Alliances and incentive-based targets are breaking more producers and cattle free of the averages.
Finally. After more than two decades, value-added, coordinated production and marketing systems - or more simply, alliances - are sneaking up on the industry.
"Particularly in the last 12 months, we're seeing the culmination of years of hard work, and it's happening quickly. If you're a producer and your cattle don't meet certain specifications, you may be very limited in your marketing options in the future," says Jenny Bloomquist.
Bloomquist is special services coordinator for the Montana Stock Growers Association (MSGA). The MSGA launched the Montana Beef Network 18 months ago to help producers add value to their calves through certified preconditioning, then track them through the system.
Ken Conway, president of Angus GeneNet, concurs. "I don't think there is any question that we will have value-added cattle tied to branded beef programs and commodity cattle...I don't think anyone would argue with the fact that we're moving toward value-added markets, with all of the packers currently offering their own grids. We're seeing some cattle today that packers won't even price."
Angus GeneNet helps producers market their calves to feedlots that will return carcass data to them, while helping cattle feeders earn more money for cattle that hit the targets of the company's pricing grid.
Certainly, the numbers indicate relatively sudden and substantial value-added growth. Just the systems listed in this "Alliance Yellow Pages" account for upwards of 3.5 million head of cattle. That's about 14.8% of the 23.5 million fed cattle harvested in 1999. Moreover, according to USDA, the number of cattle trading away from the cash market jumped from 25% in 1997 to about 35% last year.
For one thing, producers are finding extra incentive to build cattle that fit specific value-added systems. As an example, last year U.S. Premium Beef (USPB), a closed cooperative, paid its members an average $15 premium/head more than the live Choice market on 600,000 head of cattle; the top 50% are commanding premiums of $30-$40. That's on top of $12 million in company earnings divvied up among members, along with a 60% increase in the value of member shares.
By way of comparison, cattle in Angus GeneNet have averaged $17/head premium on 75,000 head; $38 for the top 50%.
Besides the up-front financial incentives, the cornerstone of most current industry alliances is helping producers discover how their cattle perform beyond the ranch gate.
Steve Hunt, USPB's chief executive officer explains, "Knowledge is power, and our producers, now that they're tied directly into a larger part of the industry, can make better decisions."
Indeed, diving into pricing systems that reward cattle for their carcass merit can be a fateful leap for producers who don't have some inkling of how their cattle fit the industry.
"We encourage our producers to take this step first, finding out how their cattle perform, then choosing a system to align more tightly with," says Bloomquist.
Really, coordinated systems and alliances today revolve around the age-old notion that there's power in numbers. Multiple producers aiming at the same target, along with partnerships forged between segments, can do what producers can't do by themselves.
"I think people are realizing they need to be part of a bigger system and that we can all make more money working together," says Conway. "I think this is evolving the way a lot of us thought it would. The thing that is exciting to me is that we have been able to get better pricing formulas and return more money to the producer."
But, it's a dynamic process. In addition to the rising bar of carcass acceptability as more cattle hit predefined targets, these systems are reaching further back into the system for more precision.
"I think it's (value-added) growing, and it's going toward more source verification, knowing the genetics and the health program," says Gerry Smith. He's special services coordinator for Friona Industries and its Hi Pro Producer's Edge Program, which currently aims to help producers earn more dollars for reduced health risk in their calves.
For instance, USPB's Hunt explains, "As time goes on, we have been moving toward focusing not only on management but also on the source and the genetics that will hit our targets."
Of course, building the relationships that make value-added opportunities possible takes lots of time, explains Don Knore, vice president of cattle procurement for Laura's Lean Beef, a value-added program that pays premiums for cattle that hit its targets, along with an added bonus to cow/calf producers.
"I think this will continue to grow, and I think the consumer will dictate how many niche markets evolve...There is more competition entering the playing field and that makes you sharper," Knore says.
Increasing competition for specification cattle will likely sharpen the razor's edge of market access, too.
"As the industry as a whole continues to consolidate, and as producers align themselves and try to reach through to the consumer, you will see a larger percentage of capacity tied up by specific plants and processors," says Hunt. "In addition, companies are owning and controlling more cattle and the ability of the independent producer to find market access will lessen."