My View From The Country

The Low Cost Vs. High Quality Debate

The cost side of the equation will always be important, but the top side or value part will determine profitability more and more going forward.

The debate over low cost vs. high quality and high output is one university experts, allied industry and seedstock producers have been waging for as long as I can remember. And while those same folks continue to argue their side, I think the average producer is probably tired of the conversation.

They’re tired because they understand that both sides of the question have valid and erroneous points. The average producer is more interested in finding the “right” balance between the two viewpoints. The frustration comes from the difficulty of finding that balance for their operation, and that there are so few good tools out there to help them do that. 

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It’s not an either-or proposition. In fact, one must do both effectively. Fail to be a low-cost producer and you’re out of business; focus solely on being a low-cost producer and not only are you doomed to low margins, but you have to hope you can keep selling on the average in an imperfect commodity system. So, ultimately, we have to be a low-cost producer of a product that consistently makes/exceeds customer expectations for a specific market or niche.

Marketing has made it popular to believe that the two – low cost and high quality – are not compatible, or even antagonistic. But that’s simply not the case with today’s tools. Of course, if you’re going to maximize either efficiency or quality for any one segment, it will likely decrease it for the other. Nothing is more short-sighted or has less staying power than a segment mentality; cattle must work for everyone throughout the system. By definition, that means finding optimum levels at the various segments to create maximum system profitability.

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What we do know is that those optimum combinations are always changing. Who would have believed that so many rations would have removed both traditional hay and corn from their lists? Market specifications are narrowing and there are multiple targets, plus everyone’s resources and management options are different. In the end, the extreme views may be right, we just have to figure out how to combine them in the same package.

The bottom line is that the cost side of the equation will always be important, but the top side or value part will determine profitability more and more.

Discuss this Blog Entry 5

Jim McGrann (not verified)
on Oct 15, 2012

Troy,
You cannot show any producer level data that supports your position. My experience working with SPA over many years
does not support cost is related to quality.
Jim

on Oct 18, 2012

Troy, I have to agree with Dr, McGrann. I have never seen any evidence that quality of beef is related to cost of production.

Working primarily with low-cost producers, I find they are producing some of the highest quality animals. Unless we have a markedly different definition of quality, I'm not sure where you were coming from with this article.

Jim Gerrish

Shawn Walter (not verified)
on Oct 18, 2012

I don’t think that Troy was dismissing the importance of being a low cost producer. There were two key points that stood out to me. First you have to be a low cost producer of a product that meets customer expectations and to succeed at that you must know who your customer is which leads to the next key point. Nothing is more short-sighted or has less staying power than a segment mentality.

You can be a low cost producer by not vaccinating calves, using the cheapest bull that you can buy, and shorting your cow’s nutritional needs and you will produce an inferior product and suffer low margins. Or you can be a low cost producer by evaluating feeding options, finding creative ways to save money without cutting quality, and lowering your unit cost of production by increasing production.

While we all have to keep beef quality in mind, the customer for most producers is the next owner of their calf, and a weaned healthy calf with the right genetics is a quality product. Our feedlot data has shown a significant increase in health problems for cattle with over 75 days on feed, and I have to wonder how much of that was related to 2011 drought conditions when those calves were on cows with inadequate nutritional resources.

The bottom line is that being a low-cost producer is important, but by cutting in the wrong ways, you sacrifice profitability.

Jim McGrann (not verified)
on Oct 18, 2012

Very few cow-calf or seed stock producers calculate their total unit cost (TUC). Those that do know health and breeding costs are a very insignificant in TUC. Health is an executing a health program issue.

Jim Sturrock (not verified)
on Oct 18, 2012

To Jim I say it costs the same to produce USDA"s Lg./Med #1's as it is to produce Lg/Med 1&2's or Med. 2's and the receipts reflect the revenue short comings creating a High Cost Producer.

Another influence is location and the market value adjusted for freight. A friend in the north west receives 10 to 15 less than I by my living in a Par receipt location which pushes his operation into a Higher Costs ratio.

Shawn, you are right on target! And how can you be a low cost-er when in the middle of a drought?Then the goal is survival so as to fight another day under better times. Yes we are walking wounded bleeding RED INK all over the white carpet in the front room.

Happy days, Jim

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What's My View From The Country?

As a fulltime rancher, opinion contributor Troy Marshall brings a unique perspective on how consumer and political trends affect livestock production.

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Troy Marshall

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock...

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