Marketing turbulence, including waves kicked up by the accelerated number of fed cattle trading away from cash markets, is already shifting the relative value of some feeder calves and cattle. But Gary Teague points out trying to harness the flow is currently like waiting for water at the end of a pipe that is still under construction.
Teague and his wife Laura own and manage Teague Diversified, Inc. at Fort Morgan, CO, which includes a custom cattle feeding facility with capacity for 42,000 head.
Traditionally, Teague explains he and other cattle feeders price the cattle coming into the feedlot by predicting an "out" value, then working backward, subtracting things like estimated cost of gain and morbidity until they arrive at a breakeven base price to pay for the cattle coming in. So, intrinsically, cattle predicted to be worth more selling into a value-added market can earn a higher base price on the front end. But, Teague explains this system sometimes rewards cattle more than they deserve.
"Realistically, the carcass premiums we are being offered today range from $3 to $20 for an average of about $12," says Teague. "What I see is that some people have jumped the fence and are focusing completely on that $12 and forgetting other efficiencies that exist up and down the chain. You can't buy a calf that nets you $20 more on the carcass end but loses you $50 in the feedlot."
Guesswork Boosts Risk In other words, the promise of carcass premiums have led some buyers to subsidize their hopes, even though they haven't traditionally known how specific sets of cattle should perform past the pasture. That's why a growing number of feedlots like Teague's are learning more about the cattle they buy, amassing huge data sets of specific customer cattle performance along the way.
"We are already changing the way we value cattle because we are customer-driven. To produce the true value the customer wants, we know we have to be focused on the end product," explains Ben Brophy, manager of value-added alliances for Caprock Industries, which boasts a one-time capacity of 285,000 head - all company-owned cattle.
In fact, Caprock is so committed to finding and feeding only cattle that work for them and their value-added customers, they rolled out a new Sharing Total Added Value (STAV) program this year. It rewards cow/calf producers for beating certain feeding and carcass targets, even though Caprock buys all of the cattle it feeds outright. Plus, they've begun working with seedstock suppliers to identify genetics for their feeder cattle suppliers that possess the value attributes demanded by its customers.
Paul Colman is vice president of customer service for Cactus Feeders, the largest cattle feeding organization in the world with a one-time capacity of 480,000 head. He says, "Obviously, as more packers become involved in value-added and branded programs, then you have packers beginning to assume a lot of the challenges retailers assumed in the past. In our opinion, those guys will be more desirous of forming alliances with those who can help them address those issues."
With that in mind, Cactus, which markets about 95% of its cattle on value grids, began a new Internet-based procurement system last summer. It's aimed at locating more cattle that fit the value specifications of its packing customers while also defraying some of the transaction costs of procurement.
Knowledge Is Marketing Power Where cattle feeders used to capitalize on knowing more about how cattle performed than the people who sold them, Colman says feeders are eager to share information today in the name of identifying more cattle that will fit their customers' needs.
In fact, Teague helps producers assess actual rather than average value of their cattle in making a marketing decision.
"If they'll call, we'll help them determine how to price their cattle because I think it's better for all of us if we understand what cattle are worth. It's real simple for producers to do a breakeven," Teague says. "Really, I think that puts cow/calf producers in the driver's seat. Figure the breakeven; if you can sell the calves for more than that, take it - if you can't, feed them."
Regardless of how calf value and pricing mechanisms evolve, Brophy emphasizes that the challenge goes beyond knowing what you're producing.
"You've got to take it beyond that. We're learning everything we can about our customers and their needs. Are you also asking all of the questions necessary to know about your customers and what drives their businesses?" he asks.
This is progress? In regard to Jim Peterson's September commentary (page 50) "Don't buy into the import hype," consider these facts:
- The meat and grain cartels are posting obscenely increasing profits as thousands of beef producers go broke.
- If $22.5 billion in federal money hadn't allowed farmers to continue producing and selling corn and beans at depression era prices, there'd be no feedlot industry left.
- There will never be a level playing or trading field as long as global currency fluctuations ranging from 5-95% between countries are easily exploited by multi-national corporations.
- The return-to-assets ratio in ranching is 11/42-1% on average.
- 88% of farm family income comes from off the farm.
- Wealthy outsiders are buying ranch land at an unprecedented rate.
- Ranchers/farmers share of the food dollar is shrinking.
This is progress?