Deiter Brothers offers customers gate-to-plate, value-added opportunity by aligning complementary alliances.
We're in the food business, we're not in the cattle business,” says Roger Deiter of Deiter Brothers, Faulkton, SD. He's describing the crux of why he, brother Doug and their families have moved beyond supplying customers genetics to helping them participate in the burgeoning branded beef market.
Though food is the root of the beef business, Deiter laments that too many producers don't know how their cattle perform or what happens to them after they leave the sale barn. “They haven't needed to know or had a reason to know,” he says.
Consequently, Deiter believes, producers have traditionally been more worried about not having the wrong genetics, rather than having the right ones.
“Some producers make this year's buying decisions based on how to fix last year's problems, rather than focusing on a system,” he says.
But in the fast-paced evolution of a beef industry caught up in massive retail consolidation and a move toward case-ready branded beef products, the luxury of surviving with this vision-limited approach appears to be evaporating.
The Deiter brothers describe their operation as a full-service seedstock supplier. While this may seem to be an odd fulcrum for a fully integrated, coordinated beef production and marketing system, that's exactly what they've become — by design.
At their bred heifer sale in December, Deiter told his buyers, “We now have the ability and would like the opportunity to buy all of your calves starting with the 2001 calf crop.” Keep in mind this is an outfit marketing around 500 bulls and more than 1,200 bred heifers every year.
The opportunity the Deiters had been waiting for comes with the launch of Future Beef Operations (FBO). FBO, which is scheduled to begin harvesting cattle this fall, is a coordinated beef production and marketing system that is building its own state-of-the-art packing plant.
Deiter Brothers has been involved in the concept since its inception several years ago and is one of FBO's first preferred suppliers. Incidentally, FBO is already formally aligned with Safeway, one of the nation's largest food retailers.
“We have set a goal of delivering 20,000 head of cattle into the FBO system during its first year of operation,” says Deiter.
The Deiters' ability to supply such numbers to FBO stems from the supply-side alliances they began crafting a few years back. These alliances allow both them and their customers to leverage the value of Deiter genetics.
“I think it will become more difficult for the 50- to 100-head bull suppliers to stay in business, particularly when some breeders start doing the things we're talking about,” explains Deiter. “Our philosophy is that the two big components to survival in the seedstock business will be volume and service. And as we looked at the most economic and efficient way to build volume, we felt like cooperator herds were the best way to do it.”
So in 1994, Deiter Brothers began assembling cooperator herds, mostly folks that had already been using their genetics, which allowed them to grow from about 1,000 cows to 2,500 today. Besides growing more volume to serve customers, the cooperative expansion also allowed them to start selling loads of bred heifers in 1997.
In fact, these bred heifers are synchronized and AI-bred with the aid of electronic heat detection. The females are bred to calve in narrow time windows, and the fetuses are sexed so that buyers can choose bull calves or heifer calves. Interestingly, the buyers are about evenly split over the sex they prefer to purchase.
“Initially, we saw quite a little resistance to people buying replacements. We still hear people say they don't think they can buy replacements as good as they can raise, or that buying them means they only get a chance at the second cut,” says Deiter. “But I think all the economics of buying versus raising is starting to sink in. People are beginning to realize what it really costs to raise a heifer and that they can run more cows if they're not raising heifers.”
Between cooperators, bull buyers and heifer customers, the Deiters have grown a sizable pool of calves that represent the hybrid genetics they have been propagating and testing for better than two decades. In other words, along with volume, they bring genetic consistency to the FBO equation.
However, while a quick gander at Deiter cattle reveals mind-blowing uniformity, Deiter points out, “From our seedstock perspective, we're not trying to make all of the cattle the same because we have so much diversity to serve out there. Where the consistency comes in is delivering a consistent product to our retail partner.” And that takes more than genetics.
Melding Genetics And Management
Although the FBO game plan includes genetic guidelines, it also prescribes an array of animal health and management protocol that suppliers must follow. Deiter adds that program requirements revolve around product quality, consistency and safety.
“We believe retail consistency is a culmination of genetics and management — half and half,” says Deiter. “One without the other and you still don't hit the target you're shooting for.”
Exact FBO carcass specifications are confidential, but swinging a wide loop, the FBO carcass window looks like this: heavy muscled, mid-range carcass weight and high Select quality grade.
For their bull and female customers who are committed to a program and are willing to follow FBO's guidelines and commit to a genetic plan, Deiter Brothers offers this:
“We'll buy those calves back and funnel them into a system by which they will be electronically identified, using a specific management system,” Deiter says. “Individual animal data will be analyzed and taken back to the producer with recommendations relative to his goals and resources in order to enhance the cattle's performance the next time.”
Along with improving cattle performance and efficiency within the total system, Deiter says gathering individual animal data enables the system to identify and weed out the bottom percentage of cattle that typically represent the lion's share of inefficiency and lost economic opportunity.
“The typical group data gives you a general idea of where you fall but doesn't do anything to allow you to make individual cow decisions to increase herd efficiency,” he says.
As far as specific economics, Deiter explains, “Basically, we'll be at the top of the market buying the calves, but we're also assuring them they will get the data back and will net them more dollars.”
In other words, profitability is more than revenue, it's cost, too. FBO offers several levels of producer participation structured so that the most significant rewards go to the producers making the most substantial commitment to the program's genetic and management guidelines.
Growing The Partner Principle
“I think this alliance format has been at the root of this idea that you had better get hooked to a system to market your cattle if you don't want to get left behind in the commodity market,” says Deiter.
Actually, it was the beef industry's first formal demonstration of alliance potential — the National Cattlemen's Beef Association Strategic Alliance study in 1993 — that put the Deiters on the path of assembling the components necessary for their customers to play the vertically integrated game while maintaining their independence.
Besides unveiling the truth that producers, feeders, packers and retailers all working together could serve customers more effectively and earn more money by working together, that study was also a personal epiphany for the Deiter crew. Some of their cattle were part of the project and proved ideal for such a coordinated system.
For perspective, the Deiter cattle busted the average net profit ($119.03/head) of the British X Continental cattle in the test at $148.70; and they blew away the $76.84 average net profit of the British X British cattle included in the test.
“I think everybody is heading this way, but it's a huge step. There's so little margin, and there's not much room for error anymore,” says Deiter.
Rather than a move toward an alliance, he explains, it's more of an evolution toward coordinated systems that include various alliances. It's a step the Deiters felt they had to take in order to survive over the long haul. Remember, this operation views itself first and foremost as a full-service seedstock provider.
“Let's assume that our cattle are of at least equal quality to someone else's,” says Deiter. “Why would anyone go and buy a bull from someone else and be left behind in the commodity market, rather than reap the benefits of a system like this one?”