Today's cattle business is like a teeter-totter. On one end is an industry trying to settle into a system where dollars are passed along the production chain based on end-product quality and value. One the other end is a system of commodity marketing where quality and value take a backseat to low-cost production.
In the middle are a lot of ranchers trying to find a comfortable spot where they can balance reasonable input costs with a fair return.
When it comes to figuring out a fair return for a feeder calf, John Rose comes from all angles. Operating in Three Forks, MT, Rose manages the Park County Rancher's Marketing Association. He's also an order buyer. And, as a rancher, he has his own feeder calves to worry about pricing.
Five years ago, Rose thought the cattle industry would be tipping in favor of a value-based marketing system by now. He's still looking for that day.
“Everybody today is thinking about how to capture the value of their cattle. We're not there yet, but we've certainly intensified the thought process about what adds value and what cattle should be worth,” says Rose. “It used to be that we would just eyeball cattle and come up with a price. Now, we're needing more information about what they are and what they will do — then you can decide which way to go.”
He warns, however, that a producer first must make sure any performance information is collected over a long enough period of time and the data is accurate.
“You have to be darned careful when matching performance to a genetic program. If you have one year's feedyard data or carcass information, I'm willing to look at it. But, I'm not sure that with one year's data I can get more money for your calves.”
Conversely, if there is consistent information, for two or three years from a reputable feeder or packer where a producer can show that the cattle perform and hang well, Rose says he's in a position where he can get more money for the cattle.
The problem is they still have to be the right animals at the right place at the right time — and it all has to match the psychology of the market.
“Calves worth $1 today might not be worth $1 in a day or two or three — they might be worth more, they might be worth less.”
When pricing calves, Rose tries to figure a breakeven price on cattle coming out of the feedlot. Then, he works back from that point. First, he looks at the futures markets — managing risk on both the cattle and the corn they'll be fed.
“Then, I look at numbers like on-feed reports, marketings, time-of-year numbers projections — and come up with what I think the cattle will bring when fed,” he says.
Rose admits it's a difficult time to try and merchandise cattle. There are so many programs being promoted today, and some are like a mirage — always moving and changing.
“Just about the time a rancher thinks he's where he wants to be, the thing moves in a different direction or the rules change,” says Rose. “It's not going to be that way forever — there will be a shake-out.”
Some producers, he admits, will continue to be “low-cost,” commodity-calf producers who will put cattle up for sale.
“But, the next guy is going to be a higher-cost producer and his calves are going to be more friendly to some kind of alliance or retained-ownership program,” Rose adds.
For now, Rose thinks even commodity cattle are going to sell well due to strong demand and the current stage in the cattle cycle. His concern is what will happen when herd buildup begins or beef demand falters.
“Then, we're going to really start taking a hard look at the cattle that have information behind them,” he says. “The bottom line is that the more information you have, the more able you'll be to move with the markets and find that balance between commodity production and value-based marketing.”