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Articles from 2002 In June


Federal Judge Rules Beef Checkoff "Unconstitutional"

The national beef checkoff program has been ruled unconstitutional by a federal judge.

On June 21, U.S. District Court Judge Charles Kornmann ruled that the checkoff violates producers' rights in the First Amendment, and then he ordered a halt to checkoff collections starting July 15.

The Livestock Marketing Association, the Western Organization of Resource Councils and several individual producers raised the challenge of the checkoff's constitutionality in a case against the USDA, the Cattlemen's Beef Promotion and Research Board and Nebraska Cattlemen Inc.

U.S. Secretary Ann Veneman says she is disappointed by the court's ruling and is consulting with the Department of Justice to determine the next steps.

Meanwhile, the National Cattlemen's Beef Association (NCBA) is confident the case will be overturned on appeal and the judge's ruling stayed so that the checkoff can continue while the case advances to the next court level, says NCBA president Wythe Willey.

"We believe this ruling is only a temporary setback for American beef producers," he says.

USDA and the Justice Department have promised to vigorously defend the beef checkoff, Willey says.

"Fortunately, the beef industry has an extremely strong case, and we believe we will prevail in higher court. The checkoff has been and will continue to be an effective way for producers to invest in their future," he says.

Launched in 1986, the checkoff program requires beef producers to pay a $1/head fee on cattle sold in the U.S. and raises more than $80 million a year. Half of that goes to the Cattlemen's Beef Promotion and Research Board and the other half to qualified state beef councils.

An independent survey released in January indicates that 68% of beef producers approve of the checkoff program, according to NCBA.

To read the court proceedings online, click here.

The Road Warrior of Agriculture

http://www.industryclick.com/magnewsarticle.asp?newsarticleid=329670&magazineid=20&SiteID=5

Brazil Looks North

You'll probably never meet Marcos Minghini, Liza de Paulo or João Vinicis Pratini de Moraes. But, the trio represents a looming competitive threat to U.S. beef producers.

Minghini is a Brazilian cattle farmer, while de Paulo is a scientist for a large Brazilian agribusiness. Pratini de Moraes is Brazil's agriculture minister and may be the most powerful, yet underrated, agripolitico in the world.

Already boasting the planet's largest commercial cattle herd, Brazil is clearly a formidable player in today's international beef market. But, with 165 million cattle currently grazing 370 million acres, Brazil could put another 180 million-200 million acres into production — “without cutting down a single tree,” as Pratini de Moraes says. These areas of undeveloped savanna equal the size of France and Germany — or Texas and New Mexico.

The Brazilian beef story grows more ominous.

  • Production costs are a third to half of what American ranchers face. Brazil's costs are better compared to Australia's grass-fed beef system, however, but even then, Brazil wins out — at a 15% lower cost of production.

  • Brazil is close to removing foot-and-mouth disease (FMD) as an export impediment. Its economy and political system are relatively stable. And recently, Brazil has filled the beef production void left after Argentina's economy and political system crashed last fall.

  • Beef exports, along with sugar, orange juice, coffee, soybeans, poultry and pork, are seen as Brazil's pass into First World status.

“Europe is our biggest trade partner, and we will do everything possible to grow those markets,” says Pratini de Moraes. “But, we also know there are other areas where we can gain markets for our beef and other agricultural commodities.”

He's talking about the U.S., and the Brazilian agriculture minister has been in close dialog with U.S. agricultural and trade officials on market access, gradual elimination of export subsidies and revision of internal supports where they affect external markets.

How all this bodes for U.S. beef producers is becoming very clear.

“We can compete very well with any beef producers in the world,” Pratini de Moraes says. “Agriculture will be a focal point of all world trade negotiations in the next few years — and we know we have a strong position from which to negotiate.”

Pratini de Moraes believes improving the income of rural-based people and keeping them from moving into the already over-crowded cities is critical for his country's advancement. And, he believes that agricultural development must come via market channels, not at taxpayers' expense.

“We're not going to reach those goals through artificial methods,” he says firmly. “We do not subsidize farming,” he adds, though admiting some “family farmers” receive special tax credits to adopt certain state-of-the-art practices, but the credits have to be re-paid.

“In today's world, the competition is no longer between farmers — the competition is between treasuries,” says Pratini de Moraes. “Our treasury cannot compete with the U.S. treasury or the European treasuries.”

Agricultural subsidies are not only expensive, he says, but harmful to farmers in all countries.

“Every country should protect its agriculture,” he says, “but we think it is wrong when the form and level of support depress international prices.”

Pratini de Moraes is especially critical of export subsidies, which he says distort international trade and carry “an enormous social impact on people of the world.”

He points out that last year the U.S., Japan and the European Union combined to dole out more than $1 billion/day in agricultural subsidies.

“If the rich countries would give 10% of what's spent in subsidies to help feed the world, there would be no more hunger on Earth,” he says.

It's a sentiment widely held by Brazilian beef producers. For instance, Marcos Minghini, a medium-sized beef farmer (300 cows) from the southern state of Paraná, has a hard time understanding why he should be asked to compete against producers in subsidized countries.

Like American producers, Minghini says he's wants a level playing field. “If other countries would reduce their barriers and subsidies, we could compete on the same basis,” he says. “We could compete against anyone if it were simply a matter of markets.”

Francisco Luiz, president of the Sociedade Rural do Paraná — a group similar to a state farm bureau — understands why Europe and America subsidize their food systems.

“We understand these countries think it is necessary for national security. What we can't understand is why they impose quotas, tariffs and unscientific sanctions that rob others of the opportunity to compete in international markets,” he says.

Packers And Production Alliances

Export competition isn't the only thorn in the sides of Brazilian beef producers. They also deeply distrust meat packers, who they view as an impediment to competition.

About 90% of all market cattle are sold directly to Brazilian slaughterhouses, the majority of which are small and inefficient by U.S. standards. In Paraná, for example, 33 facilities kill an average of 200 head/day. Another 81 kill 60 head/day. Paraná also has some larger “conglomerate” slaughterhouses — but they're few and far between.

Beef farmer Edson Gaudêncio, Santo Antonio, Paraná, says this packing structure catches most Brazilians between a rock and a hard place.

“With the small slaughterhouses, you never know when you will get paid,” he says. Cattle checks often take more than a month to be delivered. “And the bigger slaughterhouses that can guarantee payment sometimes form cartels to develop one price among them,” he adds.

Gaudêncio and his neighbors are trying to find other routes to domestic and international markets. They're selling custom-processed beef directly into retail outlets. Last year, 10% of Gaudêncio's production from his 400 cows was sold through the international Carrefour® supermarket chain.

“This concept is new to us, and we're still working to make it better,” he says. “Maybe someday it will allow us to get around dominance by the big slaughterhouses and the uncertainly of payment from the small slaughterhouses.”

The Brazilian cattle industry is based on “natural” production. Loosely translated, cattle are grown with no added hormones. But natural production goes a step further at Fazenda São Miguel, one of southern Brazil's showcase cattle farms. Part of the family-owned Independência agricultural company, São Miguel has become a model for large-scale, organic beef production.

About 12,000 of São Miguel's 65,000 head grown each year are “fattened” organically on its lush grasslands. The organic beef, along with most of São Miguel's traditional production, is exported to Chile, Argentina and Europe.

No fertilizers, antibiotics or vaccines are used in these organic operations. And, it's working better than anyone at São Miguel expected.

“To our surprise, we've found it's easier and more economical to raise beef organically,” says João Mella, a cattle buyer for Independência. “We're also receiving 25% better prices in the organic beef market.” Mella says he passes 10-12% in added profits back to the organic calf producers he buys from.

Key to this system is biochemist Liza de Paulo. She makes sure strict international organic production rules are followed at São Miguel.

“We are constantly testing our production — and we are watched closely by our customers to be sure we produce to their standards,” she explains.

And because Independência's operations also include a slaughterhouse, fertilizer plant and tannery, de Paulo and her lab mates continually monitor virtually everything produced and discharged by Independência factories.

“We must also follow very strict environmental laws to avoid polluting the water and soil,” says de Paulo. “This is my responsibility, legally and morally, and I take it very seriously.”

Next month: A closer look at Brazilian beef production practices and how U.S. trade officials are addressing competition from Brazil.

Switches and Dials

Someone who heard me mention my management concept of “switches and dials” asked me to spell it out. So here it goes.

Switches, of course, are on or off, up or down, black or white. If you manage with switches, you probably like your rules clear-cut and comprehensive. You like your boss to tell you precisely what to do and what not to do, and you pass it down.

I would like to be a switch manager, but I'm not smart enough. Or at least I don't know enough. As Dirty Harry says, “A man's got to know his limitations.”

Knowing my limitations, as well as the limitations of my circumstances, I'm forced to be a dial manager. I manage like I take a shower. I don't get in the shower and flip a switch for the right water temperature. I turn the dials until I get the right mix of hot and cold, and I make adjustments as necessary.

Dials are better suited for the gray areas, for situations or problems where the pros and cons seem rather evenly matched but incompletely known — where uncertainty abounds. Dials are better for delegation and working through others, which is most of the time.

Dials are appropriate when you know the direction or destination but others know the roads, or at least where the maps are.

Years ago, I read that the modern CEO must be comfortable with ambiguity because his or her world doesn't offer clarity or certainty. I must confess: I'm not fully comfortable with the ambiguity, but I am resigned to it.

Turning The Dial

Switches impose all-or-nothing, one-size-fits-all, cookie-cutter solutions. But one size rarely fits all. Dials aren't perfect in that regard, but they help.

Hypothetically, suppose I decided we're spending too much on travel. With a dial, I can ask the senior management team to reduce travel in the next few months. They can work with you to raise the travel bar in ways that are appropriate to your circumstances and leave it to you to make the individual calls in the least disruptive way.

The wrong way to do it, in my opinion, would be to convene the senior management committee to write a common set of tougher travel rules for everybody.

The dial way leaves more judgment and responsibility in your hands. The switch way takes it away by writing all the rules so detailed as to cover all the possibilities. That's what they do in Washington, D.C.

Why would anyone even consider the switch approach? Bad rules are rarely made by people with bad intentions. They're usually made by people with good intentions trying to make them comprehensive, uniform, equitable and foolproof. They're afraid their good intentions will get lost in our interpretation and execution, so they try to write them into the rules.

Supporting Preconceived Notions

Let me mention a couple of books I read after I had been thinking in terms of switches and dials for quite a while. I didn't get the concepts from them, but they did give me reassurance that I may not be crazy after all.

One thing I have against most management books is self-assurance. They all have all the answers — never mind that they are different and contradictory answers. Based on my experience, cookie-cutter answers almost never work.

Every situation is unique, mainly because they involve unique people. The latest management fad may be good to know and may even be helpful, but you have to make a lot of it up as you go.

Last year, I ran across a book entitled Management of the Absurd and subtitled “Paradoxes in Leadership.” Author Richard Farson — a psychologist, educator and CEO — gave a clear voice to my previously vague impressions along these lines. As I recall, each chapter in this book describes a paradox based on unintended consequences of management practices or fads.

The chapter closest to my switches and dials message is titled “Effective Managers Are Not in Control.” The overriding paradox is that all management techniques work and none of them works. The author didn't discuss it in these terms, but his was definitely a vote for dials over switches.

He said management expects appreciation for their efforts and to be thanked by the newly liberated. Instead, he said, the opposite usually happens because our efforts can never keep up with the rising expectations they generate.

The more you do, the more you're criticized for not doing more. Our only recourse, he said, is to keep track of the nature of employee complaints. They will continue or even increase, but if you're making progress, the nature of the complaints will change. They will become “higher order” complaints.

Managing The Absurdity

The second book is The Death of Common Sense by Philip Howard, subtitled “How the Law Is Suffocating America.” This book is filled with interesting anecdotes about how our laws — read that “switches” — have gotten so detailed and comprehensive that they lead inevitably to absurd results.

These laws weren't written by bad people, but by good people with good intentions who didn't trust folks like us to apply the laws the way they wanted.

For example, even though she had the support of the mayor and nobody wanted to oppose her, Mother Teresa and the nuns of the Missionaries of Charity were unable to turn an abandoned building they owned into a homeless shelter. After two years of trying, Mother Teresa and the sisters couldn't get around the New York City building code requirement that all rehabs over two stories must have elevators, and their order didn't accept such modern conveniences.

A similar outcome resulted when a group wanted to put portable toilets into crowded areas of New York with no public facilities. The law said if you did that you would have to make them all wheelchair accessible — all of them — all or nothing. Nothing it was. They needed a dial instead of a switch.

In a Wall Street Journal article, the author told the story of the City of San Francisco paying $50,000 to have dead trees removed from Golden Gate Park. When a sawmill owner offered to pay the city $40,000 for the privilege of removing the dead wood, the complications were just too great. They continued with their decision to pay rather than be paid.

One Size Fits All

There are many more such examples of “switch” management — and the author has told me he gets new ones in the mail every day — examples of absurd results that came from good intentions run amok.

Somewhere along the way, lawmakers quit trusting people like us to apply laws and policies with common sense and good judgment. They stopped trusting us to be fair and impartial. They started writing all the possibilities they could think of into the law itself. They believe one-size-fits-all laws are idiot proof.

The rest of us cooperated so we wouldn't get in trouble. People don't usually get fired for absurd outcomes if they follow the book. The process became more important than the result. Rulebooks are switches. And the security of switches, of having some hard-and-fast rules to follow, is seductive.

Dials have fewer unintended consequences. They're more flexible. They help us navigate the gray areas of uncertainty and incomplete information. They help us achieve our organizational goals without micromanaging.

Micromanagers are switch managers. Each switch flipped by those above you diminishes your authority and responsibility. But dials turned from above leave more of the responsibility with you. They may even require you to stick your neck out occasionally.

Successful managers don't always wait for more responsibility to be given. Sometimes they take the initiative and see what happens. But the main reason I prefer dials to switches is that I don't have to be as smart. I don't have to have all the answers.

This article is printed with permission of Bob McTeer, president and CEO of the Federal Reserve Bank of Dallas, one of 12 regional Reserve Banks in the Federal Reserve System. The Dallas Fed serves the 11th Federal Reserve District, which consists of Texas, northern Louisiana and southern New Mexico.

“Switches and Dials” was originally drafted as a talk to employees and then printed in News Lite, a publication of the Dallas Fed.

Backing a merger

I want to add my support to Laurie Lickley's April issue commentary (“Merge ANCW and NCBA,” page 16). I believe the merger can be seen in the handwriting on the wall, or else we will see the end of the American National CattleWomen. Thanks, Laurie, for such a well-written article. Several of us in Kansas have favored such a merger with the National Cattlemen's Beef Association for several years.
Jeanne Clawson
VP Beef Education
Kansas CattleWomen

Price Competitiveness

In regard to your April editorial (“Johnson amendment is a bad idea,” page 4), I'm not sure exactly what would happen to the beef industry if the Johnson amendment passes. Some of the economists say it would devastate the industry, while others say it would help the price competitiveness of the industry.

I think the argument for the Johnson amendment is whether the industry still has “price competitiveness.” The studies against the amendment have all talked about the industry and the amount of equity that would be lost if passed, not if it would increase prices.

I believe that in the short-term, prices would decrease. But in the long-run, the packers would have to use the economic forces of supply and demand to bid on cattle, not the amount of captive supply they have available.

On April 4, $73 was paid in the country for live cattle by a packer who was short bought. Another packer who had several captive cattle then pulled those cattle forward so they did not have to pay the $2 higher money. The result was a $5-$6 loss/cwt. on the live bids.

The only reason I can find for this is that packers relied on their captive supplies and pressured the market. It was not the supply and demand of the market because beef has been higher through this time.
Brock J. Thurman
[email protected]

A Good Job Rendered

Having read your April issue articles on rendering (“Wrangling Over Rendering,” page 68, and “Is Composting Viable? on page 70), Senior Editor Clint Peck did a good job of presenting the issues. Well done!
Terry Klopfenstein
University of Nebraska-Lincoln

Send reader letters, with name and address, to BEEF, 7900 International Dr., Suite 300, Minneapolis, MN 55425; or e-mail [email protected]. BEEF reserves the right to edit for length.

Brazilian Beef

A picture really can say a thousand words. And, while a week-long trip through Brazil's cattle country can only scratch the surface of this country's vast beef industry, it goes a long way in learning a few facts and dispelling a few myths.

The country produces almost 7 million metric tons of beef each year from a total population of 165 million head.

One “missing picture” in the Brazilian cattle industry though, is that of a North American-style feedlot. Only 4% of the cattle killed each year are “fattened” in feedlots. With Europe being Brazil's main beef export market, the majority is grown to finish under a hormone-free regime on grass pastures. At times during the dry season, small amounts of corn or soybean meal may be used to supplement grass gains.

Most cattle are sold directly by farmers to small, inefficient slaughterhouses — seldom with intermediate traders. Only breeding stock is sold through live auction markets.

Brazil has tripled its beef exports in the past three years to about 550,000 tons. Through export-certified entities like Bertin Group Ltd., the Brazilian government hopes to increase exports to 1.15 million tons by 2003. Brazilian beef is exported to Chile, Egypt, Germany, Iran, Israel, Italy, Netherlands, Saudi Arabia, the European Union and the U.S.

Forward opportunity hinges on today's cost

Bearish fed cattle and stocker markets (see “Market Madness,” page 8) may prevent sellers from offering summer bids high enough to entice cow/calf producers to forward contract their feeder calves and cattle this summer.

After all, many market analysts expect five-weight calves to bring $10-$15/cwt. less this fall than last; seven-weights about $10/cwt. less. That's based on supply-side fundamentals and a record-large equity drain from the cattle feeding business over the past five years.

“I don't think the reality of the current price crunch has really hit the cow/calf producer yet,” emphasizes Ken Jordan, vice president of cattle operations for eMerge Interactive. The firm traded in excess of 2 million feeder calves and cattle last year.

Between inter-segmental communication gaps in the market place and market uncertainty, Jordan expects many producers to market their cattle this fall. That's instead of forward contracting them this summer, which historically has offered the opportunity to lock in profits.

Hedging The Possibilities

But, a forward contract bid that locks in a profit continues to be one way cow/calf producers can manage price risk. That's especially true in a market like the current one, which has been more volatile than a skittish horse in a circus parade.

Of course, knowing whether to hold calves until fall markets arrive or cash them in for future delivery today has plenty to do with knowing actual breakeven costs, whatever the market conditions.

“Producers need to understand their production costs so they can have a realistic idea about the price,” says Travis Booher, director of cattle sale operations for eMerge. “They need to set a realistic price for what the market has been doing, while understanding their profitability level at the current market price.”

Notice the emphasis is on setting the price and asking for it rather than asking others to price them, then deciding whether that sounds low or high and not really knowing whether costs make the price profitable or not.

Keep in mind forward contract prices, though locked in today, represent a market in the future. So, if you contract cattle in June for October delivery, the prices being paid for calves in the current June cash market have no relevance. You're setting a price based on what you believe the market in October will be.

Booher expects forward contracting to gain more industry use in the future as vertically coordinated supply chains seek to tie up cattle that fit narrowing specification windows. One of the barriers of participation today, he says, is that some producers have never done it before and aren't familiar with the standard mechanisms of a forward-contract trade.

Plus, in a perennial game of economic chicken, even producers who utilize forward contracts tend to wait until someone else sets the market.

“People are always hesitant to be the first one, and they wait for momentum to build to get an idea of what the price might be,” says Booher.

For the uninitiated, keep these standard forward contract components in mind:

  • Slide — This is the mechanism buyers use to discount the price when cattle are delivered to them at heavier weights than they purchased in the contract. For instance, if you forward contract five-weight calves for $95/cwt. but deliver them weighing 550 lbs., the pre-existing slide will adjust the price downward. Up to a point. Booher explains it's not uncommon for buyers to refuse loads that weigh 100 lbs. or more (per head) than what they contracted for.

  • Base weight — That's the weight you're contracting, and the point from which the slide begins.

  • Shrink — In order to try to offer fair and standard weigh-ups to both buyer and seller, cattle weighed on the ground are typically pencil-shrunk 3%, while cattle weighed on the truck usually receive a 2% pencil shrink.

  • Quality — This is a basic description of the cattle. Also, keep in mind when forward contracting that it's up to you to sort out the cattle that don't fit the description of the contract. Likewise, health papers are the seller's responsibility.

  • Delivery time — As it implies, you're agreeing to deliver the cattle by a certain time to a certain location. That means it pays to have a secondary plan in mind. As an example, if you contract in June for fall delivery and run out of feed by the first of August, it's up to you to figure out how to hold the cattle until the specified time of delivery.

“When you forward contract in a declining market, buyers are very specific in holding sellers to the terms of the contract,” adds Booher.

As much as anything, whatever the market, Booher says forward contracting has plenty to do with basic business philosophy. “Forward contracting is about knowing your production costs and being willing to accept a profit rather than hoping to hit a homerun,” he explains.

Cattlemen's Calendar

June 7-9 — National Cowgirl Museum and Hall of Fame Grand Opening, Fort Worth, TX; 800/476-3263.

June 8 — 39th World Livestock Auctioneer Championship, Dunlap, IA; 816/891-0502.

June 18-20 — Western Forage/Beef Group Pasture School, Lacombe, AB, Canada; 403/782-8030.

June 19-20 — 13th Annual Nebraska Ranch Expo, Bassett; 402/244-5434.

June 19-21 — American Society of Animal Science Symposium: Efficiency of Beef Production on Western Pastures and Rangelands, Fort Collins, CO; 928/474-2844.

June 20-22 — Independent Cattlemen's Association of Texas 2002 Trade Show and Exhibition, San Antonio; 512/620-0162.

June 20-22 — 51st Annual National Highland Convention, Mount Vernon, WA; 303/292-9102.

June 21 — University of Tennessee Beef and Forage Field Day, Knoxville; 865/974-7201.

June 29 — University of Missouri Forage System Research Center Beef Marketing Workshop, Linneus; 660/895-5121.

July 10-13 — Beef Improvement Federation Conference, Omaha, NE; 402/472-6417.

July 13-17 — Soil and Water Conservation Society Annual Conference, Indianapolis, IN; 515/289-2331.

July 14-17 — 2002 American Forage and Grassland Council Annual Conference and Trade Show, Bloomington, MN; 800-944-2342.

July 20-August 1 — National Institute for Animal Agriculture ID/Info Expo 2002, Chicago, IL; 270/782-9798.

July 28-31 — American Meat Science Association Reciprocal Meat Conference, East Lansing, MI; 217/356-5374.

August 13 — 2002 Arkansas Cattle Grower's Conference, Arkadelphia, AR; 871-246-2281.

August 22-24 — National Association of Animal Breeders Annual Convention and Technical Conference, Milwaukee, WI; 573-445-4406.

August 26-27 — OSU ANIM: Manure Science Review, Wapakoneta, OH; 330-202-3533.

August 27-29 — Grazing School (beginning) University of Missouri Forage Systems Center, Linneus, MO; 573-499-0886.

August 28 — University of Nebraska-Lincoln Gudmundsen Sandhills Laboratory Open House, Whitman, NE; 308-532-3611, Ext. 150.

August 29-30 — OSU ANIM: Manure Science Review, Wooster, OH; 330-202-3533.

September 9-11 — American Feed Industry Ass'n Liquid Feed Symposium, Westminister, CO; 703-524-0810.

September 10-12 — Grazing School (advanced) University of Missouri Forage Systems Center, Linneus, MO; 573-499-0886.

October 1-3 — Grazing School (beginning) University of Missouri Forage Systems Center, Linneus, MO; 573-499-0886.

Quality, Yield Or Both?

You've learned it isn't that hard — over time — to mold your herd with carcass EPDs. But where should you focus — quality, yield or both? Unfortunately, there's no simple rule of thumb on this one.

“It's a pretty complicated deal,” says commercial producer Jon Ferguson, Kensington, KS. “Yield versus quality is a tradeoff. What premiums do you get for yield grade? What premiums do you get for quality grade?”

“It is a complex issue and a micro-decision for the individual producer,” agrees Ted Schroeder, Kansas State University (KSU) ag economist.

“As a producer targets higher quality grades, he can get worse yield grades,” Schroeder explains. “As importantly, as a producer keeps trying to feed to higher quality grades, those last few pounds go on at a very expensive cost per pound.”

But, on the plus side, he says feeding to higher weights can result in higher dressing percentages. “You've got to consider the expected changes in costs and revenues that occur at the same time when you manage cattle targeted for a particular grid,” he adds.

Iowa State ag economist John Lawrence answers the quality versus yield question with more questions. “If you start chasing one trait, for instance quality grade, how does it affect the other traits?

“How does the optimal animal vary in different price scenarios? If the Choice-Select spread is $12, what did it cost you to get that $12? Did you have to give up gain or feed efficiency?” he asks.

Lawrence warns that the answers change under different price scenarios. “You'll get one result if there is a $4 premium for Choice and a different result if there is a $12 premium.

“The same thing applies with feed costs. There is less incentive to feed additional days to get more Choice in a pen if feed costs are high and the Choice-Select spread is low,” he says.

“There isn't a single answer,” says Clem Ward, Oklahoma State University ag economist. “If you have really good genetics and get 75% Choice or better, it would make sense to target a quality grid. If you get 40% Choice but have high-yielding cattle, with Yield Grades (YG) 1s and 2s, then a yield grid makes sense. Even then, there are different grids for high-yielding cattle and different grids for high-quality cattle.”

Ward recommends first taking stock at your ranch before worrying about grids. “Producers need to assess their resource availability and develop the genetics that will fit their circumstances,” he stresses. “What works for Montana may not work for Florida. Then, they can target the grids or alliances with the bulls.”

Schroeder says there's another step. “You have to know your cattle. You can't just work from averages. When we have a history on the cattle, it's fairly straightforward. We can more accurately predict performance and what added costs will occur to reach a particular target.”

“There are opportunities for both quality and yield,” adds KSU ag economist Kevin Dhuyvetter. “There is no reason both can't be profitable. Quality and yield aren't mutually exclusive. Find those genetic lines that do both.”

“To reap the maximum rewards on most grids, you are going to have to do both,” adds KSU animal scientist Dan Moser.

Producer Herman Laramore, Marianna, FL, shoots for that balance. He says, “My Angus-Brangus cows with a Charolais bull can fit either program.”

After retaining ownership and collecting carcass data for almost 15 years, his closeout sheets show cattle that are a little more quality oriented.

They're close to 70% Choice at YG 2 and 3. But that's with two-thirds of his cows and all of his heifers bred to Angus or Brangus bulls. Only a third of the cows (late calvers) are bred to Charolais bulls for a terminal cross.

After finishing at Tri-State Cattle Feeders in Hereford, TX, both crosses have been profitable for him selling on a live basis.

In the fall of 2001, though, he sold the bulk of his calves to Future Beef Operations, a beef marketing alliance that favors red meat yield. If that market continues to be viable, he can easily breed more of his cows to Charolais to boost red meat yield.

Or, he can stick with his current breeding program and move more into a quality-oriented grid.

Laramore comments, “It is good to have a happy medium. You better not get too far out in one direction because the market can go either way.”

Ferguson also has flexibility with his cattle. “Our terminal cross is a half Charolais/half Angus, and we are able to have a respectable amount of YG 1s and 2s, but also have acceptable numbers of high Select/low Choice animals. In my mind, it's kind of a nice compromise.”

Ferguson says the IBP grid he normally sells on rewards YG 1s and 2s. “That's a constant,” he says, “but the wild card in a grid is the Choice-Select spread. If it's $3, like it is now (mid-April), or $12-15, like it is in May or June, it changes dramatically.

“You have to assume what that Choice-Select spread is going to be when you market a group of cattle. Then, you've got to base both long-term genetic decisions and shorter term management decisions on those assumptions,” he says.

“It is not an exact science,” he maintains. “But it is one you can spend a great deal of time on and be rewarded handsomely.”

Becky Mills is a freelance writer based in Cuthbert, GA.

Sorting By Dollars

Figuring out which bulls provide the right economic balance between quality and yield is no problem for Dean Bryant. As a Purdue University employee in the '80s, he and scientists Ron Lemenager and Truman Martin developed an index that rates seedstock based on the dollar value of their EPDs. Now, the Monkton, MD, producer puts the index to work selecting bulls for his Angus operation.

First, on the question of whether selecting for quality or yield is more important, Bryant says, “We do both.”

He has compelling reasons for dual selection. He and partner Ed Burchell sell Angus seedstock, and marbling sells.

However, as an offshoot of their carcass testing program, Burchell, Bryant and Bryant's wife, Marcia, market their Roseda Farms Black Angus beef to upscale grocery stores and restaurants. Yield is a big deal because their branded beef sells by the pound. It's a premium-priced product and better provide a quality eating experience.

But, back to the economic index, Bryant says, “It's a simple concept, but it's hard to come up with an economic value.”

There are two indexes. One is general. It sorts on birth weight, yearling weight, milk, marbling, ribeye area (REA), fat thickness (FT) and Yield Grade (YG). The carcass index sorts on marbling, REA, FT and YG.

Since he helped develop the index more than a decade ago, the dollar figures may be a little dated; however, the index still serves its purpose.

In the carcass index, Bryant adds $40 for every point of marbling score.

“The marbling EPD is based on the cost of going from Select to Choice on a typical sized animal,” he explains.

REA is $11.43 for 1 sq. in. of ribeye; FT is a minus $89.25, and he uses a YG value of $8 in determining these numbers.

“If I was reworking it now, I would drop the REA and FT and use percent retail product. I'd also look at the average retail price of Choice, $2.90, $3 or $3.20, and plug that value in. But I haven't worried about changing it. The program still sorts out the bulls that are high in marbling and retail yield,” he says.

The proof is in the EPDs of the bulls and replacement heifers they produce. “We get EPDs for 0.5 marbling and 0.5 retail product pretty consistently in our program.”

They've also got numbers on a set of steers, the bottom end of their '99 bull crop, fed out in 2000; 7% were Prime, 57% qualified for Certified Angus Beef® (upper ⅔ of Choice), 93% were low Choice or better, and 7% were Select. As for yield, 71% were YG 1 and 2.

You can have both.

Out With Out Cattle

As more cattle producers move to grid marketing, they're learning a lesson row crop folks have known for years. Deductions hurt.

“Other than feed efficiency, probably nothing has more of an impact on a producer's profit than ‘out’ cattle,” says Dan Moser, Kansas State University (KSU) animal scientist. “Premiums can pale in comparison to the magnitude of the discounts.”

“One stag, one heavy, one dark cutter out of 80 head of high-quality, high-yielding, high-revenue type steers can wipe out most of the profit or increased revenue from a value based marketing situation,” says Ted Schroeder, also from KSU. “Two out cattle will certainly make it a losing proposition.”

John Lawrence, Iowa State University ag economist, says the classic example of the stiff punishments for outs are the penalties for overfeeding.

“Say there's a $20 penalty for a Yield Grade (YG) 4, and another $15-$20 penalty for a 950- or 1,000-lb. carcass. You could end up with a $350-$400 discount,” Lawrence says. “It does send a clear signal you don't want that to happen.”

However, Oklahoma State University ag economist Clem Ward says it's a risk you might have to take. “It's helpful anytime you can eliminate the bottom right hand corner of a grid — the standards, the YG 4s and 5s, the heavies and the lights. But if you're in a quality grid, it's a management risk. It might take some 4s and 5s to get the quality,” he says.

“The penalty for out cattle depends on the discounts in the market place at the time,” says producer Jon Ferguson, Kensington, KS. “On most grids, carcasses over 950 lbs. or under 550 lbs. are discounted. But this can vary significantly.

“For example, if the Choice-Select spread is high, it may not be as bad to accept a few more YG 4s or 950-lb. carcasses because you are getting rewarded handsomely for the Choice carcasses,” Ferguson says. “You have to be cognizant of where the discounts are on various classes of out cattle.”

He says, “Some grids have an allowance for a certain amount of out cattle.”

“The key is to minimize the chances of having outs occur,” says Schroeder. “If it's the cow's fault, get rid of her. On the other hand, don't blame her for a heavy. Her calf might have been the best performing calf in the pen.”

He states, “Manage more carefully with more use of intensive data. It is so tremendously important in order for a grid marketing system to be successful.”

Beef and bikinis

Say “Brazil,” and most folks mentally image the wondrous splendor of either the Amazon River Basin or bronzed beauties cavorting on Rio's beaches in swimwear the width of dental floss. But those images belie what life as a whole is like for the 170 million Brazilians who occupy nearly 50% of the South American continent.

An area blessed with tremendous beauty, natural resources and potential, Brazil is a Third-World country in many respects. Infant mortality rates are high by both world and Latin American standards. Life expectancy is 63 years — 58 years for men.

A significant share of the population is landless. Many live without running water, electricity and adequate health care. On the whole, the transportation system is poor. In some remote areas, the Brazilian government admits that slavery still exists.

Compassion aside, why should U.S. agriculturists, particularly beef producers, take notice? They should care because Brazil plans to use agriculture, and specifically beef production, as a lever to First World status.

BEEF Senior Editor Clint Peck recently spent five days in Brazil as the guest of Brazil's Ministry of Agriculture and its Exporters Promotion Agency. During the trip, Peck and journalists from Europe, Australia, the Far East and Middle East visited with Brazilian agricultural officials and toured export-approved packing plants and ranches.

Peck is no novice to South American agriculture; this was his second trip to Brazil. He's also been to Argentina several times, as well as Peru, Bolivia and Chile.

Brazil's purpose in sponsoring the trip is to lay the public relations groundwork as it gears up to steal markets in Europe, Asia and the Middle East from the U.S. and Australia. Should the U.S. be concerned? Consider this:

Brazil tripled its beef export volume in just three years to a total of 750,000 metric tons (mt). By comparison, the U.S. exported 1,148,248 mt in 2001, down slightly from the previous year's 1,224,572 mt. Nonetheless, in a relatively short time, Brazil has climbed into third place — behind the U.S. and Australia — among the world's largest beef-exporting countries.

Brazil's goal is to be the world's biggest beef exporter by 2005. The country is betting that its abundance of forage, its grass finishing system and cheap labor can deliver what many countries are seeking. In Europe, that means grass-finished, non-implanted beef fed no growth promotants or animal proteins.

On paper, it seems Brazil has tremendous potential.

  • The world's largest beef herd — 165 million head.

  • Nineteen percent of the world's total farmable land of which only about 10% is currently used.

  • Eight river systems that carry about 20% of the world's fresh water.

As noted earlier, however, the country also faces tremendous challenges in realizing its goal of becoming the world's beef export powerhouse. But, Brazil clearly sees the injection of economic vigor into its rural areas as the key to future stability.

This month on page 18 (“Brazil Looks North”), Peck begins his two-part account on Brazil's beef industry and its potential as a world beef competitor. He'll also cover the U.S. perspective, as well as what industry leaders have to say about the challenge.

In addition, you'll find more detail this month on the Brazilian industry by going to www.beef-mag.com. Click on “Brazilian Beef” on our opening page. Also, look for information on how the 2002 farm bill, which at press time had just been signed into law, will affect the beef industry at www.beef-mag.com.