For all the opportunities that come with value-added markets, they can be the tail wagging the proverbial fleabag if you lose sight of the core product while focusing on the extras some buyers are enamored with some of the time.
Far as that goes, it's still too easy trying to market what you have to sell, rather than identifying markets and demands before building the product.
“Do the marketing first and the production second. Know where and how you will sell the calves you intend to produce, and maybe even who you'll sell them to. Then go back and create the calves that market wants in a way that makes economic sense to you,” advises Bill Mies, beef management consultant to Elanco Animal Health's Global Beef Management Group.
Mies has lots of years buying and selling cattle behind him as feedlot manager for one of the nation's largest cattle feeding organizations, conducting practical research and teaching at Texas A&M University, managing vertically cooperative beef supply chains… Well, you get the idea. In other words, he knows from costly experience the opportunities and dollars lost when you put the product ahead of knowing what the market wants.
Mies says this reality is magnified if producers start spending money to add value to a product for which the market may have little use. For instance, few buyers are interested in cattle of questionable health, or those that fail to perform on feed or in the meat, even if they happen to be verified for source and age.
The mainstream value base
Quibble over the specifics, but generally the mainstream value base is cattle that are healthy and stay that way; can convert feed to gain efficiently; and are able to quality grade at least High Select and yield grade no worse than 3, without being out of bonds for carcass weight (550-950 lbs.).
If your product fits this mainstream demand, or the different needs of a specialty market you've identified, you can start thinking about adding the value attributes the market is seeking (see sidebar, “Current value-added reality”).
As you ponder those possibilities though, Mies recommends assessing how many of those attributes you could add. The reason has to do with the vagaries of premium product utilization.
Think of it this way. Suppose you have cattle that mainstream feeders are fighting to own. Suppose the cattle are black, possibly qualifying them for a Certified Angus Beef® (CAB) premium. Although those cattle are worth more to the feeder, only a certain percentage will qualify for CAB. According to Mies, that means the premium a feeder can pay is less because he has to account for the non-qualifiers.
Now, suppose these same cattle are also verified for age and eligible for export to Asia. Between that and being black, the feeder knows he likely can sell all the cattle in one premium market or the other, so the producer can retrieve more of the added value. That's when value-added attributes become additive for the producer.
But, no one is going to take your word for it.
“The more records you have on the cattle, the more opportunity you have to increase their value,” Mies explains. “Keep more records than you think you'll ever need, because you will.”
He's talking about things like keeping track of vaccines used, including the lot numbers; recording dates and animal health protocols for each set of cattle; asking for and keeping origin and performance data on bulls purchased for the program; that sort of thing.
“I've seen producers with value-added cattle who couldn't retrieve the value simply because they didn't have the records,” Mies says. “And, I've seen producers with lesser quality cattle earn more than that producer because they had the records documenting the value they added.”
Of course, Mies has also seen people with superior cattle and records frustrated by the amount of value they're able to retrieve. There are plenty of reasons, but he points to two common causes that producers can control.
First, if you sell your calves to a different buyer every year, those calves will always be unknowns in the buyer's eyes. According to Mies, return buyers can afford to return more of the added value the next time they buy the calves. The first experience tells them how reliable the records are, and how the cattle perform in a specific system. That opportunity is the trade-off for enjoying the added competition of new bidders.
What should be more frustrating to producers, since it's so avoidable, is losing the chance to retrieve value because they market their cattle in such a way that buyers have little or no opportunity to recognize it.
Consider preconditioning. Unless you enroll the calves in a program recognized by buyers, or market them in enough volume, such as part of a special preconditioned sale, buyers have little reason to pay more.
“To realize value, you must market value. It does no good to do all the right things and then throw the calf to the marketplace as a generic product,” Mies says. “The only reason to do anything to increase the value of a calf is because you intend to market the calf to realize the increased value.”
Similarly, even if you're not trying to retrieve added value, make sure you're giving buyers enough time to buy them.
“Work ahead of yourself. Don't wait until you order the trucks to let someone know you're ready to sell your calves,” Mies says.
Current value-added reality
Here's the value-added potential Bill Mies sees for cow-calf producers today:
Weight — “This year, the heavier the cattle, the higher the value due to the price of corn.” In other words, heavier weights will likely be discounted less than normal.
Premium breed-based programs — “Certified Angus Beef and Certified Hereford Beef need more supply, so it continues to be a ready market.”
Preconditioning — “The increased number of calves that will go to grass first (because of corn prices) increases the demand for calves that won't get sick… Anything that reduces labor or the amount of required skilled labor increases value.”
Source verification — It hasn't been worth much, but mandatory country-of-origin labeling could change that.
Age verification — Asian age requirements have been worth about $2.50/cwt. to those selling age-verified cattle.
Natural — The market continues to grow and offer premiums, but it takes knowing your production costs and doing an effective analysis before getting involved.
Non-hormone treated cattle (for the European market) — Fed cattle that qualify for this market are bringing $8-$10/cwt. over market, but it's the most costly value-added characteristic to provide.