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Articles from 2002 In February

Roundup Ready Alfalfa

2002 Alfalfa Varieties

There's Still Time

For all that's uncertain today regarding the U.S. beef business, one thing seems a lock. Value-based marketing — a system that rewards or discounts cattle according to how they perform against certain performance and end-product value specifications — is here to stay.

In fact, Harlan Ritchie, Michigan State University distinguished professor of animal science, predicts that by decade's end, 80% of all fed cattle will be moving outside the spot cash market. It currently hovers near 45%.

And, with more technology certain to come on stream that will enable beef processors to more accurately determine the true value differences in the cattle they buy, the net result will be less market opportunity for producers whose calves don't measure up.

That doesn't necessarily mean the demise of those producers, Ritchie points out. They'll just be forced to compete in a shrinking commodity market on a lowest cost of production basis. For the most cost-efficient producers, the commodity market could actually be a profitable niche, he says.

“Low-cost producers will survive. There's no doubt about it. A ton of data out there that shows that's the case,” Ritchie says. “But even that low-cost segment will benefit from doing some of the networking required of those participating on the value-based side.”

For producers wishing to compete in the value-based system, Ritchie says there's still time to gear up and get into the game.

“Big or small, any size operation can take part,” Ritchie says. “It's not too late, particularly if you can join in with one of the horizontal systems or the various cow/calf cooperatives that have formed and are building a database cooperatively.”

Start by contacting your area Extension personnel, producer organizations, producers involved in such programs, your veterinarian or local auction. BEEF publishes a listing with background and contact information for 40 value-based marketing programs each year (see August 2001 BEEF for the Alliance Yellow Pages).

Ritchie stresses that participation in such programs will entail a higher level of interdependence than most producers have known before, both within segments and between.

That's a good thing, says Burke Teichert, general manager of the Rex Ranch, Ashby, NE, part of one of the nation's largest cow/calf operations. He's convinced that cooperation between and within beef sectors will become more necessary for survival — not just in marketing but for improved operation management as well.

“One of our industry's big problems is that we don't interact enough. We don't take advantage of our combined brainpower,” Teichert says. “The competition has gotten so keen in our industry and the margins so narrow that none of us are smart enough to do this alone.”

Particularly in the case of smaller operations, Ritchie says networking and cooperation is indispensable in overcoming the marketing advantages of larger operations.

There's a distinct advantage, for instance, in offering calves in 50,000-lb. truckload lots, Ritchie says. Groups of small- and medium-sized operations can pool resources and build load lots of uniform calves by sharing genetic selection, weaning and vaccination programs, then sorting them prior to marketing.

To get started, two basic types of information are needed, says Jerry Stokka, formerly of Kansas State University and now a senior veterinarian with Pfizer Animal Health. You need to know what it costs you to produce a calf and the quality of that calf.

“Without knowing your costs of production, you're shooting blind,” Stokka says. “And without knowing what the performance is of your calves in the feedlot and in the meat, you can get in trouble fast.”

Nearly all states have systems in place to help producers benchmark production costs, Ritchie says. Land-grant universities and Extension personnel, as well as some veterinarians, are places to start. Ranch management or marketing clubs — groups of producers who come together to learn by sharing and discussing information — are others.

Homer Buell, who along with his brother Larry and their families own and operate the Shovel Dot Ranch in Rose, NE, can attest to the value of a ranch management group. Running 1,500 commercial cows in a cow/calf, backgrounding and yearling operation, Buell says he's found tremendous benefit in participating with seven other independent ranchers in a management club he helped form 15 years ago.

All located within a 100-mile radius of each other, the members gather on a quarterly basis to eyeball and study each other's operations. The purpose is to share ideas, review individual management and production information and offer constructive advice and discussion. More recently, they've invited outside experts, such as bankers and university specialists, to their meetings.

Over the years, the group's mission has evolved to the point that almost two years ago they began sharing financial, as well as production, information. Buell says the experience has sharpened their operation's focus and reinforced the importance of managing costs and long-term business planning.

Teichert, who even as a leader in one of the nation's largest cow/calf operations — one with the presumed resources to be self-reliant — testifies to the value of such group programs.

“I've made it my work to find good operators and learn from them, whatever their size, so that I can get better. Homer is one of the folks I try to regularly spend time with,” Teichert says. “If I were a family rancher, I'd be trying to get my neighbors to join me in trying to put together something like his ranch management club.”

Cow/calf benchmarks
  Average producer Top 25% based on net income
Calving percentage 86.3% 88.1%
Calf crop percentage 83.1% 84.8%
Feed costs/cow $86.64 $61.40
Total cash costs/cow $362.63 $307.48
Total cash cost/cwt. $85.26 $55.48
(Source: Cow Calf SPA Database Texas A&M)

Basic Costs Of Production

To get a handle on cost of production, Ritchie suggests producers start by evaluating feed cost — the single biggest cost of maintaining a cowherd. This includes purchased feed, pasture and harvested feed. Try to keep it below industry average for your region.

“On the performance side, I like to look at pounds of calf weaned per cow exposed to breeding because it combines fertility, calf survival and calf growth into a single figure. Try to keep it at or above average for your particular environment,” Ritchie adds. “However, remember that pushing performance to a maximum can increase production costs to a point that seriously jeopardizes profitability.”

To get started on post-weaning performance records, Stokka suggests participating in steer feedout programs offered in most states through cattle organizations and land-grant universities. The programs compile feeding performance and carcass data on calves consigned to the program by individual producers. The resulting data is useful in breeding selection.

“You don't have to feed out your whole calf crop, though the more calves you have data on, the clearer the message will be,” says Stokka. “Just select five steers that represent the direction you think your herd is taking. They can be five from one sire group, particularly if you're trying to go one direction and you have identified one particular sire as the one that will take you there.”

In benchmarking a set of calves, understand that year-to-year variables can make the same set of calves look different from a performance standpoint. One year's data provides a benchmark but no trend. Feeding calves over multiple years at the same yards under as nearly the same conditions as possible, however, allows you to begin establishing trend lines.

A good understanding of your costs will allow you to focus management on areas of inefficiency. An understanding of how your calves measure up allows you to target your production to the best value-based program suited to them.

All the specialists stress that every management decision should be viewed in its context to the health and sustainability of the overall operation. Good cost and performance records will illuminate the potential antagonistic effects of a management change in one area on other areas.

In the preceding article, Teichert lists his five basic traits for survival in the new beef industry:

  • Using a systems approach to management that's both integrative and holistic,

  • Striving for continuous improvement in key resources — land, livestock and people,

  • Using good planning and decision-making tools — something that begins with good production and financial records,

  • Waging war on unit cost of production, and

  • Placing strong emphasis on marketing.

“The basis to all of them is to make holistic decisions — to make sure that the land, livestock and people are all considered and one doesn't suffer at the expense of the other,” Teichert says.

That holistic philosophy essentially describes the workings of Integrated Resource Management (IRM), a program in which both Teichert and Buell are active participants and current or past leaders. Many states offer IRM programs. They offer a number of management tools to help producers identify ways to increase efficiency and cut costs while considering the long-term sustainability of the larger operation.

“I think it's impossible to take a holistic or IRM approach without outside help. You have to be bigger than yourself,” Teichert says. “With the cow/calf business being what economists define as a purely competitive business where average price tends to have the average rancher just break even on the average year, none of us are smart enough just in and of ourselves to do it. We have to go beyond ourselves for help.”

Forced Marriages

If you're a little guy who frequents bars, you learn pretty quickly to take a big guy with you — especially if you're not much of a fighter.

That same mentality works when you're a modest-sized manufacturer trying to get shelf space at Wal-Mart supercenters and other retail giants, says Bernie Hansen, Alma, KS. And it's a strategy the beef industry should embrace, too.

Hansen is president of Alma-based Flint Hills Foods, which manufactures all of Hormel's pre-cooked, ready-to-eat entrées like beef tips and roast beef au jus.

“It's just next to impossible for somebody small to drive a product into the marketplace,” Hansen says.

The biggest challenge isn't just figuring out what consumers want and making it; it's proving that point to large, consolidated retailers, he says.

The five largest retailers — Kroger, Albertson's, Safeway, Ahold USA and Costco — control 41% of all food sales, according to Dairy-Deli-Bakery Digest. All of them charge entry fees to get a product on their shelves. Those fees can range from $1,500 to $2 million/product or more, depending on the market and the number of stores. In exchange, they force distribution through their stores and offer favorable in-store placement and promotion of the product.

Even if the product is a sure bet with consumers, those fees make negotiating with retailers an uphill battle for a mom-and-pop outfit, says Hansen, who knows the challenge firsthand.

In 1989, Flint Hills began working with food scientists at Kansas State University to develop a pre-cooked meat product for the foodservice industry. By 1993, they were selling homestyle, pre-cooked pot roast to restaurants and institutions.

The product was an instant hit with consumers, but getting it on grocery store shelves was a saga.

“We didn't know it, but what we were really doing was, in essence, knocking our heads against the wall,” Hansen says.

Long story short: Same-store sales doubled when Flint Hills partnered with Hormel in 1999 and put Hormel's name on the product.

Combining Hormel's brand strength with Flint Hills' product did the trick. Now, Flint Hills does the product research, development and manufacturing. Hormel handles the sales, marketing and distribution.

“Hormel at least has the clout to work with these retailers and say, ‘We own market share with the consumers. You better have our product in your store or you're missing sales.’ That's all it comes down to,” Hansen says.

“Now that we have that brand power on there with Hormel, we're seeing this category grow, and other products are coming into it,” he adds.

Heat-And-Serve Is Surging

Private industry is investing significantly in the heat-and-serve beef category, says Mark Thomas, vice president of consumer marketing for the National Cattlemen's Beef Association.

Three years ago, only one major company, Harris Ranch Beef, was in the category. Today, Hormel, IBP, Farmland Foods, RMH Foods and Smithfield Foods also have introduced products.

“In the past 24 months, I've seen more change in the beef industry in product development than I've seen in the last 25 years,” Thomas says. “This industry has woken up.”

Hormel is the “category captain,” the undisputed leader of the heat-and-serve category, Hansen says. Over the next two to three years, the company plans to expand the category with many more beef entrées, and Flint Hills will develop them.

Some folks project that in seven years, 80% of the meat case will be pre-cooked. “Probably all you can take from that is that it's really going to grow. It's going to be a huge category,” Hansen says.

“We're going to see dynamic changes in the positioning of beef as a convenience product, which just wasn't thought of a few short years ago,” he says.

Another promising convenience product is jerky, which some are calling the fastest growing snack food category in the U.S. Sales of jerky and beef sticks grew 32% in 2000, according to the Snack Food Association. In response, several companies, including national brands like Jimmy Dean, have launched products in this category.

Besides convenience items, beef products that guarantee tenderness — like Cattlemen's Collection® from Rancher's Renaissance — are also advancing, says Thomas.

But even with products that offer consumers so much, the fact that beef is not an essential food is still a marketing challenge.

“People don't need beef,” he says.

So the beef industry must continue to rise to meet consumer wants. And it can't do that alone.

For beef products to get and keep the attention of consumers and retailers, the beef industry must align with food marketing companies, Hansen says.

Those companies know how to sell to the retailer and market to the consumer, he explains.

“That shelf-space battle,” Hansen says, “is going to be fought out with those big retailers and big food processing companies.”

Audits Will Move Down

The animal welfare and food safety audits that major fast-food chains require of their meat suppliers will eventually touch every production segment.

If America's packing plants want to do business with the three largest U.S. restaurant chains — McDonald's, Burger King and Wendy's — they must pass the test — and keep on passing it. America's cattle feeders, and ultimately America's cow/calf producers, should take notice.

Whether the packing plants are making the grade in food safety and animal welfare is determined by periodic audits. The audits use an objective scoring system that grades each plant by the percentage of cattle handled correctly. Failure to comply means losing lucrative contracts to supply raw beef products to these major restaurant chains.

The Food Marketing Institute, the trade association for U.S. supermarket firms, is now in the process of formulating animal welfare guidelines. It's likely that they will follow the lead that has been set by the hamburger chains.

As the pressure builds on packers, that pressure will be passed further down the production chain, first to cattle feeders and then in some form to cow/calf producers.

Food Safety Is The Driver

Food safety is the engine that will drive auditors out of the packing plants and onto farms and feedlots. The restaurant companies are scared to death of bovine spongiform encephalopathy (BSE).

Billions of dollars have been lost in Europe and Japan because of the disease. Just four cases of BSE in Japan ruined the U.S. beef export business this fall, and beef consumption in Japan has fallen by 50%.

McDonald's, Burger King and Wendy's currently require every feedlot to sign affidavits that they have not fed ruminant protein to their animals. Plants are audited on their ability to produce an affidavit for the loads of beef they deliver to the hamburger grinders.

In the future, auditors may be visiting individual feedlots to check the mills for compliance. At the same time, animal welfare also can be audited.

It will be impossible to audit thousands of ranches and feed companies that supply feed supplements for cow/calf operations. My biggest fear is that BSE could get into the U.S. via ruminant protein that is mixed into protein supplements for mother cows.

Last year, I visited a trade show and was alarmed at what I saw. Protein blocks from two, small, obscure companies listed animal protein on their ingredient labels. The salesmen didn't know what the animal protein was.

I'm concerned that beef materials could get formulated into these blocks. Ranchers must insist that their suppliers document that the blocks are free of ruminant materials.

Auditing of both food safety and animal welfare by major beef industry customers is going to increase. The audits will increase because they work.

The periodic animal handling and welfare audits required by the major hamburger chains have brought huge improvements in the stunning and handling practices used at the packing plants. The restaurant chains also refuse to buy from any plant that actively seeks downer (non-ambulatory) cattle as part of their regular business.

I designed the scoring system used in the audits to be simple and very objective. In training the auditors, I learned that the auditing system had to be simple and specific. This enables the auditors to apply it in a fair and uniform manner.

Each animal is scored on a yes/no basis on the following variables:

  • Insensibility,
  • Stunning,
  • Percentage of cattle electric prodded,
  • Percentage that fall down and
  • Percentage that vocalize (moo or bellow).

Each plant also must have written policies on handling downers and on training. Some of the plants are excellent. I recently toured a large plant with Adele Douglass who runs the Free Farmed Program for the American Humane Association. She was amazed that the cattle were handled so calmly.

USDA has stepped up enforcement of the Humane Slaughter Act (HSA). These actions have already had an effect on how producers handle downers. A truck that is unloading at a packing plant becomes part of the official USDA establishment. The act forbids dragging downers off a truck or dragging them in the plant.

The fed beef sector is already being affected. Some plants now have the policy that any animal that is unable to walk onto a truck stays at the feedlot. The USDA has also hired many new inspectors to travel around the U.S. enforcing the HSA.

For copies of the audit procedures, visit

Temple Grandin, PhD, is a designer of livestock handling facilities and an assistant professor of animal science at Colorado State University in Fort Collins. In addition to teaching, she consults with the livestock industry on facility design, livestock handling and animal welfare.

Buyers' Market

I've had a half-dozen phone calls from feeders in the last few weeks telling me about cattle they've purchased and naming producers they will or won't do business with in the future,” says Phil Schooley, owner and manager of the Bloomfield Livestock Auction, Bloomfield, IA.

So goes the auction business in an industry quickly evolving from the average production and marketing of individual producers toward the coordination and marketing of similar cattle that fit a handful of value-added specifications.

Schooley explains cattle feeders are keeping track of whose cattle work for them and whose don't, evaluating them against specific pricing grids and value-added systems.

“Cow/calf people are being put on lists, and I'm sure they don't even realize it,” he explains. “The same thing happened in the hog business between five and eight years ago.”

The concept of bringing buyer and seller together to decide the price of a product at a given time and place through competitive bidding — the quintessence of supply and demand — is still as simple and powerful as when Adam and Eve set the first market on fig leaves.

“True price discovery comes from the auction way, it sets the market every day,” says Max Olvera, manager of Cattleman's Livestock Auction, Gault, CA. “As long as people raise cattle, auction markets will still be in business. These producers have to have an outlet for their cattle, whether they have 10 head or 1,000.”

Buyers' desires, however, tend to fashion and forge the tools and services that sellers need to accommodate those desires. That's a facet that's changing rapidly these days.

The industry's focus is shifting toward providing consumer-friendly beef products that are convenient and brand worthy, says Ken Jordan, executive vice president of cattle operations for eMerge Interactive. As a result, “retailers, packers and processors want more predictability, and that shifts the kind of cattle that fit these programs. It changes the way we have to market the cattle and the services we have to provide,” he says.

Selling Predictability

Basically, the industry is evolving away from its traditional commodity status, Jordan explains.

“The picture is not 100 percent clear yet, but the direction is becoming more evident every day, and it's beginning to snowball,” he says. “Some feedyards are beginning to require process verification for any cattle they buy; others already require that calves be weaned and preconditioned.”

At eMerge, Jordan says the number of verified weaned and preconditioned cattle selling through their premium auction sales tripled the last two years. Calves in these sales are electronically identified, commingled and sorted into load lots with no more than a 75-lb. spread from top to bottom.

Compared to other cattle selling in the same auction markets at the same time, the cattle continue to bring an $8-$14/cwt. premium (basis 500 lbs.).

“The people on the cutting edge are not only talking about health programs, they're wanting to know if there is information on the cattle,” says Schooley. The information demanded includes everything from process verification to verified genetics, he adds.

Schooley organized the Iowa-Missouri Beef Improvement (IMBIO) program in 1995. The program allows area producers to commingle and market cattle verified for both health and genetics that fit predefined criteria.

About 100-150 producers participate in the program each year. About 10% of all cattle marketed annually through the Bloomfield market are IMBIO calves, and they typically bring a $3-$4/cwt. premium, depending on weight and season.

Besides being the product of specific health, genetic and process verification requirements, the cattle are commingled, graded and sorted into loads representing 50-lb. weight increments.

“Before last year, some of the participants were maybe going through the motions or doing it because I asked them to. Now, they realize that, while this may not be the perfect system, it's the right direction to go,” Schooley says. “At the very least, now they're a candidate for something bigger and better down the road because they understand the principles involved.”

Among the principles: buyers pay more for larger load lots, information and calves with lower health risk.

Even in areas where producers haven't yet demanded specific new services, markets are beginning to position consignors to take advantage. For instance, Olvera encourages consignors to vaccinate their calves. His market also offers consignors the chance to commingle cattle to increase the lot size and uniformity coveted by buyers.

“The days of just opening the gate, cattle coming in and the auctioneer beginning his chant are pretty much over,” says Olvera. It used to be that calling order buyers to let them know when the sale was and how many would be offered was enough, he says.

“Now, they want to know how many five-weight calves there will be, how many six-weights, how many black-hided cattle, who they're from, how many have been vaccinated. They want to know about the cattle,” Olvera says.

Coordination Is Key

Knowing isn't enough, however. Schooley says that if producers aren't coordinating their efforts so buyers can scoop up load-lots of similar cattle, the benefits of preconditioning and verification can be diluted to nonexistence.

“Even if you have a herd of 500 cows, you'd be fortunate to have two pot loads of uniform steers or heifers. With 500 cows, you probably couldn't fill one pen at the feedlot,” explains Schooley. If feeders can't fill loads and pens with value-added calves, they bid the same for them as everything else, he points out.

Following the same path, Schooley explains the industry push for carcass data might make sense, but what it can accomplish is limited if producers continue to work on their own.

“People think if they have their own house in order they'll be O.K., but nothing could be further from the truth,” he says. “We are going to have to learn how to cooperate, work together and be part of organizations and cooperatives willing to do things in a like manner if we are going to gain leverage in the market place. We can't continue to market mixed fruit if we want to gain market leverage.”

Schooley believes that — within five years — if a cow/calf producer isn't part of a health program and isn't working with genetic and management parameters bigger than his own operation, “it will be pretty scary to just have a set of cattle to sell.”

What's more, Schooley believes auction markets can either be part of this coordination or be bypassed completely. “You have to be willing to be an organizer and a coordinator, putting people together. Because if these people put themselves together, they won't include the auction market.”

As intrinsic as auctions are to establishing the foundation cattle market, business has already been tough during the last decade. Declining cattle numbers, higher labor and maintenance costs and competition from other marketing methods have created defacto-consolidation where fewer markets are absorbing more of the cattle.

“I think auction markets will get off their duffs and do some of these things or be left to sell commodity cattle,” Schooley says. “And, I think there will be such a difference in price between commodity cattle and these others that it will be tough to stay in business.”

“In the auction business, volume is the key. If you can organize your customers a little bit and get them on the same page, then there are opportunities to add value to the product,” he adds.

Service Is Still Central

Just like the producers they serve, it's true some auction markets have been more eager to fight against change than embrace it. But it's also true that auction markets in general are often unfairly derided as the industry culprit when it comes to higher risk, put-together cattle. In fact, there's no question that for a majority of cow/calf producers, local auction markets still represent a primary consultant for management and genetic selection decisions.

Although Olvera expects tools and services offered by his market and others to shift with demand, he believes survival mostly revolves around good-old fashioned service.

“The relationship you build with your customers goes way beyond sale day,” says Olvera. “We pride ourselves in service. If you don't take care of the buyers and sellers, there won't be any.”

Olvera says his firm is coming off two of its most successful marketing years in its 35-year history. They marketed about 100,000 head each of the past two years.

For the producers and auctions that adjust to shifting demand, these market operators believe the future can be brighter than the past.

“I'm more optimistic about the beef business today than I've been in the last 30 years,” says Schooley. “There will be all kinds of opportunities. It's just a matter of who will be willing to step up to the plate and take advantage of them.”

My 5 Steps To Cow/Calf Survival

Who will be a beef industry survivor? Probably those who are already the best managers of operations, finance and marketing.

Since none of us can predict the future as well as we would like, my list of survivability traits will probably differ from those most commonly seen. Change is certain. The events of Sept. 11 changed the beef industry — perhaps permanently, most likely temporarily.

Consumers seem to be somewhat unpredictable and led by innovation and lifestyle changes. Yet, they set our direction. There will be changes in demand, technology, information, attitudes, society, politics, weather, markets, etc. We must be equipped to adapt.

These are the traits I suggest of a beef industry survivor in the cow/calf sector:

  • A survivor will use a systems approach to management that's both integrative and holistic. He'll try to understand all the variables and interactions in his own production system, the entire beef industry and then the national and world economy with its social, cultural and economic interactions.

    Integration is our best attempt to bring together all the pieces that help in our prediction and decision-making. Enough information is always available for the good operators to survive and thrive. It's our ability to access, evaluate and use the information that separates the successes from the failures.

    Knowing which information is worthy of our time is the struggle. To be holistic means to consider the effects of our decisions on the whole system in relationship to our goals and values. Any contemplated change in system structure or input use needs to be carefully analyzed to account for the good and bad that can result from the change.

  • Survivors will strive for continuous improvement of their key resources — land, livestock and people. To be vital, an organization of any size must be a learning, growing organization. This continuous improvement must start with people and then move to land and livestock.

    Survivors will be lifelong learners and foster that throughout their entire teams or families. With quality learning as an ongoing practice, improvement in the land and livestock is almost an automatic consequence. It's hard to resist a better way to graze or manage land, or a way to improve a cowherd.

  • They will use good planning and decision-making tools. These tools begin with good production and financial records.

    Weaned calf crop percentage, death loss percentage, pregnancy rate by age group, weaning weights and sale weights are vital to good decision making. Enterprise and support center accounting are important to know where money is made or lost.

    Computers have made this much easier in recent years. A little time spent at bill paying, pregnancy checking, weaning or sale time can make lots of difference in our ability to make good decisions. Financial planning tools — such as internal rate of return, net present value, discounted cash flow, etc. — can help avoid foolish expenditures.

    Just knowing your cash flow with accuracy can help avoid too much debt, which is the number-one cause of ranch failure. Combining production data and financial data with day-to-day observation can help with most decisions. The most important decisions are those that choose and size enterprises.

  • Survivors will wage war on unit cost of production. Whether it be a 400- or 600-lb. weaned calf, a 750-or 850-lb. yearling, a bred replacement heifer or a carcass sold into a value-added marketing alliance, the unit must be defined and the cost pushed as low as possible for the desired quality and unit size.

    Competition will force us to do that. Survivors will do it better.

    If land is owned or leased by the acre, profit/acre is more important than unit cost in knowing cost effectiveness. Major costs are land, fed feed and labor.

    The best way to reduce land cost is to make it more productive. The best way to reduce fed-feed cost is to graze more and feed less, especially for the cow. Cheap corn may be cheaper than pasture for growing calves and yearlings. The best way to reduce labor cost is to increase cows/person. This usually requires ingenuity and reorganization.

  • Survivors will place strong emphasis on marketing. They will look for value-added opportunities in their own operations and in industry partnerships and alliances. Each animal, including culls, will be sold to its highest and best use. Survivors will understand risk management — both for production and market risk — and will have access to risk management tools when needed.

    A manager who's developed these five attributes will be better able to predict the future and adapt to fit new circumstances. He or she will be able to make decisions that are economically and ecologically best for both the short and long term. Best of all, he will be able to stay ahead of the competition and not only survive but thrive.

Burke Teichert, PhD, is general manager of the Rex Ranch in Ashby, NE. The Rex Ranch is composed of three units (locations) in the Nebraska Sandhills. It's primarily a cow/calf operation, carrying some steers to yearling. The ranch retains and breeds a high percentage of the yearling heifers and sells bred heifers and bred cows — often to repeat buyers. The ranch also uses AI, EPDs, ultrasound, performance and progeny testing to produce its own bulls.

A New Industry

The beef industry's fast-forward button has been pushed. Over the past six years, we've experienced more change in the beef industry than in the previous 60.

  • We've observed ever-increasing consolidation of the feedlot, packing and retail sectors, fueling considerable debate throughout the industry. Vertically and horizontally coordinated production systems (alliances) have emerged.

  • After years of talking about it, value-based marketing is here. More than 300 new, convenient, tasty beef products have reached the marketplace, and we've learned that brands are important to consumers. Beef demand turned upward for the first time in 20 years.

  • On the genetic side, there is increased emphasis on carcass traits. DNA markers for tenderness, marbling and ribeye area have been identified. Ultrasound data is being incorporated into genetic evaluation programs.

  • We've observed increasing use of hybrid or composite bulls as a means of simplifying crossbreeding systems while still harvesting a significant amount of heterosis.

  • Recalls of pathogen-contaminated beef have directed industry resources to much-needed research on intervention strategies.

  • Instruments that can accurately assess yield grade at line speed have been developed.

  • The events of Sept. 11 altered many facets of American life; how they may impact our industry long-term is yet to be determined.

So What's Next?

The rapid-fire events of the past six years make one ponder what the future holds for us. Whether we like it or not, the structure of the beef industry is shifting to a more industrialized model of production.

This doesn't mean the beef industry will vertically integrate to the extent of the poultry industry, but coordination between and within segments will grow.

This is occurring in all sectors of the food industry because consumers have gained a greater voice. They're demanding with their purchasing power unique products and new modes of delivery. More control and coordination is required throughout the food supply chain to meet these demands.

Globalization is also driving the need for increased coordination. By the end of the decade, 80% of the fed cattle could be marketed in various forms of value-based, coordinated systems.

In 1998, branded products accounted for 10-12% of beef sales. By 2010, branded products could account for 60% of beef sales. Some analysts predict that branded products will eventually make up 80% of the market.

The trend to case-ready beef, where virtually all fat and bone is left on the packinghouse floor, will have a major impact on the industry. Muscling will play a bigger role in determining value because of its impact on dressing percent and red meat yield.

There will be increasingly greater yield grade premiums and discounts. Carcasses fatter than YG 3.5 may be severely discounted. Demand for YG 2 cattle that quality grade Low Choice or High Select will increase. Demand for Mid-Choice or higher beef for upscale domestic markets and export will continue at its current level.

In spite of vigorous debates over the merit of USDA quality grading, its use will continue but may be augmented by instrumentation capable of classifying carcasses into tender and tough categories. The eventual hope would be to fine-tune the technology in order to numerically score carcasses for tenderness and price them accordingly.

The recently formed National Beef Cattle Evaluation Consortium will take genetic evaluation to a new level, generating EPDs for economically relevant traits such as tenderness, cow maintenance, days-to-market endpoint and certain reproductive parameters. DNA information from the National Carcass Merit Project will be combined with phenotypic data to enhance the accuracy of EPDs. The consortium also plans to develop decision support systems that will combine EPDs into an economic index that can be customized to a specific production and marketing scenario.

Recent research indicates that sorting semen into male and female cells may be economically feasible across the industry within the decade. Widespread application of cloning will come later.

DNA technology can now be used for parentage verification, sire identification of calves conceived in multiple-bull pastures and color genotyping. Future applications will include verification of breed composition and characterization of calves for their potential feedlot and carcass performance.

Food safety concerns will not go away, and animal welfare issues will heighten as they have in the poultry and pork industries. Guidelines developed by McDonald's, Burger King and Wendy's for their suppliers have set a precedent that will be adopted by other food companies.

It seems clear that consumers are going to want to know more and more about how their food has been produced and processed. Identity preservation (source verification) will become an essential component of U.S. beef production, as it already has in Europe and in some coordinated systems in the U.S. Biosecurity measures will be tightened to minimize the risk of foreign animal diseases such as foot-and-mouth disease and bovine spongiform encephalopathy (BSE).

In summary, specification production will be a way of life in the “new beef industry.” Unless their cattle fit someone's specs, it may be difficult for producers to market them except at significantly discounted prices.

Low-cost producers will be among the most profitable as they have been in the past. It will become increasingly advantageous, however, to participate in some type of system that rewards specification production and added value.

There will be room for both small and large participants in the new industry. But it will be necessary to develop a mindset of “interdependence” and a willingness to relinquish some measure of the independence upon which we have long prided ourselves.

Harlan Ritchie is a distinguished professor in the Michigan State University Department of Animal Science in East Lansing.

The Advent Of Super Service

Major restructuring is taking place in the beef industry just as it is in multi-national corporations. How will the beef industry be structured? Who will own it? Who will control it?

When a company or industry restructures, it strikes fear in employees, management, stockholders and/or owners. It is particularly worrisome if:

  • Your company/industry is mature or market share is contracting.

  • Your company makes or sells “something” that does not include services and marketing expertise.

  • You're a white, middle-aged male manager whose knowledge and technical skills of e-commerce amount to surfing the Web and e-mailing dirty pictures of Osama Bin Laden.

Unfortunately, all three conditions apply to many seedstock breeders, a segment whose pure capitalism and intense competition is what often attracts people.

In our segment, success traditionally is measured by the number of AI sires, sale ring tops and show champions a seedstock provider can claim. That's not surprising, as you're likely to find more breeders, breed association staff and university staff/scientists in attendance at cattle shows than at state or national cattle association meetings.

The current system includes a curious mixture of ego gratification and fierce competitiveness. This winner-take-all system does little to reward the most profitable genetics for the entire beef chain or produce consistent beef for the consumer.

In this system, individual animal values are based on uniqueness or rarity within a breed. The highest value is afforded to “extreme” seedstock that may solve problems created by the previous generations of “extremes.” The 180° turn from worshiping extremely large frame to the current exuberance for low birth weights is a classic example.

The seedstock industry has evolved from the Super Show to the Super Bull and the $100,000 donor cow. The next evolution will be the advent of several Super Service providers. These firms will cause major restructuring in the seedstock industry and create both winners and losers.

Here are the basics of Super Service.

  • Competent, knowledgeable people whose responsibilities include “placing” sires and genetics cow/calf producers need — not necessarily the ones they want. This will require spending hours on the phone and long days at farms/ranches, sorting producer's cattle and providing tech service for producers' cattle records.

  • Their aim is to “sell” consumers what they want, not what the industry wants to produce. Cow/calf producers are not consumers. They're partners and the first link in the chain of delivering beef to the consumer at a profit.

  • Super Service providers will “place” (at a price) genetic inputs including transferable heterosis to producers.

  • They will add real — not perceived — value to cow/calf producers' cattle, using systems and markets that add significant dollars to their customers' bottom lines. These may be genetic source-verified auctions, direct private treaty sales to feedlots, retained ownership agreements or contracts with integrated food companies.

  • Super Service will include a program for genetic source replacement females — crossbred females with specific predictable genetic inputs for maternal traits. They will be culled for small pelvic areas, bred AI to proven bulls, ultrasound-examined to guarantee a short calving period and developed to enhance future production. The Super Service provider will market these heifers, follow up on the results and act as arbitrator for any problems that arise.

  • Super Service providers will help build more value for finished cattle by developing and servicing retail and/or restaurant markets. These are markets that demand tasty, high-quality, tender, reasonably priced, source-verified beef.

This will entail spending considerable time and resources with restaurant managers, chefs, dealing with packers/processors, scheduling cattle for slaughter and consumer product promotion.

Most seedstock operations, including ours, lack the capital, land, cattle numbers and people to do it alone. A Super Service program will be a cooperative effort that will include auction markets, an animal health company, veterinarians, bred heifer developers, farmer feeders, feedlots, a packer/processor, a restaurant chain, franchises and a committed staff down to the last cowboy.

The main ingredients to Super Service are lots of time, modest capital and good people. It's not a new recipe; it's just returning to “the good old days” when neighbors helped neighbors.

Dave Nichols is a partner in Nichols Farms, a family-owned seedstock operation in Bridgewater, IA. They sell 600-700 Angus, Simmental and Nichols Composite bulls each year.

Since 1995, Nichols Farms has held two Nichols Genetic Source Feeder Auctions per year for their customers. They place their customers' feeder calves directly into alliance feedlots and sell nearly 600 commercial bred heifers per year. Finished cattle sired by Nichols bulls qualify for premium prices for the Nichols Beef currently being sold in several Machine Shed Restaurants.

For more information, visit, call 515/369-2829 or e-mail [email protected].