Considerations for Improving Profitability in the Beef Cattle Business: Optimizing Premiums and Minimizing Discounts

by Gordon Jones, WKU Animal Science Professor (Retired)

There are tremendous differences in value between the “best” and “worst” feeder cattle marketed in KY. Do the prices received for feeder cattle in KY reflect these differences? The prices at most sale barns or even on internet auctions do not account for the real differences in value that exist for feeder cattle. For a group of 156 KY cattle finished recently at Tri County Feeders in Iowa, there was greater than a $200/head difference in profitability between the top 1/3 and bottom 1/3 of the cattle. Trends in the US and export markets indicate these price differences will become even greater over time.

How much do stockering operations and feedlots know about the calves they purchase? Data provide transparency to the potential buyers. Modern data management systems allow buyers of calves to record information of economic importance. Data concerning morbidity and mortality rates as well as costs related to treatment are maintained by stocker and feedlot operations. In addition, growth rate and feed conversion data is calculated and recorded for each lot of calves. In recent years, more cattle are sold on a carcass grid system allowing both quality grade and yield grade information to be recorded. This recorded information provides prospective buyers the information needed to identify their preferred sources of cattle. This data also provides the basis to determine if premiums are to be paid. In the future, the price of cattle may be largely determined by their genetic information, and over time, feeders and packers will demand increasingly more data.

Short Term Management Practices

Routine management practices such as castrating, dehorning, weaning, vaccinating, and backgrounding or preconditioning all have economic value to prospective buyers. Admittedly, marketing methods are associated with the degree to which these management practices influence the price of feeder calves. Furthermore, it is difficult to get optimal return from any of these management practices unless calves can be grouped and sold in truckload lots.

CPH 45® is a KY marketing program that is designed to allow both small and larger producers to take advantage of these management practices. In CPH 45® sales, calves are graded and comingled. This practice provides larger groups of calves of similar type that have been managed and vaccinated according to the specifications of the program. There are also progressive livestock markets that offer special sales for calves with documented management and vaccination programs. In most of these special sales, calves are comingled in order to increase lot size to attract more potential buyers. There are also video auctions conducted by KY markets and national firms that provide the opportunity for monetary compensation for recommended management and vaccination practices. In order to utilize the video marketing venue, it is generally necessary to market in truckload lots.

Long Term Management Decisions and Practices

The first step involved in moving a cattle operation to a value based production and marketing system is to establish a defined calving season. It is challenging to conduct industry recommended management practices without a defined calving season. Of course, the shorter the calving season the better from a management standpoint. A practical goal for most KY farms would be a breeding season of 45 to 60 days. If converting from calving throughout the year to a defined season, too many open cows may become a problem. After transitioning to a defined calving season, most producers soon embrace the interactions of genetics, management and nutrition that are necessary to maintain a short calving season. The success of a short calving season is dependent on pregnancy checking and culling of open cows.

Cow identification is another critical step toward value based production. Identification of cows does NOT necessarily mean that calves must be tagged at birth. Tagging at birth is an excellent practice for those who have the time and labor to get this accomplished, but tagging the calves at vaccination can provide the opportunity to match calves with cows. The main reason for identifying calves is to determine which cows may need to be culled from the herd.

There is simply no way to refute the fact that selling in truckload lots is the first step toward obtaining market premiums and avoiding discounts. This does NOT mean that each producer must have enough calves on his own to fill the truck. In KY where there are many smaller producers, cooperation and coordination are essential in forming marketing groups. The Barren Beef Group, presently with 11 members, has been in operation for about 20 years. These producers coordinate genetics and management practices allowing several uniform loads of comingled calves to be marketed each year. There is no set manner in which these comingled groups are marketed; however, each group must decide on the marketing venue. Another value of forming groups of this nature may be in group purchasing and the education obtained by learning from other members of the group.

The next step toward garnering premiums is finding the right system to use for documenting the “true” superiority of calves that makes them worth more money. The genetic evaluation systems of major breed associations have advanced to the point that it is possible to predict the performance of progeny of sires based on their EPDs. Feedlot operators are interested in cattle that grow fast and efficiently and produce high quality grading carcasses with limited waste fat. EPDs for growth, marbling, ribeye area and feed intake provide the information needed by feedlots to predict the profitability of calves. Several systems are already being used by producers to document the value of feeder calves. An excellent article written by Dr. Bob Hough and published in this issue of Cow County News describes those systems and the manner in which they may be utilized in the future.

Summary

All indications are that prospective feeder cattle buyers are becoming more discriminating and most likely rewards for superior management will become greater in the future. Also, the discounts for substandard calves will increase during the next few years. The recommended protocols of castrating, vaccinating, dehorning, weaning, and preconditioning will be essential to avoid discounts at the market place. Proven marketing methods that result in rewards for superior management are selling in organized graded sales or cooperating with other producers in putting together truckload lots. In the future, buyers will demand more and more information to aid them in predicting the performance and carcass characteristics of feeder cattle. Therefore, using superior genetics that can be documented will likely become necessary to optimize premiums and avoid discounts in the future.