In Charter v. USDA, U.S. District Court Judge Richard Cebull ruled in favor of USDA and the Beef Promotion and Research Act.

Cebull based his Nov. 1 decision on the records in the case, as well as transcripts in the Livestock Marketing Association's (LMA) lawsuit against the checkoff. In that South Dakota suit, now under consideration by the U.S. 8th Circuit Court of Appeals, LMA similarly challenged the constitutionality of the beef checkoff.

How $100 is spent at the grocery store
Perishables $49.67
Beverages 10.71
Miscellaneous grocery 5.41
Non-food grocery 8.77
Snack foods 6.39
Main meal items 8.44
Health & beauty care 3.72
General merchandise 3.45
Pharmacy 2.49
Unclassified 0.95
Source: Progressive Grocer, April 2002

The Charter case originated as a checkoff compliance issue in 1998 when the Shepherd, MT, ranching couple refused to pay the mandated $1/head beef checkoff on the sale of their cattle. The Charters, who claim to raise “natural” beef, had earlier been denied a proposal for access to checkoff funds by the Montana Beef Council (MBC). They wanted $1,000 to sponsor a whole-foods fair and nutritional lecture.

The MBC rejected the proposal on the basis that no brand or trade names can be referenced in a checkoff-funded project without the USDA secretary's prior authorization. The Charters challenged the MBC decision and protested checkoff payments claiming they are compelled to fund advertisements that don't differentiate between their products and other beef products.

On April 26, 2000, a USDA administrative law judge enforced the checkoff and ordered the Charters to pay $417.79 in assessments and late fees — along with a $12,000 fine. The Charters appealed their case to the federal district court.

In his decision, Cebull ordered the Charters to pay the $412.79 but dismissed the $12,000 fine.

The Charter case likely will be appealed and become part of a larger issue of commodity checkoff constitutionality, which ultimately will be argued before the U.S. Supreme Court. Read the decision at www.agriculturelaw.com/charter.pdf

This monthly column is compiled by Joe Roybal, 952/851-4669 or [email protected].

BEEF CHAT NCBA's Chandler Keys

Chandler Keys, the National Cattlemen's Beef Association (NCBA) vice president for public policy, recently took time from his routine to talk with BEEF about his job and his insight into the cattle industry.

BEEF: How do you and your staff decide the issues you tackle on a day-to-day basis?

Keys: We operate on the policy set by NCBA's dues-paying membership. We don't operate on an island. But sometimes you have to interpret the policies. That's when we contact officers and members or check with the state affiliates and make collective decisions.

We'll give them advice and provide our opinions based on what we see happening here in Washington. We allow them to focus on the decision by helping them understand the implications of a course of action.

BEEF: What is your management style, and how do you and the D.C. staff work to achieve the objectives of this office?

Keys: It's simple. I hire people who are smarter than me — people who have strengths I don't have. We're able to do that because people understand that NCBA is a great place to work and can be a good jumping-off place for the next career move.

We believe it's always helpful to have a large group of people spread around town who are very loyal to you. Our cattlemen's “alumni” is a pretty formidable group and have become some of our best allies.

Beyond that, day to day, we're very deliberate about working on the cattle industry issues — we map them out regularly and delegate responsibilities. We don't just jump on things without knowing the pitfalls. But I'm not a micro-manager — I don't have time for that.

BEEF: Some people say you can be irascible and don't come across as the nicest guy around. Does this bother you?

Keys: Not really. I'm not paid to be nice. I'm not paid to ask people about their kids or to chitchat. I have a professional responsibility — to carry out the wants of the cattle industry and maneuver in Washington on their behalf.

When you're in this business, it's a combination of being cordial and having a reputation for being able to get things done. I don't spend a lot of time worrying if people like me.

BEEF: What do you say to NCBA critics about the relevance and importance of its political activities?

Keys: There is a mass of issues we work on. It's a balancing act. You have to be here every day figuring out what to use political capital on and what not to use it on.

It's hard for some people to comprehend how diverse this industry is. But through NCBA we can and do very regularly have dialog between the folks who disagree over the issues.

If you don't have that dialog with other producers, you don't get a chance to weigh the implications of a policy to the industry as a whole. If you think you can have a few people talking among themselves making the decisions, you're wrong.

BEEF: What would happen if someone pulled the plug on NCBA and the lights in this office went out?

Keys: Because power abhors a void, something would fill in to represent the largest segment of American agriculture. Maybe the feeders would get together and form an organization, or the marketing alliances would work on their own behalf. Maybe there'd be a new cow-calf organization. Or possibly a new overall purebred organization would come along.

Instead of having one entity back here working on the issues, you'd probably have several entities.

But if you look at these things historically, the synergy would force them to come together. Those entities would begin meeting on a regular basis, forming coalitions to fight the issues.

For a while they'd have different staffs, budgets and styles of political action. But in the name of overall efficiency and political clout, they'd probably morph back into something not terribly unlike what we have today. Eventually, this industry would recognize it needs one national entity that's a voice for all its segments.

NCBA was put together through trial and error over a 100-year period. Has it stayed the same? No. But it's never fallen apart and always kept a momentum for the wants and needs of cattle producers across the U.S.

The cattle industry is going to have a presence in Washington, D.C., no matter what. It could take on a lot of different forms, though.

BEEF: There's been a lot of rhetoric lately over the term “cattle” association versus “beef” association. Is the NCBA a cattle association or a beef association?

Keys: It's a cattle association. There's no question about it. But I'd tell every cattle producer in the country that every dime coming into this industry originates with the consumer.

Just ask anyone who's ever owned and raised an ostrich. Once they finished trading breeding stock, they realized there was no market for an end-product. And since ostriches don't make real good pets, that industry's now in the tank.

People who don't recognize that our money comes from selling beef are isolating themselves from reality. Show me how we can make money without having beef consumption, and I'll change my mind.

Some people think we're dominated by the packers. It's just not true. More than 60% of NCBA's policy board is made up of cow-calf producers, and more than another 20% are stockers and feeders. These folks have been chosen to be on that board by their state cattle and livestock associations.

Yes, there is minority representation by allied industries like the drug and feed companies, along with the packers and retailers. But there are obvious reasons to have those people in the tent when our membership is making policy decisions.

BEEF: In your opinion, what's the biggest cattle industry issue today?

Keys: The biggest philosophical debate is over marketing. There are two models.

One model is what we have today — where we let the markets evolve with as little government intervention as possible. There's a spectrum of failure and reward built into that model. But with it comes constant change and people who always push the envelope to get a bigger share of the profit that can come with free enterprise.

The other model is one where we regulate and manage for a more predictable outcome and make everybody as equal as we can. It tends to flatten out profit and limits the degrees of success and failure. The only entity that can accomplish that, however, is a central government.

BEEF: In the current debate, NCBA is criticized for its opposition to bringing more government into cattle marketing. Why the conservative approach?

Keys: Once you ask the government to get involved, it's really difficult to get the genie back into the bottle. The federal government is always very willing to regulate our industry. But remember that government is not an exact science. On top of that, markets are subject to a great deal of outside influences and unpredictable forces.

Then there's the fact that this is a democracy, and there are always going to be people who don't want what you want. So you have to give something to the other side.

You can't light the fuse and run out — you have stay in the room and make sure the laws of unintended consequences don't beat you at the end of the day.

Is that a conservative approach? Sure it is. But this tends to be a conservative industry, a cautious industry, especially on the regulatory side.

BEEF: Some people say international trade is our biggest issue. What about trade?

Keys: Once you get rid of the rhetoric over what's happening and what's not going to happen on trade, you can see it's not the big contentious issue some people make it out to be. You need to recognize this country isn't going to arbitrarily and capriciously cut off trade with the major countries exporting beef to us today. Why? Because those countries — Australia, New Zealand and Canada — are among our closest strategic allies.

NCBA is extremely engaged in trade issues. We just led a broad coalition of agricultural organizations in vehemently opposing a bilateral free trade agreement with Australia. But we won't support trade with any country that gives more access to U.S. beef markets than we gain in other markets.

People complain to us about the North American Free Trade Agreement (NAFTA). But if they'd educate themselves, they'd know NAFTA had nothing to do with the movement of live cattle — but it allowed Mexico to become a huge export market for U.S. beef. There were prohibitive tariffs on beef to Mexico before NAFTA — Australia was kicking our butt in that market.

We all have to recognize there's a real world economic order out there. We are going to have a World Trade Organization, and we are going to have a NAFTA. They aren't going to be put back in a jar — it's not going to happen.

BEEF: What can NCBA do — outside of asking for a more heavily regulated marketing structure — to help stabilize the economics and the future of this industry?

Keys: We work every day to make sure there's an infrastructure for the industry to stand on. We do that by closely watching issues related to things like food safety, animal health, environment, research, animal welfare, natural disasters, taxes and many more. We try to make sure there aren't big chasms out there that people can fall into. That's what NCBA is about.

As much as we'd like to do it, we can't work on policy that's going to benefit every individual cattle producer out there. I can't make sure everybody is going to be profitable and successful.

I know it's tough out there. But every small independent businessperson has a monkey on his back. If one or two things go wrong with their business plan, they know and understand they can fall flat on their face.

The reality is that small business people are always striving for more profit for themselves — looking for that next hit, that next deal. It's risky, but it's the difference between wage earners and entrepreneurs.

In a political sense, though, people need to think in terms of what is attainable. While engaging in issues in this town, you must have credible solutions to problems and use your political muscle to get them through.

This is a business of personalities and relationships. Your reputation goes a long way in this town. You can't cry “wolf” or always complain and never have a solution. People get tired of that.

People in Washington know NCBA is good for its word. And they know we'll follow through with what we say we're going to do.

About Chandler Keys

Outside of his position as the National Cattlemen's Beef Association's (NCBA) vice president for public policy, and the fact that his family has been in the cattle business since the 1600s, Chandler Keys' story is quite familiar.

His family's Maryland farm is home to a registered Angus herd dating back to 1936. The Keys have grown small grains and corn, raised thoroughbred horses and even had a small feedyard at one time.

His early years were active with 4-H and the American Junior Angus Association. At the height of his personal involvement in the cattle industry, he and his father had 200-some mother cows on their 3,500-acre farm.

Keys graduated with a humanities degree from the University of Maryland. After broadening his horizons in political science, history, philosophy and English, he returned to the farm for a year. In the fall of 1984, he landed a D.C. job lobbying for what was then the National Cattlemen's Association.

Keys worked his way up the ladder. In 1996 with the organizational merger that produced the NCBA, he became chief lobbyist. In that role, Keys, 42, maintains a steady tempo, working the halls of Congress, buttonholing White House politicos and keeping tabs on federal agencies.

As NCBA's political guru, he rides herd over one of Washington's highest-rated office staffs. With 22 cattle industry experts and support personnel, Keys connects the nation's cattle producers with the political mass in the nation's capital.

Valuing post-drought bred replacement heifers

By some estimates, cattle herds in drought areas in the western U.S. and Canada have depopulated by 20-40%. This suggests a demand for replacement heifers once the drought ends and herd rebuilding begins. This month, I'll detail my process for determining the economic value of a bred heifer.

The spot market price of bred heifers is highly correlated with current calf prices. For example, when calf prices were high in 1993, bred heifer prices in the Northern Plains were $1,000+ per animal. Some sold for more than $1,400.

On the other hand, the economic value of a bred heifer is the sum of that heifer's generated future annual “net cash incomes,” plus her final cull market value. My calculated economic value of a bred heifer in 1993 was $640 due to the projected low calf prices for 1994, 1995 and 1996.

A spot market price of $1,000+ and the calculated economic value of $640 isn't a recipe for profit. But remember that the spot market for bred heifers tends to be based on current calf prices, while the economic value of a bred heifer is based on future calf prices.

Beef cow producers should add replacement heifers whenever their economic value is greater than the spot market price. The greater the difference between economic value and acquisition cost, the higher the herd's profit potential. Maximizing the difference between the economic value of a bred heifer and her acquisition costs is a key determinant in the long-run profitability of any drought repopulation strategy.

If a drought rancher overpays for replacement females, his business can easily feel the negative economic effects as long as those females are in the herd. If purchased with borrowed money, it can get even worse.

Couple that with running these females in the “falling market” phase of the cattle cycle projected for 2006-2008, and the current drought could be felt well into year 2008. Thus, it's absolutely critical that all repopulation strategies employ proper economic valuations for replacement females.

Determining Economic Value

Calculating the economic value of a pregnant-checked bred heifer in fall 2003 is a five-step process. Here's a brief description of those steps. More detail is available at www.ag.ndsu.nodak.edu/cow/lsmanews/5-1-97.htm.

Step 1

Develop a set of calf planning prices for the expected life of a bred heifer in your herd. For this analysis, I'll assume that a bred heifer will have seven consecutive calves starting in the spring of 2004.

Figure 1 presents my latest suggested set of planning prices. The only change from previous versions is that my projected double top occurs with the sale of 2004 calves rather than for 2003, an adjustment forced by the extended drought in the West.

Step 2

Prepare a cash flow budget projecting the net cash returns to labor, management and equity capital for each of the seven years the heifer is projected to calve in your herd. I've elected to use the average net cash flow summary from my Northern Plains 1999/2000 Integrated Resource Management (IRM) herds as my net cash flow budget.

These 1999/2000 IRM herds had a relatively high economic efficiency, and most of these managers had multiple years of formal cost control management participation in North Dakota State University's IRM program. These tend to be low-unit cost, economically efficient beef cowherds.

These herds generated a $433/cow average gross cash income in 1999/2000 from the cash sale of calves and cull animals. It cost them $170 cash to raise the feed and provide summer pasture. Debt service was $55/cow — $22 for interest, $33 for principal.

Total feed and non-feed cash costs brought total cash costs to a $346/cow average. These herds generated an average cow net cash flow of $87/cow before family living draw.

Since past debt service needs to be assigned to existing cows and not new replacement heifers, I'll add the debt service ($55) back in with the $87 to generate a total $142 projected net cash income for adding replacement heifers to these herds. This $142 is the projected net cash that can be applied toward newly purchased heifers in these herds.

I then re-calculated a net cash flow budget annually for 2003- 2009 based on my long-run planning prices. These annual net cash flow projections are shown in Figure 2.

Step 3

Project the salvage value of these bred heifers after seven calves. My published long-run cull cow planning prices suggest $37/cwt. for cull cows in 2009.

Step 4

Determine the appropriate discount interest rate to use in calculating the time value of money. Use the interest rate you're paying on current long-term debt. In this example, I will use a 6% discount rate.

Step 5

Calculate the net present value (NPV) of the future net cash incomes from calving this heifer over the next seven years. Figure 3 presents my calculation of the NPV of a bred heifer at pregnancy check time in fall 2003.

The total “net income” column in Figure 3 is the income from her seven calves, plus her $480 cull value in 2010 — a total of $1,309 nominal dollars. This projected $1,309 nominal dollar value generated over the seven years discounts to a NPV of $1,024 expressed in today's dollars.

What This Tells Us

This $1,024 NPV suggests that if this bred heifer were purchased for $1,024 at fall pregnancy-check time, and if my net income projections come true, the investment in this bred heifer is projected to earn a 6% rate of return. If I paid more than $1,024 for this bred heifer, I'm projected to earn less than 6%. If I pay less, I'll earn more than 6%.

My advice to ranchers repopulating their herds: Evaluate the spot market carefully.

Harlan Hughes is a North Dakota State University professor emeritus. He lives in Laramie, WY. Reach him at 701/238-9607 or [email protected].

Figure 3. Economic value of a bred heifer

Year of economic analysis: 2003
Discount factor: 0.06

Year Net Income Discount Factor Discounted Value
1 2004 177 0.9433 $167
2 2005 147 0.8899 $131
3 2006 117 0.8396 $123
4 2007 92 0.7920 $93
5 2008 72 0.7472 $69
6 2009 107 0.7049 $51
7 2010 117 0.6650 $71
7 Value of cull cow 480 0.6650 $319
Total cash income $1,309 $1,024

The Packer Summit

Never before have the top dogs of the four major meat packers met together on one stage. But the Texas Cattle Feeders Association (TCFA) convention was a likely venue. After all, TCFA represents nearly 200 feedyards in Texas, Oklahoma and New Mexico — an area that produces 7.2 million fed cattle/year and 30% of the nation's fed beef supply.

“We need to know what's on their minds, and they need to know what's on ours,” explains Richard McDonald, TCFA president and CEO.

Swift & Co.

John Simons, president and CEO of Swift & Co. (formerly ConAgra) says the last few months have been humbling.

“None of us can afford more product recalls like the one we suffered last summer,” he says, adding that packers are “turning over every stone” to enhance food safety testing and intervention protocols and to comply with the escalating “zero tolerance” demands from federal regulators.

“We have to push for new technologies and find solutions that don't shift the liability onto the consumer,” says Simmons.

He warns that every segment of the beef chain will soon be under the same scrutiny and accountability as meat processors today are for controlling food-borne pathogens.

“We believe the government will look for feedlots to have their own intervention systems to help control the growth of and spread of bacteria,” he says. “Still, the only silver bullet for the consumer is to cook hamburger until the juices run clear.”

Simons says country of origin labeling (COOL) is going to be a confusing, cumbersome and expensive mandate to the beef industry.

“COOL will lead to higher costs of beef — some sources quoting $1.5 billion to 2 billion/year,” he says. “Ultimately, the real question is whether the consumer will value that differentiated product enough to pay for the costs associated with labeling.”

He expects Texas cattle feeders to be especially hard hit by COOL mandates as they feed Mexican cattle.

“For now, voluntary source verification programs on the grass-roots level would help us all scale down the costs of labeling,” he says. “We need to get ready now for a mandated labeling program.”

Farmland National Beef

Tim Klein, president and COO of Farmland National Beef, agrees food safety should be a top priority for everyone involved in producing beef.

Farmland is studying the use of lactoferrin — a protein found in the immune system of mammals that functions as a defense mechanism against pathogens.

“We've discovered a way to extract lactoferrin from milk and reactivate it so it thinks it's in a living system,” he says.

Lactoferrin sprays can prevent pathogens from attaching to beef carcasses, reducing the risk of E. coli and other pathogens. In addition, activated lactoferrin can enhance beef's shelf life by slowing down bacterial growth.

“We're probably three months away from application,” adds Klein. At some point Farmland plans to license the technology to other meat packers.

This concept of “branding” food safety follows Farmland's vision as a producer-owned co-op to build a design-supply system for value-added markets.

“We have an advantage to go to the producer and be able to say, ‘Here's what we want and here's what we'll pay for it,’” says Klein. “Still, we've got to strive to be the lowest cost producer, develop alliances and partnerships with suppliers and customers, and identify and develop value-added products.”

IBP/Tyson

Gene Leman is senior group vice president for IBP Fresh Meats. (IBP became part of Tyson Foods in 2001.) He says food manufacturers are consolidating to meet the needs of a consolidating retail sector.

“The buying power of retail chains will change the food industry,” Leman says. He predicts the top five supermarkets will account for 60% of all retail food sales by 2005.

“As a result, retailers will want suppliers with the expertise and resources to come in and manage their stores' inventory,” he says. “It's no longer just about producing a commodity product and selling it at the best price.”

Leman adds that case-ready production is the biggest innovation since boxed beef. Next year, IBP will produce 10 million lbs. of case-ready beef/week.

“Pre-Tyson, IBP had two people working in case-ready product development,” Leman says. “Today, we have more than 120.”

Regarding the proposed ban on packer ownership of cattle, Leman thinks such legislation would hurt competitors more than IBP. “Our company has no interest in becoming a large feeder or producer of livestock,” he says. “But it's a bad idea to regulate how this industry manages livestock.”

Leman says IBP, which will kill 10 million head of cattle in 2003, is moving forward with irradiation as a food safety intervention measure. But he admits irradiation isn't the lone answer to eliminating E. coli. in the beef supply.

“In a few years, we'll be irradiating a great deal of product,” he says. “But if there's any cross-contamination at home, there will still be problems.”

Excel Corporation

Bill Rupp, Excel's executive vice president, says his company's strategy is to create distinctive value for each customer so they can differentiate themselves in the marketplace. By customers he means retailers who will work with Excel in a “collaborative environment” to increase demand by moving away from commodity beef offerings.

Rupp says that while beef demand has declined over the past 20 years, ranch-to-packer costs have gone up.

“This means the amount of money to be shared by the rancher, feeder and packer has declined,” he says. “This poses a real dilemma for the industry.”

One way packers are trying to improve demand is by offering branded products that deliver on the promise of consistency and tenderness.

“In order to deliver branded solutions to customers, packers need to be vertically aligned with producers,” says Rupp. “But, I want to make it clear, neither Cargill nor Excel has any interest in integrating the beef system like the poultry industry.”

In discussing food safety issues, Rupp says the problem with E. coli is consumers don't always handle and cook ground beef properly.

“As a packer, we have invested significant capital on pathogen intervention procedures,” Rupp explains. “We strongly believe the answer to E. Coli is a coordinated, industry-wide approach.”

Rupp also agrees COOL is a bad law and will do nothing to improve demand. “It will greatly compound the problems we face as an industry trying to compete with the other proteins.”

Rupp fully expects another push to ban packer ownership of cattle.

“As with COOL, it doesn't address the problem,” he says. “A ban would relegate all producers to being basic commodity suppliers and eliminate price risk contracts, shared risk arrangements and value-added agreements.”

A Feeding Sage Speaks

Paul Engler, Amarillo, TX, TCFA's 2002 chairman and president of Cactus Feeders, is quick to remind the packers of the “early days,” when cattle were sold in terminal markets and a commission man stood between the seller and the packer buyer.

“One day, a cattle buyer told himself that this system with all its added costs was ridiculous,” Engler says. “He asked himself, ‘Why don't I go to the country and trade directly with the feeders?’ He did it, and direct buying got started.”

Recently, grid marketing and group selling have become mile-markers along the cattle feeders' trail, says Engler. “It's estimated that 62% of our fed cattle are now marketed on a grid, and it continues to grow.”

But he's not sure that grids or group marketing are the answers. “We'll continue looking at new ways of producing and marketing cattle,” he says, but he scoffs at the mention of more government regulation.

“We need only to look at mandatory price reporting to see the futility of inviting the government into our business,” he says.

As cattle feeders and packers search for solutions to market woes, they're also looking over their shoulders to what happened in 2002.

“Corn was cheap much of the year, futures were maintaining premiums to cash much of the time, and the cost of replacement cattle remained high,” says Engler. “We responded by feeding cattle longer and putting off marketings as long as possible for lack of kill slots.”

The result — record heavy live weights and carcass weights, and record tonnage. Then several other events went against cattle feeders.

“False foot-and-mouth disease rumors in Kansas happened at nearly the same time the Russians stopped importing poultry,” says Engler. “It resulted in an oversupply of meat in the domestic market and gave retailers tremendous leverage. These events came on the heels of Sept. 11 and BSE in Japan.”

So how does the largest cattle feeder in the U.S. believe we fix the cattle markets?

“I can't give you the answer,” responds Engler. “That's because no single solution exists to fix our problems.”

However, producers need to be left to their own devices unburdened by excessive government involvement, he says. “We'll figure out reasonable, workable solutions.”

What's NCBA Done For You Lately?

What has the National Cattlemen's Beef Association done for me lately?” We've all asked that question. It would be better answered, though, if more of us could spend a few days with NCBA in Washington, D.C.

I try to pay a visit to Washington and NCBA a couple of times each year, and I never fail to come away with some insight. But, with all the problems facing our industry, this last trip was particularly telling.

With the wolf at the door, it's easy to demand that outfits like NCBA help with our individual problems. The harder questions, though, seldom get asked:

  • Where and how do our personal interests parallel the greater, long-term good?

  • Can our individual concerns be woven into collective agreement over the policies guiding the our industry?

The cattle industry today is becoming mired in a civil war. Conventional wisdom says it's because we lack leadership. I'm not so sure about that. Could it be that we're asking for micromanagement and forgetting about the underpinnings?

The lesson is that until you've seen it in action, it's difficult to comprehend the political magnitude of, arguably, the most complex and diverse industry in America.

Pay a visit to Washington, D.C., and you'll find NCBA staffers follow association policy where there is policy and consult closely with members where there isn't. Whether it's battling the latest brush fire or a slogging through long-standing policy issues, you do have people looking after the foundation of the cattle business. Here are some examples:

  • The West Coast port lockout — Chief economist Chuck Lambert mobilized ag coalition partners to communicate the impacts of this dispute to Congress and the White House.

  • Drought relief programs — When the drought programs were hastily implemented in October, NCBA members and state affiliates questioned USDA's restrictive details. Bryan Dierlam, NCBA director of legislative affairs, worked with USDA to ensure they were implemented as quickly and as equitably as possible.

  • Country-of-origin labeling (COOL) guidelines — Several staff members are addressing the complexities surrounding this issue and working through their NCBA committees and with USDA to develop regulations for mandatory COOL before it goes into effect.

  • Tax issues — NCBA has continued to push for complete and permanent repeal of the death tax. NCBA is working to deal with capital gains on drought-induced sales of cattle — as well as a complete reform of the tax code.

  • Beef and food safety — NCBA's associate director of food policy, Leah Wilkinson, is working with agency officials to advance research to reduce food pathogens. Additional interventions for E. coli still need approval — such as feed additives and animal and carcass washes.

  • Animal health — Gary Weber, executive director of regulatory affairs, represents cattlemen on key animal health issues. NCBA continues to chart the course for disease exclusion, control and eradication. Efforts include emergency response, bioterrorism planning and animal identification.

  • Trade policy — NCBA has an on-going dialog with USDA Secretary Ann Veneman and U.S. Trade Representative Robert Zoellick, providing advice on negotiating objectives and bargaining positions before entering into trade agreements.

  • Conservation and environment — The director of environmental issues, Myra Hyde, is developing material that will help producers learn how to participate in farm bill conservation programs.

    Faith Burns, associate director of environmental issues, communicates NCBA policy on clean water, clean air and wetlands issues with lawmakers and administration officials. She's been actively fighting for producers over confined animal feeding operation and animal feeding operation (CAFO/AFO) regulations.

  • Political action committee (PAC) — Funded by donations beyond dues money, the NCBA PAC identifies and supports campaign activities of industry-friendly national political candidates. PAC activities and programs allow cattlemen access to legislators and congressional committee staff.

  • Federal lands — NCBA and the Public Lands Council work with Congress and federal land management agencies to develop Endangered Species Act reform and grazing policy reform. NCBA is currently involved in legal action seeking relief from previous regulatory decisions that will restore the livestock industry as a managing partner on federal rangelands.

It certainly appears that each of these issues, in some way, swirls around everyone in the cattle industry. But each person has to take his or her own look at the direction and relevance of today's issues and then ask, “Has NCBA done anything for us lately?”

2002 BEEF Quality Challenge

Special thanks to Pat Mies, David Lunt, Mike De La Zerda, Doug Perkins, Davey Griffin, Larry Boleman and the staff at the Texas A&M University Research Center at McGregor for their help with this project.

Thanks to Dr. Davey Griffin for providing the photos for the December and the October articles in BEEF.

The Prizes

Under 13 years old — $500 savings bond & trophy

14 - 18 years old — $500 savings bond & trophy

Over 19 years old — $1,500 in cash

Feedyard team — $5,000 worth of Zinpro® products

Winners will be announced in BEEF's January issue.

The objective of the 2002 Beef Quality Challenge was for participants to learn more about marketing cattle on a packer grid. A packer grid is a list of prices that a packer is willing to pay for different types of carcasses.

The 2002 Beef Quality Challenge presented two groups of five steers (pen A and pen B). Both pens were purchased from a Central Texas livestock market auction. Steers in pen A had an unknown pre-auction market history, while steers in pen B had been managed using a VAC-45 type program before sale at the auction barn. Pen B cattle were preconditioned a minimum of 45 days after weaning, wormed and vaccinated and boosted to prevent calfhood diseases. Steers in both pens A and B were placed on feed at the Texas A&M University Research Center McGregor Feedyard.

Contestants were asked to match each steer to the optimal packer grid. The steers were sold on the carcass packer grid basis. Table 1 shows how the 10 steers performed on grids A and B, which are shown in Table 2.

When considering selling your cattle on a grid, it is important to test the grid using data from different groups of cattle and determine which cattle fit best on each grid, much in the same way we have done in this contest. Let's use the cattle data presented in Table 1 to better understand grid marketing.

Playing In The Grid Game

There are many considerations when choosing the packer grid on which you plan to sell your market cattle. These include the current live price, the base price and base carcass specifications used on the grid, the amount that will be offered for discounts and premiums, the price paid for “out” cattle, freight costs, environmental conditions and the carcass data of prior groups of cattle that you have shipped.

Step One — Live Price And Carcass Specifications

When you begin to compare grids, it's important to know the current live price that the packer is offering for cattle and the carcass specifications the packer requires for you to receive the base carcass price. This live cash price often reflects the average value of cattle that the packer is willing to pay for all cattle they purchase. Producers may not realize that when they take the live cash cattle price they are getting an average price for all cattle harvested.

Packers determine the live prices by first determining the week's average percent USDA Choice, Select and other quality grades, Yield Grades 1, 2, 3, 4, and 5, and outs (i.e. dark cutters, heavyweight and lightweight carcasses, and carcasses with other abnormalities such as excess mud or bruises).

Then the packer determines what those carcasses are worth and comes up with a composite price/cwt. for all carcasses harvested. The final average live price that is offered is calculated by multiplying the composite carcass price times the average dressing percent for the plant.

Example: $102 plant composite carcass price/cwt. × 0.647 average plant dressing percent = $66/cwt. live price.

Table 1: Carcass data and carcass value information
Steer ID Pay weight Dressing percent Carcass weight Quality grade 12th rib adjusted fat Yield grade Carcass value/cwt. grid A Carcass value/cwt. grid B Carcass value grid A Carcass value grid B Sort to the optimal grid Live cash price Which grid is optimal?
1 1099 62.6 688 Standard + 0.12 1.9 $98.00 $103.00 $674.24 $708.64 $708.64 $725.34 B
2 1130 63.7 720 Select - 0.36 2.6 $102.50 $103.00 $738.00 $741.60 $741.60 $745.80 B
3 1210 64.0 775 Select - 0.44 2.8 $102.50 $103.00 $794.38 $798.25 $798.25 $798.60 B
4 1166 60.7 708 Select + 0.44 2.4 $102.50 $103.00 $725.70 $729.24 $729.24 $769.56 B
5 1010 62.9 635 Standard + 0.30 2.0 $97.00 $100.00 $615.95 $635.00 $635.00 $666.60 B
71 1289 65.3 842 Choice + 0.88 4.5 $95.00 $91.00 $799.90 $766.22 $799.90 $850.74 A
72 1140 63.9 728 Select + 0.56 2.7 $102.50 $103.00 $746.20 $749.84 $749.84 $752.40 B
73 1076 62.7 675 Select - 0.28 2.6 $102.50 $103.00 $691.88 $695.25 $695.25 $710.16 B
74 1368 63.0 862 Select - 0.56 3.9 $100.50 $100.00 $866.31 $862.00 $866.31 $902.88 A
75 1149 59.8 687 Choice - 0.24 2.8 $109.00 $109.00 $748.83 $748.83 $748.83 $758.34 A OR B
Total carcass income $7,401.38 $7,434.87 $7,472.86 $7,680.42

From this point the packer considers other important information, such as the current supply of fed cattle and the boxed beef orders they will need to fill in the future.

The base carcass price for both grid A and B is based on a USDA Choice, Yield Grade 3 carcass weighing 550-950 lbs., which makes comparisons easy. Not all grids use this basis. One Texas Panhandle packer uses 50% Choice as its base carcass price. If your pen of cattle exceeds 50% Choice, then premiums are paid; if the pen fails to produce 50% Choice carcasses, then the producer receives discounts.

The base is only the first component of the grid to be examined. Grid A has a higher base carcass price than grid B, but seven out of the 10 steers received a higher carcass price on grid B.

Step Two - Choice Select Spread And Yield Grade Premiums

The most common discount assessed on grids is for USDA Select carcasses. The most common premiums paid are for Yield Grade 2 carcasses.

There are seasonal differences in the price spread between Choice and Select carcasses (see Table 3). Generally, the spread begins to widen in May and is at its largest between Thanksgiving and New Year's. When the spread is narrow, Yield Grade becomes more important, and often grids favor high cutability cattle; when the spread widens, the grids tend to favor high quality grade cattle.

In the last year, there has been an increase in the number of grids targeted to specific types of cattle. You will hear the terms “quality grid,” which is geared to pay more for cattle producing high Quality Grading carcasses; and “cutability grid,” which gives greater rewards for USDA Yield Grade 1 and 2 carcasses. Grid A is a quality grid; grid B is a cutability grid.

Step Three - Outs And Other Discounts

The term outs is used for carcasses that receive the greatest discounts. This term originated from the fact that these carcasses were sold and shipped out intact and, with the exception of No Roll, not fabricated into boxed beef in the originating packing plant. The most common “out” carcass categories include No Roll, dark cutters, hardbone (advanced carcass maturity), Yield Grade 4, and heavy and light carcasses. A few of these out carcasses with $15-$30/cwt. discounts can negate a greater number of carcasses receiving premiums at $2-$6/cwt.

In the Beef Quality Challenge, Steers 1 and 5 were USDA Standards and Steer 6 was discounted for producing a Yield Grade 4 carcass, resulting in $220.11 worth of discounts when sold on the optimal grid. Grid A penalized Yield Grade 4 carcasses less than grid B, while grid B penalized USDA Standard carcasses less.

If cattle are managed for a quality grid then that pen may increase in the number of Yield Grade 4 carcasses because of the perception that as you feed cattle longer the percent Choice increases in that pen. Unfortunately, the simultaneous effect is that the number of Yield Grade 4 carcasses also may increase. Similarly, if cattle are managed for a cutability grid, then those cattle may increase in the number of No Roll (USDA Standard) carcasses. The general rule is that more muscular cattle tend to produce more USDA Standard carcasses, especially when they are not fed long enough in the feedyard.

Most often, Yield Grade 4 and No Roll carcasses are the result of feeding pens of mixed types of cattle. It is not unusual to find pens of cattle that have wide differences in weight, frame size, muscling and breed types. When these pens are harvested on the same day, they produce a significant number of out carcasses and have considerable variation in carcass merit. Therefore, a mixed pen can be disastrous to the owner when sold on a packer grid basis.

Step Four - Making The Sale

Once you thoroughly understand how each grid works on different groups of cattle, it's time to match the cattle to the best marketing option. Ten years ago, most feedyards had only one or two marketing options for their fed cattle. Today, feedyards can sell market cattle in multiple ways. For example, C-Bar Feedyard in Plainview, TX, with a one-time capacity of 17,000 cattle, has at least five different ways to sell finished cattle. These include live cash, Excel Bid-a-Grid, Swift grid, IBP/Tyson real-time grid and the Ranchers Renaissance Alliance.

Having these options is one thing, but taking advantage of them is quite another. Accurately predicting the types of carcasses that a pen of cattle will produce will permit you to match the cattle with the optimal marketing option.

Today, matching cattle to a packer grid is most often an art. The feedyard manager visually examines the pen and reviews the feeding records to determine when and where the cattle should be harvested. Matching cattle to the right marketing option is easier if the manager has some previous history on the cattle from a particular ranch.

In the future, this decision will be based more on science than art. New technologies like ultrasound, video imaging, electronic and biological ID systems, and infrared will give the feedyard manager more objective information. Also, the explosion in the number of information transfer industries is making it easier for ranchers to get the carcass and feedyard performance data on their cattle and helping ranchers better understand the data they receive.

In hindsight, for the steers in the Beef Quality Challenge, it would have been best to sell them on a live-cash market basis. It was impossible to overcome the fact that only two steers produced carcasses that graded USDA Choice, and three received substantial discounts for producing out carcasses.

It would have been even better if we could have sorted these cattle into different groups and managed them to their individual optimal endpoints, rather than harvest the entire group on the same day. The average adjusted 12th rib fat thickness on all 10 cattle was 0.42 inches, which is right on target. Feedyards often attempt to sell their cattle when the pen is thought to have on the average 0.4 - 0.5 in. of fat at the 12th rib. The range in 12th rib adjusted fat thickness among the Beef Quality Challenge cattle was 0.12 in. to 0.88 in.

Thus, seven of the 10 steers were not marketed at their appropriate endpoint, two steers were fed too long, and five were fed too short of a time in the feedyard. This demonstrates that it takes good cattle genetics in combination with optimal management to maximize the return on the packer grid. There have been reports from both universities and businesses that producers can increase returns up to $25/head by appropriate sorting at either pre-feedyard, reimplant or harvest times.

Table 2. Packer grids used in the Beef Quality Challenge

Grid A - quality grid
Base live cash/cwt. $66.00 Premium/
discounts
Base dressing % 64.70%
Base carcass, $/cwt. $107.00
Base is a Choice YG 3 Carcass
Prime $115.00 $8.00
Top Choice Program $110.50 $3.50
Choice $107.00 $0.00
Select $100.50 ($6.50)
Standard/No Roll $95.00 ($12.00)
YG1 $110.00 $3.00
YG2 $109.00 $2.00
YG3 $107.00 $0.00
YG4 $95.00 ($12.00)
YG5 $87.00 ($20.00)
<550 $92.00 ($15.00)
950-999 $102.00 ($5.00)
>999 $92.00 ($15.00)
Dark cutter $79.00 ($28.00)
Hardbone $85.00 ($22.00)
Quality grade, yield grade, and weight premiums and discounts are additive.
Grid B - cutability grid
Base Live Cash/cwt $66.00 Premium/
Discounts
Base dressing % 64.20%
Base carcass, $/cwt. $106.00
Base is a Choice YG 3 carcass
Prime $112.00 $6.00
Top Choice program $108.00 $2.00
Choice $106.00 $0.00
Select $100.00 ($6.00)
Standard/No Roll $97.00 ($9.00)
YG1 $112.00 $6.00
YG2 $109.00 $3.00
YG3 $106.00 $0.00
YG4 $91.00 ($15.00)
YG5 $81.00 ($25.00)
<550 $86.00 ($20.00)
950-999 $103.00 ($3.00)
>999 $95.00 ($11.00)
Dark cutter $76.00 ($30.00)
Hardbone $81.00 ($25.00)
Quality grade, yield grade, and weight premiums and discounts are additive.

Tornados And Timing - Close-up Look At The Challenge Steers

Comparing The Pens

The VAC-45 steers in pen B performed considerably better than the steers of unknown pre-auction history in pen A (Table 4). Pen B steers entered the feedyard ready to grow and perform. They were healthier, grew faster and more efficiently, and lost less money than pen A. Of course, given the current economic situation, all but the two fastest gaining steers lost money in this year's challenge. Steers 1 and 4 got sick and required treatment while none of the cattle in pen B got sick. Steer 2 in pen A had a very low average daily gain (Table 5).

Information from the past several years of the Texas A&M University Ranch to Rail Program demonstrates that calves backgrounded at least 45 days and vaccinated and revaccinated with an effective animal health program have a reduced death loss and morbidity. They gain faster and are less apt to produce out carcasses. In an analysis of four years of Ranch to Rail data, sick calves on average lost $31.97, while calves that never got sick had a net return of $61.23. On a 571-lb. feeder calf, that equates to a sick calf being worth $16.32/cwt. less than a healthy calf. Some feeders have carried that out to estimating that VAC-45 type calves may be worth about $8/cwt. more with the assumption that 50% of the non VAC-45 calves might get sick.

Table 4. Comparison of pen A and pen B
Pen A Pen B Difference
Initial total value price $2,770.56 $2,920.32 $149.76
Processing costs $175.08 $40.00 ($135.08)
Cost of gain $0.55 $0.49 ($0.06)
Average daily gain 2.95 3.25 0.30
Days on feed 140 140 -
Total expenses $3,884.03 $4,031.95 $147.92
Carcass income $3,612.73 $3,859.97 $247.24
Net return (expenses - carcass income) ($271.30) ($171.98) $99.32
Net return/cwt. initial wt. ($7.64) ($4.59) $3.05
Table 5. Comparison of economy of the steers in the Beef Quality Challenge
Pen Steer ID Initial price Processing medicine costs Cost of gain Total expenses Daily gain Carcass income Net return
A 1 $530.40 $56.57 $0.58 $774.65 2.99 $708.64 ($66.01)
A 2 $655.20 $17.70 $0.71 $860.58 2.07 $741.60 ($118.98)
A 3 $558.48 $17.70 $0.42 $763.86 3.53 $798.25 $34.39
A 4 $560.04 $65.41 $0.56 $813.13 3.20 $729.24 ($83.89)
A 5 $466.44 $17.70 $0.50 $671.82 2.94 $635.00 ($36.82)
Average $554.11 $35.02 $0.55 $776.81 2.95 $722.55 ($54.26)
B 6 $663.00 $8.00 $0.51 $885.33 3.14 $799.90 ($85.43)
B 7 $542.88 $8.00 $0.50 $765.21 3.17 $749.84 ($15.37)
B 8 $513.24 $8.00 $0.53 $735.57 2.99 $695.25 ($40.32)
B 9 $628.68 $8.00 $0.40 $851.01 4.01 $866.31 $15.30
B 10 $572.52 $8.00 $0.54 $794.85 2.96 $748.83 ($46.02)
Average $584.06 $8.00 $0.49 $806.39 3.25 $772.03 ($34.36)

In this year's challenge, the VAC-45 cattle only were worth $3/cwt. more initially, not counting the heavier incoming weights for the cattle in pen B. Possible reasons for this might be due to the timing of selling the cattle and to a tornado that came through the feeding facility one night. The tornado tore down the fences and destroyed the feedbunks. The steers were finally regrouped and fed in a new location on-site after a few days. Pen B's rate of gain was observed to decline later in the feeding period.

Also, pen B grew faster at the beginning and most likely reached its growth plateau in the later parts of the feeding period while pen A had not reached that plateau. There is a point in a market steer's life, usually after the rapid fattening phase begins, where rate of gain becomes smaller. The growth curves for pen A and B in Figure 1 show that pen B was about one month ahead of pen A, most likely because pen B had been through a VAC-45 program.

Comparing The Individuals

There was a range of more than $200 between the high net return (Steer 3) and low net return (Steer 2) cattle (Table 5). Steers 3 and 9 were the two that had a positive net return. Steer 3 was the second fastest gaining steer in the group and produced an acceptable carcass. Steer 9 was second because it gained the fastest (4 lbs./day) of the group and just barely missed receiving a discount for producing a Yield Grade 4 carcass (Yield Grade 3.9).

Steers 2 and 6 lost the most money. Steer 2 had the poorest average daily gain. Steer 6 produced a Yield Grade 4 carcass.

Note that both the highest net return and the lowest net return steers were from pen A. This demonstrates the tremendous variation that can be found in a pen of cattle. The 10% Rule, which states that the poorer performing 10% of the rancher's cattle can reduce income by 20-30%, can devastate the rancher's bottom line. If a rancher — through performance testing, selection and utilizing best management practices — could identify and eliminate the poor performers, then the bottom line could be improved considerably.